Iress freefalls following profit warning: Board urges shareholders to award new CEO up to $8.1m in performance rights

By Market Index
Thu 29 Sep 22, 4:08pm (AEST)
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Source: Unsplash

Key Points

  • Iress was down around -16% at the close
  • Management guided to net profit after tax (NPAT) guidance for FY22 from a range of $63m to $72m to between $54m and $58m, which at the midpoint is around -8% lower
  • New CEO Marcus Price takes over tomorrow

After shedding -9% on the news of the CEO’s departure late July, Iress (ASX: IRE) was in freefall again today, with shares down -16.83% in afternoon trading following a surprise earnings downgrade by the financial software and data firm.

A day before the exit of long-standing CEO Andrew Walsh, and the appointment of new CEO Marcus Price, the S&P/ASX300 company, which is no stranger to missing guidance, took a razor to its full year guidance.

The company is now expecting full year segment profit (on a constant currency basis) of between $166m to $170m, which at the mid-point is around -7% lower than previously expected.

Management also guided to net profit after tax (NPAT) guidance for FY22 from a range of $63m to $72m to between $54m and $58m, which at the midpoint is around -8% lower.

Macro conditions

Management attributes the downgrade to “macro conditions” that compounded “timing delays to the conversation of new sales opportunities”.

The company also cited higher than anticipated supplier (mostly technology-related) costs, which were exacerbated by foreign exchange rates and US dollar pricing.

Despite volatile external macro conditions, Walsh tried to reassure investors that the company was making good progress in executing its long-term strategies to build a more profitable and efficient Iress.

While the company also boasted the adoption of $58bn super fund Commonwealth Super as a customer to its software service, analysts were quick to question its material significance.

What happened at the half year?

Boosted by the benefits of the continuing program to buy back shares, underlying net profit (NPAT) at the first half was up 29% at $31.8m, while underlying EPS rose by 32%.

To date the company has acquired around $70m worth of shares with a further $30m to be completed as part of an extended buyback program.

The board declared an interim dividend of 16 cents per share, franked to 25%.

Less than six weeks ago the company was guiding to a 7% - 10% increase in segment profit on the previous period.

Not Pygmalion likely

Given the company’s recent performance, and the alacrity with which the company fortunes appear to have soured, shareholders are unlikely to vote later today for a hefty grant of performance rights and options to new CEO Marcus Price.

The board wants Price, the former CEO of PEXA, to be granted 741,820 performance rights with a face value of $8.1m, options to the value of $1.4m – following his agreement to a 30% cut to his fixed remuneration – and 13,865 equity rights worth $175,743, equal to his fixed base salary of $175,743.

In the unlikely event shareholders give the vote thumbs-up, Price stands to receive an annual payout worth $9.8m.

Chairman Roger Sharp reminded shareholders that the transition from Walsh to Price has been structured to minimise any impact to the company's FY22 profitability.

What brokers think

Iress is down around -24% over 12 months but the share price has been on a sharp down descent since trading as high as $12.24 mid-September.

Also worth noting, when potential suitor Swedish fund EQT expressed interest in the company back in September 2021, the company had been trading as high as $15.00.

Consensus on Iress is Hold.

Based on Morningstar’s fair value of $11.06 the stock appears to be undervalued.

Prior to today’s earnings downgrade, based on the three brokers covering Iress (as reported on by FN Arena) the stock was trading with 43.4% upside to the target price of $12.55.

Watch out for downgrades later this week.

Iress share price snapshot.


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Market Index

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