Iress to remain dominant says Morningstar

Research and ratings house Morningstar has expressed faith in the ability of Iress to remain dominant in delivering advice software.

In an analysis issued following the release of the Iress half-year results, Morningstar reduced its fair value estimate of the Iress share price from $9.70 to $9 but said that the company’s shares were undervalued.

“The market may be pricing in flat revenue, but we believe the increase in growth expenditures will lead to improved products, expanded revenue streams, and enhanced client retention,” the Morningstar analysis said.

“Iress’ market share in Australia has been resilient throughout the industry disruptions, supported by its moat. Business fundamentals are solid,” it said.

The analysis said that Iress’ assessment that industry disruptions to its core Australian businesses are largely over aligns with trends seen among major wealth management firms such as AMP and Insignia Financial.

“These organisations have sold/spun-off the advice businesses in recent periods, with detached advice businesses subsequently noting stabilizing advisor numbers. Additionally, despite these disruptions, Iress’ wealth management market share has remained steady at around two-thirds of the market, by volume,” the analysis said.

“We think this illustrates it product utility, and believe there are further opportunities to capture a larger share of customer spending.”

The Morningstar analysis pointed to the company’s increased guidance on capital expenditure noting that they are targeted at new product development and service improvements that should reinforce Iress’ competitive positioning.

“For example, the firm plans to develop new digital advice products in partnership with industry superannuation funds and is also focused on cross-selling new modules to existing clients,” it said.