The share price of managed accounts technology provider Praemium Ltd [ASX:PPS] has been edging up from a bottom in June having released their FY19 results on Monday:
Praemium shares ended up climbing almost 3% yesterday on the news of a 12% increase in revenue and an 80% increase in net profit after tax (NPAT).
The Praemium share price is up a further .95% today, at time of writing.
But while profit growth in any company is always promising, it’s the customer base growth that makes fintechs like Praemium attractive for potential takeover bids.
And with over 1,000 financial institutions and intermediaries using their services, including Morgan Stanley Wealth Management, Praemium looks set to continue delivering on customer growth.
The Australian Financial Review said last month that Praemium’s lower share price has made it look appealing to at least one ‘potential suitor’.
Rival platform operators Netwealth Group Ltd [ASX:NWL] and Hub24 Ltd [ASX:HUB] have market caps that are approximately eight- and three-times bigger respectively.
Could this mean Praemium is a potential steal right now?
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Praemium client base is the key
Though a significantly smaller market cap than its major rivals, a growing customer base and takeover is potentially on the cards.
Praemium has had some ‘corporate hiccups’ in recent years which has caused the stock to essentially halve within the last 12 months, currently sitting at a one-year return of negative 40%.
But in February this year, Praemium released its next-generation integrated Managed Accounts platform to the market.
CEO Michael Ohanessian says the upgrade ‘represents the 5th generation in platform technology’ and has resulted in ‘a significant increase in the size of Praemium’s addressable market’.
‘In Australia alone, our market has expanded from the $21 billion SMA platform segment (as at end 2018) to the $858 billion overall platform market’.
According to the company’s results update, there has been a 270% increase in advisers leaving major banks this year in search of new business model options post royal commission.
Praemium’s growing client base is further proof of this.
They’ve seen an increase in Funds Under Administration (FUA) by 200% in the last two years.
And their UK SIPP (self-invested personal pension) platform has had a 350% increase in members since its acquisition in 2016.
Praemium insists their Managed Accounts platform upgrade was in ‘important milestone’ for the company, expecting the sudden strong client interest both in Australia and internationally to continue.
Which is perhaps why it’s in the sights of larger companies as a worthwhile takeover option.
Big boys chasing fintechs
This is fast becoming the trend with fintech stocks, where larger companies are flocking to these pockets of innovation to keep up with the evolving tech environment.
Even the big four themselves are investing in this new wave of companies, clearly seeing fintechs as a competitive risk.
Just last week, CBA announced that they have invested US$100 million in Swedish ‘buy now, pay later’ provider Klarna, hoping to extend their business into the growing digital realm. This bumped up the European start-up’s valuation to $5.5 billion.
So Praemium may wind up being bought at a premium, you could say.
To conclude, our long-term outlook is bearish on banks and bullish on fintech.
For Money Morning
PS: Three ASX fintech stocks taking on the banks (and winning). Download your free report.