Updating graph I published in previous...

Updating graph I published in previous post https://hotcopper.com.au/posts/35996377/single

I note from the latest release, CL1 are no longer presenting this data grouped by qrt.  Seems the latest numbers are so bad that they've resorted to total accounts in their graphs (rather than new acc growth)!  I also share @smallbear 's query re is CL1 ex growth.

As per above post, I'd been projecting that CL1 could get to 50% market share with Class Super and that a good proportion of these accounts would also use Portfolio.  However, with: a) market share ~28% b) only 4% of Super accounts also using Portfolio and c) such low growth rates in the last quarter ... I now think 33% is more likely and Portfolio immaterial (say doubled to 8% of Super accounts).  If sales keep going at 1,500 net accounts per qrt, that'll still take them >5 years tho!

So what's CL1 worth?  End game accounts (revenue) is the real driver of future value so I've just worked on PE ratios at current share price of $1.35 rather than DCFs.  The model simply inflates variable costs at 50% of sales growth and keeps depreciation at current levels.

  - FY18 Trailing PE - 18.2

  - Dec18 running rate - 14.8 (based on CL1 advice of $37.1pa running rate)

  - Dec18 running rate - 13.6 (based on account numbers x rev/acc once free periods expire - $38.9Mpa)

  - ??? with 33% share - 9.8

  - ??? with 33% share + 10% price rise - 8.5

  - ??? above with significant other/partner revenue growth ???

CL1 have not mentioned a price rise, but with such sticky customers and slowing account growth, an increase would be sensible at some time.  The above keeps partner revenue at 5% of total, however I note in the release they have plans to increase this and also broaden their own our product offers.

So, by my thinking @$1.35 CL1 is nether cheap nor expensive following this update.  If they leverage their wonderful relationships with their customers to successfully secure significant additional revenue streams they look cheap ... but if they can't grow faster in future than they did in the last qrt they look expensive.

I agree with @stocking and @Jack1960 that CL1 could be a nice bolt on business for Xero with servicing/cross selling synergies.  Not sure about wrap providers tho (HUB/PPS etc) as these service advisers rather than accountants.  This could at 20-30% to SP overnight - but I doubt it'd get it over $2.

All of that to conclude that I'll hold for now and reduce my target weight to just 1.5% (currently at 1.4% after selling at $2.47 then unfortunately buying back in an average ~$1.90).  

Other thoughts?  Comments on likelihood and revenue from their new products and partner reseller arrangements? 

@Leveraged - do you have any thoughts on how much near term revenue Class Engine could drive?  or even what it costs per licence?