Doug Goodwille from Kayne Anderson speaks to Drew Meredith from The Inside Network on market thinkers.
While a surging gold price is on hold as the world adjusts to a Trump presidency, all the factors that saw its price rise more than 50 per during his first term in office – trade disputes, fiscal deficits and geopolitical tensions – are almost certainly guaranteed the second time around.
Class keeps delivering for SMSF tech provider
Class Ltd (ASX:CL1) is a company that is close to the heart of many SMSF trustees, accountants and financial advisers across Australia. The company offers a growing suite of products that support the administration of self-managed super funds and trusts, with its stated mission focused on simplifying rather the complicating matters.
While all eyes have been on the investment platform sector in recent months, including the likes of Hub 24 (ASX:HUB) and Netwealth (ASX:NWL), this smaller company has been growing quickly through a series of diligent acquisitions, culminating recently in the purchase of TopDocs.
What has likely been most impressive, however, is the organic growth being delivered via the company’s industry-leading technology platform. Class is seeking to achieve what Xero (ASX:XRO) did for small businesses, providing a low-cost, technology-enabled solution to the arduous and time-consuming work of running your own super fund or family trust.
It could be said that Class Super is actually contributing to the growth in the SMSF industry, with its technology improving the affordability of the structure. At its core, Class is seeking to ‘Simplify, Automate and Connect’ what can be a very manual and disconnected process. After a strategy refresh several years ago, the group is now separated into three key focus areas, being AccountTech, which supports the administration and reporting requirements of SMSFs and family trusts; DocTech, which assists with compliance documents and reporting; and WealthTech, which helps advisers with portfolio and other investment reporting.
Management recently announced a 25 per cent increase in revenue for the financial year, hitting $54.9 million, which when annualised represents a further 10 per cent gain for 2022 without the addition of any new customers. This revenue growth is a step-up from the still-impressive 18 per cent three-year compounded annual growth rate achieved to FY21.
What is likely to be most impressive is the growing importance of the Class within the accounting, financial advisory and SMSF sectors in Australia. The group now has trusted relationships with 81 of the top 100 accounting firms in the country and will have 7,700 customers in 2022, after 123 per cent growth in FY21.
Of these customers, management reports that retention on a year-to-year basis is around 99.1 per cent, a result that confirms the perceived quality and stickiness of the product. It is this stickiness that has been key to the success of many global tech firms in recent years as it reflects customer satisfaction. This stickiness is likely helped by the decision to switch to a Software-as-a-Service (SaaS) model.
The growth has come as the business expanded from two products to seven in the last 24 months, including an entry into the trust administration sector, and a number of acquisitions. After cleaning-up a number of non-core businesses in the last few years, Class has set its sights on the regulatory documentation sector, which is a $105 million market.
The group recently announced the acquisition of SMSF and Trust legal paperwork provider Top Docs for $13 million, which Class expects to add $3 million in revenue almost immediately. This adds to the prior purchases of Now Infinity, SmartCorp and Reckon Docs, which combined, represent some 19.6 per cent of all SMSF established in 2021.
At the core of any tech-driven business is a focus on constant innovation, with Class having committed to $16.9 million in 2021, an amount set to increase in future years, as it seeks more aligned verticals within the sector.
Warren Buffett is regularly quoted as saying “never invest in a business you cannot understand.” Given how many SMSF financial statements come out of the Class Super platform, this may well be one of those companies on the plus side of that Buffett quote. That said, it is very much a smaller company, with a market cap of around $250 million, but CL1 does offer a dividend yield of 2.5 per cent, and is profitable.
