Convincing fund managers to change the way they work is not a simple task as you can imagine.
That’s the unenviable job facing Statpro (LON:SOG), which has been shifting its asset management portfolio analytics business to the cloud and persuading the industry to do the same.
The company has invested heavily in developing the product, called Statpro Revolution, which allows asset managers to report the performance of their portfolios to as many customers as they want at no extra cost.
It works like online banking; the client can log in and check on the performance of a portfolio at their own leisure.
The work Statpro has put in will take some time to filter through to the group’s financial numbers, but the early signs are encouraging as chief executive Justin Wheatley explains.
“We’re seeing increased pipeline and lots of people now understand what we’re doing,” he tells Proactive Investors.
“The fund management industry is quite conservative, but when something is going to offer them a cheaper, simpler way of doing a core activity, they like it. So we’re seeing small, medium and large businesses adopt it and a very large pipeline.
“Without question, there is definitely an impact of people sharing and getting used to it.”
The company is still turning a healthy annual profit of £3.1mln in spite of this investment, which is a fall of 18% on the previous year, but which still allowed it to lift the final dividend by 4% to 2.8p a share.
Revenues were relatively flat at £32.5mln for the same reason, but annualised recurring revenues for Statpro Revolution increased by 114% to £3.2mln, which was ahead of expectations.
The cloud-based portfolio analytics software still only accounts for 7% of the group’s total revenue, suggesting there is still plenty of work to be done.
“The breakeven point is obviously higher [with Revolution]. Once you get passed that point, the rewards are much higher. So our drive is to try and get as many clients as possible,” says Wheatley.
“Because of the technology and our business model, we’re able to address a far broader market than we were before.
“Whereas before, maybe we were restricted to the top 1,000 asset managers around the world, there are about 100,000 organisations, most of whom couldn’t afford our traditional software, but all of whom can afford Revolution.”
Key to winning over more customers – Statpro now has 257 on its books from 33 countries – is partnering with fund administrators, who act as ‘scale resellers’ of Revolution.
Statpro’s research implies there are around 100,000 target asset managers for the software.
Teaming up with fund administrators, of which there are around 300, will help it capture a part of this huge market.
RBC Capital, Credit Agricole and Standard Chartered are already among the 34 fund administrators it has signed up.
Typically, these institutions will offer a white-labelled version of Revolution to improve their client services.
“We will definitely have more fund administrators as clients, no question of that, but the real emphasis is getting them to do more,” Wheatley adds.
Broker Cenkos says that in some cases, fund administrators have over 10,000 end clients, which makes growing the number of fund manager clients to 1,250 a realistic goal (each using Revolution for 20 portfolios).
That would translate into $30mln in recurring revenues from just one partner.
While the broker sees overall revenues not shifting much over the next couple of years, Revolution will grab a greater share of turnover, to £5.7mln in 2014 and £8.7mln the year after.
The City firm urges investors to sit tight as the success of the group’s cloud strategy should become increasingly evident over the next 12 months.
This should boost profits into next year and drive a re-rating of the company’s share price, which has been relatively flat at around 86p over the past year, the broker insisted.
“We reach a sum of the parts valuation of c180p as investors begin to price in the group’s leadership in asset management data analytics,” said analyst Andy Bryant, who urges clients to buy the shares.