The ASX stock whose turnaround story may have more to come

Bravura (ASX: BVS), a provider of enterprise software for wealth management and funds administration, has undergone an amazing turnaround over the last 18 months. The appointment of managing director Andrew Russell in June 2023 set the scene for cost reductions at a scale not often seen in listed businesses.

Bravura was in dire shape two years ago. For the 2023 financial year, the business booked a cash earnings before interest, tax, depreciation and amortisation (cash EBITDA) loss of $28 million. After writing down the value of goodwill and other assets the business lost a staggering $281 million. And having raised $80 million in early 2023, Bravura’s entire market capitalisation was less than $150 million with the stock down more than 90% from prior highs.

At the time of the capital raising, Bravura’s half-year revenue had fallen 11% whilst costs rose 17%. New executives and investments for growth were not yielding the revenue growth prior management had hoped for. Something had to be done to bring costs more in line with revenue. 

Enter Andrew Russell. What began as cost cutting worth $25-30 million has become $67 million, with potential for even more over the coming 12 months.

Bravura's revenue and expenses

Source: Bravura

Partially implementing the cost out program resulted in a $10 million cash EBITDA result for financial year 2024. Company expectations, after yet another upgrade in early December, are for this year’s cash EBITDA to be in the range of $33-36 million. A common benchmark for enterprise software company profitability is 20% cash EBITDA margins, which would have Bravura earning about $50 million of cash EBITDA.

Other sensible steps include a $75 million capital return due in January 2025, the recommencement of dividends with the upcoming half year results and a $56 million one-off sale of software to large customer Fidelity.

Investor concern has turned from survival and exorbitant costs to lack of revenue growth. From $250 million in revenue growth in financial year 2023, management is guiding to $240 to $245 million for FY25, slightly higher than initially expected.

But not all revenue is created equally. Revenue from Bravura’s mission-critical software products is much more valuable than revenue derived from project-driven and people-based consulting services. Few customers stop using the software, and if they did it would take years to transition to a suitable replacement. And with the code already written, software revenue carries much higher gross margins.

Importantly, software revenue has been growing. In the 2024 financial year, software revenue rose 10% whilst overall revenue was flat. With Bravura increasing pricing to customers this year, software revenue is likely to grow again, further improving the reliability of the company’s revenue. Whilst we haven’t seen large contract wins with new clients recently, the business has leading products appropriate for attracting them in the UK and Australia.

Today, Bravura’s market capitalisation stands at over $1 billion. Despite being late to the party, Bravura’s price has risen more than 170% since our initial investment. The investment has been increased as we gained confidence in the investment thesis. With lower costs and higher revenue on the horizon, we believe that there is more good news to come for Bravura.‍

There are plenty of other businesses on the ASX which have the potential to make a turnaround. Register for our monthly and quarterly reports to find out where today's best bargains lie.