The Bravura Solutions (ASX: BVS) share price popped 18% today after the software and IT services business reported flat revenue of $127.5 million in H1 FY 2025 and “Underlying Net Profit after Tax” of $11.3m, up $13.0m compared to a loss in the prior corresponding period. Now you might think that Bravura’s statutory profit is a lot worse than underlying profit, but in this case you’d be wrong. The underlying figure is calculated by “excluding the impact of the Fidelity licence sale which is represented by non-recurring revenue of $56.3 million and associated income tax expense of $6.4 million.”
The underlying net profit after tax margin for the first half came in at 8.8% and the midpoint of revenue guidance for the full year was increased from $243m to $250m. If the net profit margin stayed the same, that would imply around $22m underlying profit after tax for the full year. At the current share price of $2.74, Bravura Solutions has a market capitalisation of over $1.2 billion. That means that it is on a P/E ratio of around 55, based on my conservative calculation above.
If you assume margins improve, and I think that they will, then you might model something like $25m in profit for FY 2024. On the conference call, the company did say that some parts of its business had experienced tighter IT budgets from their clients, but that demand for some products was stronger than expected. However, another driver of the revenue upgrade was simple foreign exchange movements, which accounted for around 40% of the revenue upgrade, according to management.
Over 60% of the company’s underlying earnings will be returned to shareholders via the interim dividend of 1.6 cents per share. The company has already paid a capital return of more than 16 cents per share recently and plans to play a special dividend of just under 9c to distribute the spoils of the non-recurring license sale.
The slide below outlines the capital return program that has driven huge shareholder returns. It is wild to think that the stock traded as low as 30c less than two years to go.
The free cash flow was strong in H1 FY 2025 — over $60m — though of course this does reflect the non-recurring licence sale.
Is Bravura Stock Still Good Value?
I first articulated the case for the Bravura turnaround in October 2023, when I noticed the strong share price reaction to its H2 FY 2023 results. Subsequently, I bought shares on three occasions at $1.01, $1.15 and $1.78. Then, I benefited from the 16c capital return and stupidly sold most of my shares between $2.11 and $2.18. My reasoning then was that the turnaround was priced in and I had received most of the benefit I was going to from holding.
The truth is that the stock doesn’t seem particularly cheap to me any more, hence why I sold at levels quite far below where it is today.
However, I now realise that I was very stupid to sell. You see, I think that Bravura has become a bit of a fundie favourite, and I have been noticing more and more people talking positively about it. Therefore, I was probably stupid to sell given that it seems there is a sociological happening in favour of the stock. Oftentimes, these momentum stocks climax around or just before inclusion in the indices that passive funds follow, such as the ASX 300 or ASX 200. We can see from a stock like Gentrack that significant gains are on offer when the market drinks the turnaround coolaid.
Now I am definitely not suggesting that Bravura will follow Gentrack’s success, but I guess I think this chart does best encapsulate why I was stupid to take profits the way I did. For better or worse, I do still hold on to a tiny rump of Bravura shares (approximately 0.5% of my ASX portfolio).
Even though the valuation doesn’t make sense to me right now, I figure I have been too conservative on valuation before, so I probably am still underestimating the stock today. Therefore, I currently intend to keep holding my shares for as long as I can convince myself to. I will feel humble and a bit silly if the market continues to drive the share price higher. But that might not be a bad thing, and I’ll probably learn a lesson along the way.
Disclosure: The author of this article owns shares in BVS and will not trade BVS shares for at least 2 days following the publication of this article. This article is not intended to form the basis of an investment decision and is not a recommendation. Any statements that are advice under the law are general advice only. The author has not considered your investment objectives or personal situation. Any advice is authorised by Claude Walker (AR 1297632), Authorised Representative of Ethical Investment Advisers Pty Ltd (ABN 26108175819) (AFSL 343937).