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SS&C Technologies: Steady Dividend Growth With Potential M&A Upside

Published Tue, 30 Jun 2020 01:03:56 -0400 on Seeking Alpha

Seeking AlphaLong Ideas | Tech SS&C Technologies: Steady Dividend Growth With Potential M&A UpsideJun. 30, 2020 1:03 AM ET|| About: SS&C Technologies Holdings, Inc. (SSNC)by: Tech and GrowthTech and Growth Tech, software, internet, IPOsTNG Investment Management.cls-1{fill:#024999;}SummaryEven under the worst-case recovery scenario, SS&C should still expect a +$1 billion of OCF at year-end.
The company also maintains its dividend growth and payment amid the crisis.
The reduced net leverage to ~2.67 EBITDA and lower rates environment should allow SS&C to look for new key M&A deals in and beyond the second half.
We maintain our overweight rating on SS&C Technologies (SSNC), a company developing various software solutions for financial institutions. In our first coverage on the stock last December, we highlighted the company’s strong balance sheet and moat, driven by its presence in a high-barrier and low-switching cost financial industry market. Furthermore, DPS (Dividend Per Share) has also been growing steadily, even during the recent crisis. Against the challenging macro backdrop, SS&C will expect a bit of a slowdown in new sales for the full year. Nonetheless, some catalysts, such as more tuck-in M&As, cost-saving initiatives, and a resilient revenue stream, should allow SS&C to maintain its consistent growth and profitability profile.
SS&C beat its guidance in Q1 and also announced three tuck-in acquisitions, Vidado, Capita, and Innovest. As stated in the company’s presentation, the guidance for the full year has not yet incorporated the revenues from these newly acquired companies.

(Source: Company’s earnings call slide)
Considering that Capita and Innovest generated $42 million and $20 million of revenues in 2019, the full-year revenue should see at least an additional +$62 million upside. Therefore, we think that the revenue outlook for the full year should look even... Read more