Can SimplyBiz continue to deliver while regulations disrupt the industry?
, in its maiden full year results for 2018, revealed it continues to deliver strong and stable earnings growth. The AIM listed company provides compliance and business services to independent financial advisors, and it looks like it is consolidating its increasingly dominant position in the market.
It reported revenues increasing 15% to £50.7m, and adjusted EBITDA up 19.7% to £11.4m. It attributes £3.7m of revenue from its Landmark acquisition and £2.9m towards its organic growth. Operating profits were £6.8m after accounting for the £3.6m in IPO costs.
Next period’s results will be the focus of investors as this year’s results were held back slightly by the costs of its IPO in April 2018. However, the steadily growing company may have much more potential than it would otherwise had as a private company held back with debt. It now has increased access to capital as a public company, giving it further flexibility to carry out strategically accretive acquisitions.
Ken Davy, Chairman of The SimplyBiz Group, commented: "Having successfully deleveraged the business, our balance sheet strength ensures we have a strong platform from which we can take advantage of the significant market opportunities we see."
Shares in SimplyBiz were trading at 180p and closed 4.85% higher at 189.25p following the release.
Looking at the drivers behind the firms’ steady organic growth, the company seems to be benefiting from an increasingly fragmented market, an increased propensity to outsource and a growing number of IFA’s moving to direct authorisation.
SimplyBiz is the largest provider of compliance, business and software services to intermediaries, and over the long run, the firm has shown exponential year on year growth. It reported 3726 individual firms in its membership model this year, an 8.5% increase from the previous year.
Chairman Ken Davy told investors: "The continued growth in membership numbers is testament to the value of our proposition as individuals and businesses continue to adapt to an increasingly complex and highly regulated intermediary market.”
SimplyBiz seems to be directly benefiting from the increase in regulation in the IFA market, particularly the introduction of MiFID II, the GDPR and the IDD. This increased regulation has seen additional services income increase by 7.1% to £4.5m as a result.
Following on from this, 2019 will see the requirement for all solo-FCA regulated firms to implement the Senior Manager & Certification Regime. SimplyBiz told investors it is well positioned to provide the support needed to meet the requirements of this upcoming change.
In conclusion, the company seems to carry little to no regulatory advice risk, because of the fact that its clients are FCA regulated. However, it runs a risk that by offering a larger range of services, it may suffer from over-complexity, and lose focus on its core value proposition. On the other hand, the value added services it offers clients may prove to further strengthen existing relationships and deliver additional revenues for the growing firm.
The company looks interesting, with real potential for upside. Despite being only recently listed, it is well known in the industry with a long operating history and strong client relationships. Additionally, it operates an attractive membership model which allows it to generate visible, recurring revenue as well as upsell additional services .
The company has stable organic growth prospects, coupled with a buy and build strategy that could deliver double digit growth. It also has a progressive dividend policy, with a capital light business model. Time will tell if the strong cash flows and enhanced balance sheet will allow it to continue to capitalize on potential accretive deals as it grows organically.
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