SimplyBiz Group Plc (LON:SBIZ) is a leading provider of compliance and business support services to over 3,400 UK directly authorised financial intermediary firms (Members). Regulation is a growth industry. SimplyBiz is perfectly positioned to support its members.
The combination of membership growth, rising average revenue per member, and increasing adoption of Distribution Channels should deliver 7% p.a. revenue growth.
* SimplyBiz provides compliance and business services to its Members. New regulation, such as MiFID II, General Data Protection Regulations, and the Senior Managers and Certification Regime, provide new opportunities to engage with member firms and provide additional services and/or software.
* The Group’s revenue stream is high quality with 92% recurring (i.e. are derived from the same underlying customers for the same services).
* Intermediary Services (c50% of revenues). SimplyBiz provides a range of compliance, business and technology services to over 3,400 firms, including Wealth Managers, Independent Financial Advisers, Mortgage & General Insurance Intermediaries, Workplace Consultants, Estate Planners and Credit Brokers.
* Distribution Channels (c50% of revenues). SimplyBiz provides 135 financial institutions with access to relevant Members, which handle annually c. £4bn of investment inflows, c. £10bn of mortgage completions and c. 9,000 general insurance policies, as well as life and protection policies.
* SimplyBiz’s investment solution, Verbatim, provides optionality. The revenue stream is linked to assets under administration, which rose 32% in 2017 to £582m. Our forecasts assume £150m p.a. rise (2017: £158m).
* EBITDA margin should rise as benefits of scale emerge. High incremental margins enable management to invest in new products, while allowing Group EBITDA margins to rise gradually.
* Reinvestment of earnings in M&A. Our forecasts include the £4m acquisition which completed in early January 2018. Management sees the opportunity to invest £4m to £5m pa in bolt-on acquisitions, subject to rigorous constraints. We expect 3x dividend cover would enable reinvestment of retained earnings in 2018 and 2019.
We expect SimplyBiz Group Plc to provide investors, with higher than market earnings growth and defensive qualities. The business carries no regulated advice risk. The combination of 7% pa revenue growth, operational benefits of scale and acquisitions should deliver high real double-digit shareholder returns. SimplyBiz is an attractive long-term holding: a growth stock with defensive attractions.
