Wise investors, like Warren Buffett, often remind us that ‘turnarounds seldom turn.’

However, like many rules of thumb, exceptions can creep into the common narrative and disrupt our views.

There are companies that defy this adage, demonstrating that with strategic vision, effective management, and a pinch of resilience, successful corporate turnarounds are not just possible but can be transformative.

The ASX small-cap sector, often a playground for those with a higher risk appetite and value seekers, presents a landscape where such transformations can occur under the right circumstances. In this domain, companies that once teetered on the brink of collapse have re-emerged, revitalised by innovative strategies, restructured operations, and renewed market focus.
​
These stories of revival and success provide valuable lessons, highlighting the potential for significant returns for investors who can spot and support these comeback stories. In this article, we dive into a TAMIM holding we think fits the bill, exploring how this underdog could rewrite its narratives and prove that, sometimes, the phoenix can indeed rise from the ashes.

Our focus turns to Bravura Solutions Limited (ASX: BVS), a company held by TAMIM and one that poses an intriguing question: Is Bravura positioned to be the rare case that defies Warren Buffett’s scepticism and successfully turns its fortunes around?

Before we delve into its potential for a turnaround, let’s understand the core of Bravura’s business. With a mission centred on simplifying complexity, Bravura excels in automating for efficiency and minimising operational risks. Specialising in the development, licensing, and maintenance of advanced software applications, Bravura caters predominantly to the Wealth Management and Funds Administration sectors within the financial services industry. This technological edge positions Bravura uniquely in a market that is increasingly leaning towards digital transformation.
​
At the time of writing, Bravura’s market capitalisation stood at approximately $342 million, having experienced its share of volatility. For shareholders who have weathered this tumultuous journey, the recent shifts in the company’s stock price might appear as yet another fleeting glimpse of hope. However, a closer examination reveals underlying strengths and strategic moves that hint at a more substantive and enduring resurgence.

Bravura achieved guidance across all metrics but faced challenges reflected in its financial results.
Revenue for the reporting period was $17.0 million or 6.4% lower than the prior comparative period. Licence revenue declined by $11.3 million while professional services revenue dipped by $4.9 million. The downturn was primarily attributed to reduced project work and upgrades in Wealth Management, as well as the conclusion of a Funds Administration contract.Operating expenses increased from $221.3 million to $257.7 million in FY23 due to increased headcount aimed at fulfilling customer obligations and expected wins that did not materialise.

Overhead costs and expenses related to cloud migration further contributed to the rise. As a result, operating Earnings Before Interest Tax Depreciation and Amortisation (EBITDA) saw a significant decline from $45.3 million in the prior comparable period to a loss of $8.1 million. Furthermore, an impairment expense of $233 million contributed towards a loss before income tax of $281 million.
​
Following an $80 million capital raise back in March the company has been able to maintain its strong cash balance with $75 million on hand as at 30 June 2023.

The recent poor performance of the company led to an overhaul of the board and a new CEO and Chair in the second half of 2023.

Andrew Russell was appointed CEO and Managing Director. Formerly serving as the CEO and Managing Director of ASX-listed SaaS technology firm Class Limited, he spearheaded a transformative strategy that involved successfully acquiring and integrating four companies within a span of less than two years. His leadership was instrumental in guiding Class Limited through this period of change. The culmination of his efforts resulted in the delisting of Class Limited in February 2022, following its acquisition by Hub24 Limited.

Prior to his role at Class Limited, Andrew played a pivotal role as the founding Executive Director and Executive General Manager of Financial Services at REA Group. His leadership experience, particularly in steering organisations through strategic changes and successful acquisitions should provide shareholders with confidence.
At the 2023 AGM Russell said himself that “Bravura’s cost base is way too high”.

The new board’s goal is to drive profitability with the company’s ‘transformation programme’ having already generated $25 million in gross annualised expense reductions with a further $22 million identified in FY24.

A further appointment was Matthew Quinn as an Independent Non-Executive Chairman.

Quinn is a highly experienced chairman and non-executive Director of Australian listed and unlisted companies. He was Managing Director of Stockland from 2000 to 2013 and is currently chairman of private equity owned TSA Management Limited. He was previously chairman of Class Limited and a non-executive director of Elders Limited, CSR Limited and Regis Healthcare Limited.
​
Upon the release of the 2023 full year results, Quin commented:

Encouragingly for shareholders the new management team have taken steps to align themselves with shareholders.

Following a strike against the FY22 remuneration report the new board have made several changes including:

• A 14.3% reduction in fixed remuneration for CEO Andrew Russell compared to his predecessor. The short term incentive plan value has also been reduced to 33% of his fixed remuneration compared to 100% of the former CEO’s base salary.
• The Board has updated the incentive arrangements for the executive team, introducing a single Cash EBITDA margin measure in the FY24 Short-Term Incentive Plan (STIP) to promote sustainability and lay the groundwork for future growth. Additionally, the Long-Term Incentive Plan (LTIP) for FY24 will comprise Options that vest after three years, contingent on continued employment and a specific share price condition, aligning executives with shareholder interests and emphasising value creation.​​
• The Board also intends to adopt a Minimum Shareholding Policy in FY24. This policy will require all non-executive directors and senior executives to acquire a minimum value of shares in Bravura within a specified period of time.

​

As Bravura stands at this crossroads, the question lingers: can it navigate the choppy waters of corporate restructuring to emerge stronger and more profitable? The steps taken by the new leadership, under the guidance of CEO Andrew Russell and Chairman Matthew Quinn, signal a renewed sense of purpose and direction. Their combined experience and strategic vision bring a sense of optimism to a scenario often clouded by scepticism.

As the company embarks on this journey of transformation, it’s worth noting that the road to recovery for any company is seldom straightforward or guaranteed. It’s a path fraught with challenges, but also ripe with opportunities for reinvention and innovation. For Bravura, the commitment to overhaul its strategy and operations, combined with a robust technological foundation and a strong market presence, could be the key ingredients for a successful turnaround story.
​
While the future is never certain, Bravura’s current trajectory provides a compelling story for those tracking the pulse of “tech” small caps on the ASX. The shareholder-friendly measures, coupled with a focus on profitability and technology, underscore Bravura’s potential for a resilient turnaround in the challenging landscape.

Disclaimer: Bravura Solutions Limited (ASX: BVS) is currently held in TAMIM portfolios.