Iress: Interim result 2018

After years of pedestrian growth, Iress kicked into gear in the first half of 2018 with an 8% surge in revenue and profit.

The high margin ANZ wealth management division was responsible for most of it, with revenue increasing 9% to $67m and operating earnings rising 8% to $49.5m.

The much smaller lending division also performed well with revenue increasing 32% to $8.4m and operating earnings rising 39% to $6.8m, as a number of one-off projects were delivered.

Elsewhere, the ANZ financial markets divisions, Iress's strongest competitively but also its most mature, washed its face with revenue down 1% and profit down 3% to $40.8m.

Management reiterated segment profit guidance of 3–7% on a constant currency basis for the full year, but the statutory result could be slightly higher if currency levels hold in the second half.

Iress has a lot going for it, with business-critical products that customers find awfully difficult to replace, as well as lots of recurring revenue that converts to high levels of cash flow.

The trouble is that, after today's price surge of 11%, Iress's free cash flow yield has whittled into the low single digits. If you expect long-term growth to be pedestrian, as we do, it becomes increasingly hard to generate an acceptable return that compensates for the risks. Management's track record with acquisitions, which have become the main pillar for growth, is also patchy.

We've left our price guide unchanged, but our trigger finger is getting increasingly itchy as the price approaches our $14 sell price. HOLD.