The Class Ltd (ASX: CL1) share price could be on the move following announcement of the company’s FY20 results. The Class share price has climbed 9.6% so far this month. Class creates software to assist customers automate and simplify complex administration in the financial services and related professional services sectors. Customers include accountants, self-manage super fund (SMSF) administrators, investment advisors, financial planners and lawyers.
FY20 highlights
Class’ operating revenue and other income was 15% higher to $44.1 million in FY20, up from $38.3 million in the prior corresponding period. The 15% increase exceeded Class’ guidance of a 14% increase. However, the FY19 result was not restated for the impact of the new accounting leasing standard AASB16.
In addition, statutory net profit was down 24% to $6.8 million in FY20 from $9 million in FY19.
Earnings per share (EPS) was 5.8 cents in FY20 down from 7.7 cents in the prior corresponding period. However, this exceeded analyst expectations of 5.5 cents per share.
A dividend of 2.5 cents was declared bringing the annual dividend to 5 cents per share. This was inline with FY19 and is payable on 18 September 2020.
Annualised recurring revenue (ARR) was up 22% to $46.8 million.
Class was also able to significantly grow its total customer numbers to 2,866 in FY20 from 1,545 in FY19.
Operating cash flow of $17.4 million was up from $12.9 million in FY19.
Class to acquire Smartcorp
Class has announced the execution of an agreement to buy 100% of shares in Smartcorp for $4.2 million. The transaction comprises an upfront cash payment of $2.73 million on completion plus $1.47 million in Class shares escrowed for 18 months. It is expected the transaction will be completed in August and earnings accretive in FY21.
Smartcorp is Australia’s first online company ordering and Australian Securities Investment Commission (ASIC) compliance system.
The acquisition will help grow Class’ footprint in the document and corporate compliance market.
Class CEO comments
Class CEO, Andrew Russell, was pleased with the acquisition commenting:
“Acquiring Smartcorp accelerates the role Class will play in the documentation and corporate compliance space.”
“…we will continue to build our capabilities and compelling value proposition to ensure we help all our customers manage their clients’ businesses more effectively through a comprehensive suit of services. This acquisition will also offer Smartcorp clients a broader range of products and services” he added.
What’s next for the Class share price?
Class’ revenue is expected to lift 20% higher in FY21 to $53 million compared to FY20. Underlying earnings before interest, taxation, depreciation and amortisation (EBITDA) margin target is expected to be 40% and above.
Additionally, Class has made good progress with its technology development and will launch Class Trust ahead of schedule in October 2020.
The Class share price is currently $1.48 as of yesterday’s market close and has increased 14.23% in the past year. The Class share price is down 27.8% in year-to-date trading.
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Motley Fool contributor Matthew Donald has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Class Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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