Innovative Integrations And Advanced Tech Propel Robust Growth Trajectory

Key Takeaways

• Successful integration of services and platforms is expected to support revenue growth and margins while expanding client services and market reach.
  
• Strategic technology initiatives and process optimizations aim to reduce costs and improve efficiency, boosting margins and earnings growth.
  
• SS&C's growth strategy dependent on acquisitions and high debt could encounter challenges with exchange rate fluctuations, integration issues, and rising interest rates.

Catalysts

Provides software products and software-enabled services to financial services and healthcare industries.

• The successful integration and cross-selling of Battea-Class Action Services with SS&C's Fund Administration business is expected to support revenue growth, as SS&C can tap into Battea's $95 million in annual revenue growing at high single digits with a 45%-plus EBITDA margin.
  
• The reorganization and integration of the Aloha solution into the new Genesis platform within the Wealth and Investment Technologies business is anticipated to accelerate SS&C’s ability to deliver advanced cloud-native technology, which could drive revenue and improve margins by servicing a wider client base more efficiently.
  
• The rollout of new functionality within the Black Diamond Wealth Platform, which allows for advanced personalization in client reporting, is expected to increase platform adoption and revenue growth, particularly in the high-margin alternative asset reporting sector for RIAs and family offices.
  
• SS&C Health's initiatives, such as the integration of DomaniRx and facilitation of automation and lift-outs, are likely to help reduce operating costs for health insurers, thereby supporting revenue growth from healthcare clients facing higher utilization and rising costs.
  
• SS&C's continued deployment of Blue Prism digital workers highlights a strategy to optimize internal processes and reduce costs, likely leading to improved net margins and supporting overall earnings growth.

SS&C Technologies Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming SS&C Technologies Holdings's revenue will grow by 5.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from 12.3% today to 16.2% in 3 years time.
• Analysts expect earnings to reach $1.1 billion (and earnings per share of $4.38) by about November 2027, up from $706.7 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 23.6x on those 2027 earnings, down from 26.2x today. This future PE is lower than the current PE for the US Professional Services industry at 26.9x.
• Analysts expect the number of shares outstanding to grow by 0.29% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.97%, as per the Simply Wall St company report.

SS&C Technologies Holdings Future Earnings Per Share Growth

Risks

• SS&C's reliance on acquisitions for revenue growth, as seen with Battea-Class Action Services, could introduce risks if future acquisitions do not perform as expected or do not integrate well, potentially impacting overall revenue growth and profitability.
  
• Fluctuations in foreign exchange rates, which recently had a favorable impact, could reverse and negatively impact revenues and net margins, especially given the company's global operations.
  
• The high level of debt, with net debt at $6.7 billion, poses a financial risk if interest rates rise or if cash flow generation decreases, potentially impacting net margins and the ability to fund growth initiatives.
  
• The projected slowdown in organic revenue growth for Q4, despite a strong Q3, suggests potential volatility in earnings and highlights the importance of consistent performance across quarters. This could impact investor confidence and future earnings stability.
  
• While SS&C is optimistic about automation and the use of Blue Prism digital workers, the anticipated cost savings might not fully materialize or could face implementation challenges, affecting operating margins and net income.

Valuation

• The analysts have a consensus price target of $84.57 for SS&C Technologies Holdings 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 $92.0, and the most bearish reporting a price target of just $70.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $6.8 billion, earnings will come to $1.1 billion, and it would be trading on a PE ratio of 23.6x, assuming you use a discount rate of 7.0%.
  
• Given the current share price of $74.85, the analyst's price target of $84.57 is 11.5% 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.