Overambitious Wealth Tech Plans Will Expose Overvaluation Risks

Key Takeaways

• Heavy investment in AI-driven products assumes flawless adoption, but execution missteps or industry shifts could pressure earnings, margins, and market share.
  
• Streamlining through divestments and cost cuts increases risk from reduced diversification and exposure to rapid fintech disruption.
  
• Strong client retention, digital innovation, and market leadership drive stable recurring revenues, scalable AI-driven growth, and increased financial flexibility in wealth and trading sectors.

Catalysts

Engages in the designing and developing software and services for the financial services industry in the Asia Pacific, the United Kingdom and Europe, Africa, and North America.

• The company is aggressively guiding for accelerating revenue growth (from 4-5% currently to 6-8% by 2028), largely relying on new product rollouts in AI-driven wealth tech and digital advice for the "unadvised" market; however, realizing these expectations depends on continued rapid digital adoption in financial services and rising demand for digital advice, and current valuation assumes flawless execution and that these secular tailwinds will translate predictably into new incremental revenues.
  
• Management is front-loading significant R&D OpEx (~$5.8m in H1 and targeted 5-7% of revenue ongoing) to fund these growth initiatives, with a stated expectation that future earnings and margin expansion will follow only in the medium-to-long term (2028–2030). Market optimism that these investments will consistently yield high returns and drive sustained margin growth may be overly optimistic, and any delays or missed targets could pressure future earnings.
  
• Iress is banking on the continued expansion in regulatory complexity and compliance in financial markets to drive demand for its platforms; however, this also raises the risk of rising compliance and technology costs, which could offset some operating leverage and pressure net margins, making the business potentially less profitable than current valuation assumes.
  
• The company is leaning into industry consolidation, cost take-out, and "streamlined" recurring revenue as key drivers, but ongoing divestments and cost-cutting also reduce its operating footprint and long-term diversification, making it more exposed to cyclical or structural shifts in core markets and leaving it potentially less defensible if secular winners in fintech shift.
  
• Expectations of seamless margin expansion and sustained top-line growth rest on Iress's ability to outrun commoditization and new entrants-especially given rapid advances in AI and digital advice platforms-and the market may be underpricing the risk that these secular changes could erode market share, limit pricing power, and compress margins faster than anticipated, ultimately impacting long-term revenue and earnings growth.

Iress Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Iress's revenue will decrease by 1.6% annually over the next 3 years.
• Analysts assume that profit margins will shrink from 14.9% today to 14.4% in 3 years time.
• Analysts expect earnings to reach A$81.7 million (and earnings per share of A$0.42) by about August 2028, down from A$88.7 million today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as A$69.1 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 28.6x on those 2028 earnings, up from 18.3x today. This future PE is lower than the current PE for the AU Software industry at 77.4x.
• Analysts expect the number of shares outstanding to grow by 2.09% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.29%, as per the Simply Wall St company report.

Iress Future Earnings Per Share Growth

Risks

• High client retention, very low churn (<2%), and strong, decade-long relationships with top clients provide a stable and predictable recurring revenue base (94%+ recurring), which reduces revenue volatility and supports future earnings resilience.
  
• Strategic investments in cloud-native, AI-driven, and data-powered solutions (including the launch of Iress Data Insights and retirement income products) position the company to benefit from long-term digital transformation and the secular trend of increasing digitalization in wealth and trading, driving potential multi-year revenue and margin expansion.
  
• Market leadership in Australian and UK wealth management, as well as a strong presence in international trading markets (U.K., Canada, South Africa), along with proven ability to win new RFPs, underpins growth opportunities and cushions against regional downturns, positively impacting long-term top-line growth.
  
• A robust cost discipline program ("stranded cost" savings of $12-16 million) and reduced leverage post-asset sales boost balance sheet flexibility and create capacity for continued growth investments, supporting sustained improvements in net margins and financial stability.
  
• Significant unadvised populations in core markets, regulatory changes enabling broader access to financial advice, and a "data moat" built on 20+ years of wealth and client information create tailwinds for scaling AI-led, next-generation advice solutions-potentially unlocking new revenue streams and growth beyond the core franchise.

Valuation

• The analysts have a consensus price target of A$9.4 for Iress based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of A$10.4, and the most bearish reporting a price target of just A$8.5.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be A$567.3 million, earnings will come to A$81.7 million, and it would be trading on a PE ratio of 28.6x, assuming you use a discount rate of 8.3%.
  
• Given the current share price of A$8.8, the analyst price target of A$9.4 is 6.4% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.