Dec. 1–With the market’s renewed love affair with tech stocks, SS&C Technologies Inc. has enjoyed a classic November romance.<\/p>\n
Shares have doubled since May of this year, and septupled since May 2000. In September, the company paid its first cash dividend: 10 cents a share, to be disbursed twice a year.<\/p>\n
Shareholders have additional reasons to applaud. This Windsor-based provider of online software and consulting services for money managers somehow increased year-to-year profits during Wall Street’s lean years of 2000-2002.<\/p>\n
With stock prices posting double-digit gains in 2003, SS&C’s business has picked up even more. The company continues to add new customers. The customers are spending a little more on SS&C services. And, despite a year-to-year rise in demand for its products, SS&C continues to clip spending, while hoarding cash.<\/p>\n
“They’re doing everything we like to see. They’re growing earnings. They’re offering a broad range of products, and they’re in a growth business [asset management],” said Tom Barry, co-manager of the Bjurman Small Cap, and Bjurman Micro-Cap mutual funds. The California-based fund company holds 450,000 shares of SS&C stock (ticker symbol: SSNC).<\/p>\n
But would-be investors have to wonder whether SS&C, at its current price of $29.33, is a bear trap, instead of a bull with more room to run. The company is expected to earn 84 cents a share in 2003, and $1.04 a share in 2004.<\/p>\n
While the recent pace of sales has accelerated, end-of-year sales (about $70 million) will barely exceed levels first reached in 1999. Part of the growth in earnings per share, furthermore, has come through cost cuts and share repurchases; a reduced share count will increase earnings per share on the same amount of profits. One analyst also warned that growth has slowed in SS&C’s service and maintenance segment.<\/p>\n
“With SS&C fundamentals possibly decelerating,” we believe current share prices are a bit high, given the projected rate of earnings growth, said Christopher Rowen, an analyst who follows SS&C for SunTrust Robinson Humphrey in Atlanta. Another analyst last week downgraded SS&C from “buy” to “hold,” mainly because the price has raced ahead of the company’s prospects.<\/p>\n
Even SS&C’s highest-ranking executive, William C. Stone, filed papers with regulators to sell 135,000 shares in November — although he still holds about 4.5 million shares in the company he co-founded in the 1980s.<\/p>\n
Share price hyperinflation should impel would-be investors to wait for a pullback before they buy.<\/p>\n
And, before buying, investors should examine SS&C’s underlying businesses and their two working parts: software and service, and the roles each play in managing stock, bond, loan or real estate portfolios.<\/p>\n
“Our products help investors measure risk and manage assets,” said William C. Stone, the chief executive of SS&C.<\/p>\n
Property managers need to know who owes them how much rent.<\/p>\n
Portfolio managers need to know when bond interest is paid or options contracts are about to expire.<\/p>\n
And managers of stock, bond, loan, or real estate portfolios need to know if they’re complying with the laws; they must also evaluate risk and projected future cash flows from the assets they’re about to buy or money they’re about to lend, Stone said.<\/p>\n
It is this high-rent asset manager that constitutes a typical SS&C customer. And the SS&C customer list includes ING Group, Merrill Lynch, MetLife, J.P. Morgan, Prudential, American International Group and General Electric. These and other SS&C customers manage $4 trillion in assets around the world. Many use portfolio management software they write in-house; these same customers use software created by SS&C and its competitors.<\/p>\n
In recent years, SS&C has added hedge funds to its roster of clients. Hedge funds — through the use of sophisticated investment techniques — often manage money for clients with net worths in excess of $5 million. In early September, Wexford Capital LLC of Greenwich hired SS&C to provide software and service for its hedge fund. And in early November, SS&C paid an undisclosed sum to buy Amicorp Fund Services NV, a hedge fund administration service based in Curacao, the Netherlands Antilles.<\/p>\n
“Hedge funds have highly complicated tax situations, and SS&C has been adept at delivering products that fill this need,” said Gary Kraft, an analyst with Soleil Securities in San Francisco. Hedge funds, a mere dot on the financial map in 1990, have recently grown to manage about $600 billion in assets in the United States.<\/p>\n
Whether SS&C is selling to a hedge fund, bank, credit union, insurance company or money manager, a typical transaction works like this: Customers pay a one-time licensing fee (typically ranging from $125,000 to $350,000); an additional fee of $100,000 to $150,000 for installation; and, quite often, $40,000 to $150,000 a year for ongoing service.<\/p>\n
The sale of a license delivers a one-time blast of revenue. The sale of a service contract, however, provides a much-desired steady stream of revenue over several years, Stone said.<\/p>\n
“Recurring revenue allows you to plan. You get paid every month. And you often get paid every month over three to five-year periods,” Stone said.<\/p>\n
It is the so-called “recurring revenue” that Stone repeatedly highlights in presentations before analysts. And recurring revenue now accounts for about 70 percent of SS&C’s total revenue. In 1999, by comparison, recurring revenue — mainly from service contracts — accounted for just 42 percent of SS&C’s total sales.<\/p>\n
Along with changing the make-up of its sales, SS&C has steadfastly hoarded its cash. In 2000, the company held $65 million in cash. Today the company still holds $48 million in cash.<\/p>\n
Some of that cash pile has been used over the years to repurchase SS&C stock; the company has spent $45.1 million to take 5 million shares off the market since 1999. The company has also purchased small financial software vendors, usually for no more than $2 million; SS&C now offers 18 different shrink wrapped and online software products.<\/p>\n
Yet even with a cash-loaded treasury — and a balance sheet that carries zero debt — SS&C has still kept a close watch on operating expenses. Payroll has been clipped from 416 in 2000 to 315 today. Yearly operating expenses have also been trimmed, from $65 million in 2000 to $45 million at the end of 2002.<\/p>\n
This combination of cash, cost containment and new business enabled SS&C to boost its yearly income during the stock market meltdown of 2000-2002. After reporting a $12.6 million net loss in1999, the net income trajectory has climbed a flight of stairs: $2.2 million in 2000, $4 million in 2001, $7.3 million in 2002, and it’s expected to be north of $10 million in 2003.<\/p>\n
“That’s what has been most impressive about SS&C,” said Kraft of Soleil Securities. “They showed improving earnings when financial service companies [their chief customers] put a lid on spending.”<\/p>\n
—–<\/p>\n
To see more of The Hartford Courant, or to subscribe to the newspaper, go to http:\/\/www.ctnow.com<\/p>\n
(c) 2003, The Hartford Courant, Conn. Distributed by Knight Ridder\/Tribune Business News.<\/p>\n","protected":false},"excerpt":{"rendered":"
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