No Big Surprises in IRESS’ Full Year Result. AUD 11.80 FVE Maintained

Narrow moat rated IRESS’ full year result was in-line with our expectations and we have maintained our earnings forecasts and AUD 11.80 fair value estimate. Our fiscal 2020 segment profit forecast of AUD 163 million is at the upper end of management’s guidance of AUD 156 to 164 million.The share price fell 6% following the result to AUD 12.80, although there wasn’t a particularly obvious reason why, and we now consider the stock to be fairly valued. Our fair value implies a fiscal 2020 price to earnings ratio of 24 versus 27 at the current market price and we assume an EPS CAGR of 8% over the next decade. Our fair value also implies a dividend yield of 3.8% or 4.4% including franking credits, versus 3.4% and 3.9% respectively at the market price. IRESS’ financial result was muddied by the adoption of the AASB 16 lease accounting standard, the acquisition of QuantHouse in 2019, and ‘one-off’ costs. Although reported profit rose by 1.6% to AUD 65 million, underlying NPAT, excluding one off costs, AASB 16 effects, and the amortisation of acquired intangible assets fell by 3% to AUD 78 million. However, if the AUD 5 million loss incurred by QuantHouse is also excluded, Underlying NPAT rose by 3% to AUD 82 million. Either way, profit growth wasn’t particularly strong in 2019, although underlying constant currency revenue growth of 4% was respectable.