Bravura smashed after tech group flags ‘reconfiguring’

Analysts say the tech group’s grim trading update came as a surprise, and investors have dumped the stock in droves.

Shares in wealth management software group Bravura plunge more than 50 per cent, with investors dumping the stock after the tech outfit revealed its annual performance “will be below market expectations” and that the company will need to be “reconfigured”.

Just a few months after Libby Roy took over as chief executive, Bravura said in an update late on Wednesday after market close that group revenue is expected to increase modestly in the 2023 financial year over the prior year’s $266.7m. But lower customer spends on existing and new project work post the pandemic in some markets is expected to continue.

“In addition, three legacy customer contracts are winding down during this year with the majority of revenue impact in FY24,” the company told investors.

Operating costs are expected to increase by between 16 and 20 per cent this year.

“The cumulative impact of the factors … and allowing for additional costs associated with one-off initiatives from the strategic review … Bravura is expecting its FY23 earnings to differ materially from analysts’ consensus forecasts,” the group said in its statement.

The “modest” revenue growth of between $270m and $275m, and increase in the cost base in fiscal 2023, will deliver earnings before interest taxes depreciation and amortisation of between $10m and $15m with a potential loss of $5m.

In line with the decline in anticipated earnings, cash flow is also likely to be negative during the year.

Bravura sid it has sufficient liquidity – $29m of cash and $19m of available debt facility – but will suspend further dividends until the “company has transitioned through the current reset and once again generates significant free cash flow”.

Ms Roy, a former PayPal and AMP executive and managing director of Optus Business in Australia, said her focus was on driving growth and delivering future strong financial results for shareholders.

“This transition and the streams of work under the soon-to-be completed strategic review build on our solid foundations and I believe require only modest investment,” said Ms Roy, who took over as CEO in August.

However, following the strategic review the company will need to be “reconfigured”, its board said, despite what it described as solid foundations.

“The review has indicated that while Bravura has solid foundations, the business will be required to be reconfigured to scale our products across customers. This will require enhancing the existing technology stack to unlock the existing microservices strategy, drive higher resale multiples on technology development and reduce single customer efforts,” Bravura’s board said.

“The pace of change from a traditional services model to a more scalable technology solutions provider will accelerate but requires a realignment of the organisation and resources to create greater product discipline. This will deliver efficiencies and support a greater focus on spend, project execution and key account management. Several key appointments to drive technology, project delivery and go-to-market capability are in progress.”

Chairman Neil Broekhuizen said the board are fully supportive of the outcomes of the strategic review initiated by Ms Roy.

“While our expected FY23 earnings performance is disappointing, we are confident that we have a clear pathway to Bravura emerging as a more disciplined, and sustainable business in a strong position in FY24.”

Goldman Sachs analyst said in a note that Bravura’s update “came as a surprise.”

“We had previously flagged ongoing risk to Bravura’s earnings outlook from wage inflation; higher cost investment to execute on strategic priorities; and pressure on the dividend due to softer cash flow,” the analysts wrote.

“That said, Bravura’s update came as a surprise given the extent of cost investment, both from organisational change and BAU wage pressures, and in the context of commentary at the FY22 result suggesting 1H23 EBITDA would be consistent with the 2H22 run-rate (anchoring consensus to mid-40s EBITDA).

“In our view this is likely to take several years of heightened investment (with significant execution risk) and we look to further clarity on timing for a resumption in earnings growth, particularly given commentary regarding competing forces in FY24 from expected cost efficiencies on one hand and revenue headwinds in EMEA on the other.”

Bravura shares, which have dropped 53 per cent over the past 12 months prior to Wednesday’s update, last traded at 62c, down 53 per cent, in a lower market on Thursday afternoon.

Additional reporting: Valerina Changarathil