Post Market Wrap | Iress not to proceed with divestment of UK Mortgages business

This Post Market Wrap is presented by KOSEC – Kodari Securities

• Iress not to proceed with divestment of UK Mortgages business
• Prospective purchasers‘ valuations fell short of price expectations
• Mortgage business to be retained
• 2022 outlook reaffirmed; Underlying Net Profit After Tax up by 25-37 percent
• Underlying 2022 Earnings Per Share 40 to 44 cents.
• Strong profit outlook to 2025 reaffirmed. 

IRESS Limited (Iress or the Company) provides core operating systems to the stockbroking, wealth management and institutional funds management industries. The Company provides software and services for trading and market data, financial advice, investment management, mortgages superannuation, life and pensions and data intelligence. It employs 2300 people, and its software and data feeds are used by 10,000 businesses and 500,000 users globally. The company operates in Australia, the United Kingdom, Europe, South Africa and Canada.

Mortgage business retained

The Mortgage business divestment process has come to an end after prospective purchasers’ valuations fell short of the Board’s price expectations. This follows a Board led strategy review in 2021 where it was determined that higher returns could be achieved under new ownership. This would enable the sale proceeds to be redeployed to enhance returns to Iress shareholders. 

During the sale process, the Board observed that global market volatility increased, and technology company valuations declined. 

Just two months ago, on 17 February, the Board stated their Mortgage business was performing well with 2 more projects completed in the year and a strong and growing new sales pipeline. The Board added that the Company is assessing the potential to divest the business and distribute proceeds to shareholders. 

Today the Board have concluded that the best outcome for shareholders, clients and people is for Iress to retain the business. The Chief Executive commented: “The Mortgages business continues to perform strongly, contributing £16.1m of revenue and £6.4m of net profit after tax in 2021. In recent months, Mortgages has increased its pipeline of opportunities as lenders demand greater scale, efficiency and automation in mortgage processing.”

2022 outlook reaffirmed

Full year 2022 earnings guidance has been reaffirmed, although the earnings estimate now includes the Mortgages business. The full year 2022 Underlying Net Profit After Tax (NPAT) is estimated to grow by 25-37 percent. This translates to an estimated Earnings Per Share guidance of 40 to 44 cents. 

Earnings estimates out to 2025 remain unchanged. Including the Mortgages business, NPAT is has been estimated to be in the range of $120 million to $135 million. The Company also disclosed that despite the Mortgage business not being divested, the $100 million share buy-back program currently underway, will be completed as planned. 

It is noteworthy that the NPAT contribution from the Mortgage business in 2025 is estimated at 13 percent of total NPAT of the Company. This is a slight decline from 17 percent of NPAT, in 2022.

Importantly, the decision not to pursue the sale of the Mortgages business has not altered the medium-term earnings outlook of Iress. The Company continues to exhibit annual earnings growth rates of more than 20 percent per annum out to 2024 and an estimated 12.5 percent in 2025. 

The Company’s 2025 Underlying NPAT target (including Mortgages) is estimated at $135 million. This compares to NPAT of $73.8 million recorded in the 2021 financial year.

This Post Market Wrap is presented by Kodari Securities, written by Michael Kodari, CEO at KOSEC.