Spectrum Launch And AI Integration Will Drive Future Success

Key Takeaways

• New product Spectrum drives revenue growth, while AI pilots aim to enhance operational efficiency and service, boosting future net margins.
  
• OneVue integration targets cost reduction, and superannuation market expansion expected to grow revenue and improve profit margins.
  
• Leadership changes, rising costs, and competitive pressures may challenge Praemium's financial stability and growth amid macroeconomic uncertainties and strategic adjustments.

Catalysts

Provides advisors and wealth management solutions by seamless digital platform experience in Australia and internationally.

• Praemium has launched a new core product, Spectrum, which has been positively received and is expected to drive future revenue growth as funds under administration for this platform continue to increase. This should bolster overall revenue.
  
• The company is conducting AI pilots to enhance operational efficiency and customer service. The potential cost savings and improved service offerings from successful AI integration could enhance net margins over time.
  
• The repricing of the Scope product is expected to provide financial tailwinds in the second half of 2025, contributing to revenue growth and potentially improving profit margins.
  
• The ongoing integration of OneVue is targeted to extract $3 million in synergies, which should enhance earnings by reducing operational costs.
  
• Praemium aims to expand its presence in the superannuation market, specifically targeting the retail superannuation offering. This expansion is expected to increase the proportion of superannuation assets on the platform, thereby boosting revenue and potentially enhancing net margins.

Praemium Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Praemium's revenue will grow by 8.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 11.1% today to 16.8% in 3 years time.
• Analysts expect earnings to reach A$20.6 million (and earnings per share of A$0.04) by about April 2028, up from A$10.6 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting A$23.4 million in earnings, and the most bearish expecting A$17.2 million.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 26.7x on those 2028 earnings, down from 30.1x today. This future PE is lower than the current PE for the AU Software industry at 61.5x.
• Analysts expect the number of shares outstanding to grow by 0.52% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.58%, as per the Simply Wall St company report.

Praemium Future Earnings Per Share Growth

Risks

• David Coulter, the CFO who played a significant role in Praemium's strategy execution, is leaving, which might disrupt financial management and strategic continuity, potentially affecting future earnings stability.
  
• Rising IT and operational costs, including investment in AI and product launches like Spectrum, could pressure net margins if not offset by sufficient revenue growth.
  
• Potential client exits and the need for repricing efforts within the OneVue acquisition may impact anticipated synergies and revenues, risking the financial benefits forecasted from the acquisition.
  
• Competitive financial and superannuation markets may challenge Praemium's ability to achieve expected revenue and growth targets, especially if alternatives attract high net worth clients.
  
• Macro and market factors, such as inflation and currency fluctuations, could strain operational costs and impact net profitability, particularly for international operations in regions like Armenia and India.

Valuation

• The analysts have a consensus price target of A$0.909 for Praemium 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$1.05, and the most bearish reporting a price target of just A$0.67.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be A$122.5 million, earnings will come to A$20.6 million, and it would be trading on a PE ratio of 26.7x, assuming you use a discount rate of 7.6%.
• Given the current share price of A$0.66, the analyst price target of A$0.91 is 26.8% higher.
• 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.