Earnings season is well and truly underway with a number of companies in the TAMIM portfolio reporting last week.

Two stand out and high conviction holdings that reported were Bravura Solutions Limited (ASX: BVS) and Viva Leisure (ASX: VVA). Coincidently we recently covered updates prior to earnings on both in Shamgar’s small cap summary.

Bravura Solutions Limited

Bravura Solutions Limited released their full year results last week with continued signs of the business turning its fortunes around. 

We wrote back in November last year that we believed this could be a turnaround story but it has even caught us by surprise at the pace of change. Arguably this is one of the quickest turnarounds we have seen.

FY24 Result and On Market Buyback

Bravura Solutions reported an impressive return to profitability following significant transformation efforts. 

The company achieved gross revenue of $250.4 million, marginally surpassing FY23, with operating earnings reaching $25.8 million eclipsing the prior period by $26.1 million. The growth was driven by a substantial reduction in operating expenses, which fell 10% to $231 million. The strategic cost-cutting measures included a reduction in headcount and reorganisation of occupancy requirements. As a result, Bravura posted an adjusted net profit after tax of $8.8 million, marking a $31.9 million improvement from the previous year.

Bravura’s FY24 performance reflects the success of its recent restructuring, which has restored the company to a positive cash operating earnings. 

The company is in a strong net cash position with $90 million as of June 30 2024, with a net cash inflow of $14.2 million and an additional $56 million of cash payment due in FY25 we discuss further below. Despite the success, Bravura has opted not to declare a dividend in FY24 but with a view to paying dividends in FY25.

Looking ahead, Bravura aims to further strengthen its financial position by targeting cash operating earnings of $28 million to $32 million in FY25. 

Earlier in the month the company announced a proposed return of capital as part of its capital management strategy. The return of up to $75.3 million has been further enhanced by an additional $20 million on-market buyback of up to 10% of the company. The strategy will be funded by existing cash reserves and proceeds from its recent agreement with Fidelity International. 

Bravura group signs agreement with Fidelity International

The company has entered into an agreement with Fidelity International, granting them a perpetual, non-exclusive licence to use and develop the Sonata software platform.

The deal includes a £29 million payment ($56 million AUD), with £24 million due upon software delivery in August 2024 and the balance in early 2025. While Bravura retains intellectual property rights, the move is designed to streamline Bravura’s operations. We believe that while it may have a minor revenue impact in FY26, there will be minimal effect on profitability.

While Bravura’s transformation continues, the company is moving into its next phase of sustainable growth with some large potential new logo wins being tendered and prospect of further work in the U.K. market with existing clients. In addition Continued cost reduction initiatives and a focus on maintaining a strong balance sheet remain at the forefront of the company’s future plans.

Viva Leisure

Viva Leisure delivered an impressive set of financials for FY2024, marked by a 15.9% increase in revenue to $163.6 million, driven by organic growth.

Operating earnings rose by 21.0% to $35.4 million, with enhanced margins and improving operational efficiency. Viva Leisure was cashed up with $22.3 million on hand as of June 30, with significant free cash flow reinvested in acquisitions, greenfield sites, refurbishments, and technology platforms.

Membership growth was a key highlight, with a 10% increase in owned locations to 200,067 members, despite the removal of over 15,000 low-yielding Fitness Passport members.

The company completed 27 site upgrades, achieving a return on investment of over 75%. Viva executed strategic acquisitions, including four Plus Fitness sites and seven independent locations. Furthermore, following the end of financial year the company expanded its footprint by acquiring assets from three Gold’s Gym locations and Surge Enterprises Pty Ltd, adding five more locations in Western Australia.

Looking ahead, Viva Leisure is well-positioned for continued growth, supported by its newly secured Commonwealth Bank facilities, which increase its funding capacity to $165 million. The new facility is designed to increase the free cashflow substantially enabling to grow without the need to raise equity. Q4 exit run rate is currently $39.2 million Ebitda with incremental benefits to flow on from Viva pay and the recent WA acquisitions we estimate starting base of $44 million Ebitda for FY25 before any further growth or M&A.

The company plans a smaller strategic refurbishment program in FY2025, building on the success of FY2024, while also focusing on expanding its digital signage and vending machine networks, and launching its online supplement business, Supp Society.

Viva Leisure CEO and Managing Director Harry Konstantinou said:

“We are thrilled with the outstanding results achieved this financial year, which reflect the strength and resilience of our business model. The significant growth in revenue, EBITDA, and membership underscores our commitment to operational excellence and strategic expansion.

Our focus on organic growth, coupled with prudent investments in our people, technology, and facilities, has positioned us strongly for continued success. These results are a testament to the hard work and dedication of our entire team, and we look forward to building on this momentum as we continue to deliver value to our members and shareholders.”

We certainly know a takeover opportunity when we see one.

We believe Viva Leisure is beginning to look like an appealing acquisition. We feel the company could be a prime takeover target due to its industry-leading position, founder-led management and growing profitability. The valuation is cheap, trading at 4 times enterprise value to operating earnings.

These factors often attract strategic interest, making it a compelling candidate for acquisition or market re-rating.

GQG Partners Half-Year Results: Strong Growth in FUM and Revenue

GQG Partners (ASX: GQG) experienced a significant 46.5% increase in average FUM during the first half of 2024, reaching US$139.5 billion. This growth was fueled by positive net flows and strong investment performance, reflecting the trust clients place in GQG’s consistent long-term returns.

Management attributes the positive net flows of US$11.1 billion during the half to the firm’s strong client relationships and the consistency of its investment strategy. Looking ahead, GQG anticipates continued positive flows throughout 2024, supported by a robust pipeline of client demand across multiple geographies and channels.

The fund manager’s competitive fee structure has also played a role in its success, with the majority of its revenue coming from asset-based fees. Performance fees accounted for just 5.4% of total revenues in the first half of 2024, underscoring the stability of its income stream. With improving margins year over year, GQG reported a 54.9% increase in net operating income to US$273.2 million.

However, despite the strong performance, the growth was slightly below analyst expectations, falling short of the 65% growth forecast. This shortfall and an unexpected higher cost base may explain the recent pull back in GQG’s share price. Nonetheless, the company continues to demonstrate solid financial health, as evidenced by the increase in its quarterly dividend to 3.35 US cents per share, bringing the total dividend for the half-year to 5.66 US cents per share, a 46.3% year-on-year increase.

GQG trades on 12.5x PE multiple and a 7% dividend yield. We believe these metrics are too cheap to ignore for what is a high quality, high growth and founder led business.

The TAMIM Takeaway

We continue to focus on industry leading companies with aligned board and management teams that have shown a clear strategy to grow their respective businesses for the long term rather than focusing on short term goals. We believe this type of mentality leads to higher shareholder returns over time and in many cases to takeover offers at significant premiums.

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Disclaimer: Bravura Solutions Limited (ASX: BVS), Viva Leisure (ASX: VVA) and GQG Partners (ASX: GQG) are held in TAMIM Portfolios as at date of article publication. Holdings can change substantially at any given time.