Australia’s superannuation system is the world’s fourth largest after the US, UK and Japan and has an inbuilt growth mechanism being the compulsory 9.5% levy of wages which will increase to 12.0% by 2025. Demand for reliable, trustworthy data on the industry is only going to grow. However, industry credibility was trashed at the Hayne Royal Commission which uncovered a raft of systemic issues. The outcome will inevitably be greater compliance requirements in terms of oversight, governance, disclosure and reporting to regulators and consumers. Against this background the need for quality, independent data will be imperative. Currently there are few providers of comprehensive data and the barriers to entry to build an exhaustive data base and distribution systems are considerable.

With the enormous advances in technology in recent years, data has become the new gold. This new found prominence is a function of the enormous amounts of behavioural data that is collected from virtually all consumer apps. However, solid, credible industry data has always been highly valued and modern technology has made it much easier for the users of that data to analyse and to package for the end customer experience. Accordingly, value today, lies not just in the data, which is still critically important, but also in the systems that enables the data to seamlessly integrated with user platforms.

Changing the company’s positioning with the recognition of the company’s core strengths and capabilities opens up the pathway to a multitude of growth opportunities.

Within the existing operating framework, there is significant potential to expand market penetration amongst wealth advisors and financial planners. This will largely be driven by gaining access to more dealer platforms, which in in progress. But within the new framework, the key opportunities lie in leveraging existing technologies to enable distribution of the raw data and integration with customer platforms. Successfully achieving this capability will also enable the company to build and integrate other data sources such as insurance, investment product and retirement product statistics. The attraction of these new market sectors is that the sources of the data are very similar, if not identical, to the superannuation data which it already collects and the consumers of this data will largely be the company’s existing client base and target market.

There is also a considerable opportunity to build a retail profile enabling consumers to directly access comparative data on the full range of investment products. This will be difficult to monetarise but it will potentially have enormous marketing benefits upstream to its core client base. The company already has ratings systems and makes awards for the best performing funds and fund managers but there is no consumer profile as there is with some other retail oriented groups. Achieving this profile would cement the company’s position as one of the leading sources of “trustworthy” data.

Most of this growth can be driven internally but acquisitions could quickly fill gaps in the data and customer bases as well as filling out the company’s technology and systems capabilities.

Over the three years since the company was formed in its current structure, financial performance has been indifferent. Operating revenue has been in the range of $6.5 million to $7.5 million and EBITDA has moved from a small loss of about $356K to a $1.0 million profit. However, these results were boosted by R&D rebates, including $1.6 million in FY 2018. Operating revenue for the six months ended 31 December 2018 increased by 12.4%. Although EBITDA halved to $0.4 million, underlying EBITDA, excluding R&D rebates moved from a los of $0.4 million to a profit of $0.2 million; a big improvement in underlying performance. This was also reflected in cash flows with the operating surplus increasing from $0.2 million a year ago to $1.3 million in the recently completed half year.

The balance sheet is typical of a services company, with few fixed assets, but is loaded up with goodwill and other intangibles of $8.0 million which is equivalent to almost the entire equity base of $8.3 million. Nonetheless, there is no debt although there are contract liabilities (largely service subscriptions ahead of delivery) of $3.3 million which coincidentally is offset by cash holdings of an almost identical amount.

I think that the repositioning of the company as a data and data analytics supplier is a very positive move as it creates optionality. It enables the capture of value at multiple points and opens up much greater market opportunities that the company would probably otherwise miss. This new model has the potential to significantly accelerate revenue growth and take revenue significantly beyond what it could otherwise achieve over the next few years. Acquisitions are probably required to provide a quantum leap in scale to be fully maximise the opportunities and to achieve a solid profit base.

Although the company has no debt and doesn’t require any new capital to fund its operations, I think the balance sheet needs some work to reduce the goodwill overhang.

As one of the very few providers of comprehensive data for the superannuation industry, the company is very well placed for the post Royal Commission world that the industry faces and with the inbuilt growth dynamic that drives the industry there are going to be many opportunities to drive growth. The challenges for the company lie in harnessing the data, technology platforms and systems to realise its vision and capture the enormous value opportunity that will develop over the next few years. This is going to be an interesting stock to watch