Meeting Notes

Chant West – Enormous Opportunities in the Post-Royal Commission Superannuation Industry

March 27, 2019

Share this post:

Chant West – Enormous Opportunities in the Post-Royal Commission Superannuation Industry

Chant West is a leading independent provider of data and research, consulting and software services to the superannuation and financial planning industries. In the wake of the Hayne Royal Commission into Financial Services, the company is in a pivotal position to service an industry desperate to restore consumer credibility. The businesses that now comprise Chant West were acquired by a shell in 2015 and 2016 however, performance over the past three years has been lacklustre. A new CEO and a strategic repositioning hold considerable promise in driving growth and building sustainable profitability. I recently had coffee with CEO, Brendan Burwood.

COMPANY DATA

Date of ReportASXPricePrice TargetAnalyst Recommendation
27/03/19CWL$0.058N/AN/A
Date of Report20/02/19ASXST1
Price$0.058Price TargetN/A
Analyst RecommendationN/A
Sector: Software & Services52-Week Range: $0.035 - $0.69
Industry: Information TechnologyMarket Cap: $7.1 million

Source: Commsec

What do you do?

Chant West provides critical performance and comparative data on the myriad of superannuation funds to wealth management and financial planning industry. This data is primarily delivered in the form of research reports and accessed through the portfolio administration platforms they typically use. The company sources data from industry and retail superannuation funds as well as the ABS and APRA and supplies structured research reports to about one-third of all wealth advisory and financial planning groups. Consulting services are also provided which mostly focus on systems integration, efficiency and compliance.

The company’s competitive advantage lies in its long-established relationships with the super funds and its comprehensive data base. The business model has been built around monetarising the analysis of that data, that is a subscription service for the research products. However, the company is now positioning itself as a data and data analytics business with a view to monetarising the data itself. This will be achieved by focusing on the collection of a wider array of data with distribution to any number of users. This is a meaningful change in the business model that greatly expands the company’s opportunity.

What is the business case?

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.

What are the growth opportunities?

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.

Financial overview

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.

What do I think?

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


Gordon Capital Disclaimer

This document is provided by Gordon Capital Pty Ltd (Gordon Capital) and InterPrac Financial Planning Pty Ltd (InterPrac). The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts.


Recommendation Rating Guide

Recommendation Rating GuideTotal Return Expectations on a 12-mth view
Speculative BuyGreater than +30%
BuyGreater than +10%
NeutralGreater than 0%
SellLess than -10%

Reach Markets Disclaimer

Reach Markets Pty Ltd (ABN 36 145 312 232) is a Corporate Authorised Representative of Reach Financial Group Pty Ltd (ABN 17 090 611 680) who holds Australian Financial Services Licence (AFSL) 333297. Please refer to our Financial Services Guide or you can request for a copy to be sent to you, by emailing [email protected].

AI & Robotics

Register to receive the PDS and get the full details.


  • Global exposure to exciting AI/Robotics companies.
  • Managed by specialised AI/Robotics Funds.
  • An investment with a capped downside.