Can Iress (ASX:IRE) stay on the road to recovery in FY25?

Iress (ASX:IRE) investors have had a difficult run, but there is optimism that better times are ahead. Last week, the company upgraded its EBITDA guidance and hinted dividends might be about to come back. But it will be a long way back to the top.

Introduction to Iress (ASX:IRE)

Iress provides software to the financial services industry, including investment management and trading tools. This includes services to analysts like ourselves, it has software competing with Bloomberg enabling live data on stocks. There is also software for superannuation, mortgages, life insurance and pensions.

For several years, beginning with the pandemic, it witnessed continuing decline in profitability due to poor performances in certain divisions, some of which it acquired in an attempt to be ‘all things to all people’. It ultimately ended up being ‘the Jack of all trades, but the Master of none’, or in the Chairman’s words ‘collecting too many businesses doing too many things in too many locations to scale effectively. You get the idea. It could have bitten the dust and accepted a takeover from EQT in late 2021, but the talks failed.

The company undertook a restructuring, but the results didn’t show a turnaround right away with a near 30% fall in its profit in CY22. In 1HY23, its profit ended up in the red to the tune of $139.8m. This led to the company suspending dividends. Luckily, Iress had seen the light and reached agreements to sell some of its assets. At the time, it promised $47m in annualised gross cost-savings. This did not prevent shares from falling by more than 35% on that fateful day in August 2023.

IRESS (ASX:IRE) share price chart, log scale (Source: TradingView)

Things are looking up – according to the company

Three months later, Iress told investors the situation was improving. It upgraded its EBITDA guidance from $118-122m to $123-128m, cut its net debt from $375m to $308m in just four months and reduced its staff costs. Ultimately, its CY23 EBITDA came in at the higher end of the range, albeit 12% down on the prior year, and it made another net loss of $137.5m on a statutory basis.

Nonetheless, the company promised investors at its following AGM in April 2024 that it had been a good start to the year with Q1 adjusted EBITDA up 43% from the year before. It told investors it would be $122-$132m for the entire year and $140-160m on an exit run-rate basis – in other words, that would be the annualised rate.

It parted with several assets to help it retire debt, selling its UK Mortgages business to Bain Capital for A$164m, it sold the Managed Fund Administration Business in August of the Previous year and its Platform business to Praemium for $1m up front and up to an additional $20m over an 18-month period.

For FY25, the company told investors to expect the ‘strongest cash result ever’ and that there was a clear path to the reinstatement of dividends.

Analysts are more nuanced

There are 10 analysts covering Iress and there’s a mean target price of $9.08 per share, up a modest 7% on average from the current share price. These estimates vary between $8.20 and $10.80 per share, with the former representing a 3% discount while the latter representing a 27% premium.

For CY24, analysts expect $626m in revenue, $127.7m EBITDA and a $46.7m profit. Revenue is expected to be up 8% with bottom line back in black, but EBITDA is flat compared to the year before.

Looking to CY25, EBITDA is expected to come in at $150.7m and profit at $61.6m, up 18% and up 32% respectively, although revenue is only expected to be 2% higher at $636.3m. These multiples put the company at 12.6x EV/EBITDA, 20.3x P/E and 1.8x PEG.

A better future lies ahead of IRESS, but is it a BUY?

Iress may not be the best growth opportunity on ASX, but there’s no doubt it is in better shape than a couple of years ago and still has more to show from the efforts management has undertaken to turnaround the business. Whether or not investors should buy the stock depends on their own circumstances and investment goals. We wouldn’t, though, given the 1.8x PEG multiple, which is pretty steep, in our view.

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