Sapiens International Corporation N.V.

SPNS Details

Sapiens International Corporation N.V. (NASDAQ: SPNS) is a global provider of software services for the insurance industry. SPNS offers software platforms and professional services to property and casualty (P&C), reinsurance: life, pension and annuity (L&A), financial and compliance (F&C), workers' compensation (WC), and decision modeling for financial markets. The software services providers operate in North America, United Kingdom, and other European and Asian countries. As of July 07, 2021, the company’s market capitalization stood at USD 1.45 billion.

Solution for Meeting ISO and NCCI Reporting Requirements: Sapiens Americas, a wholly-owned subsidiary of SPNS, announced a partnership with Long Group Consultants, Inc. on June 16, 2021, to assist insurers in meeting International Organization for Standardization (ISO) and National Council on Compensation Insurance (NCCI) reporting standards while reducing costs, errors, and risks. This collaboration will provide WC and P&C insurers with a ready-to-use solution for statistical reporting needed for data calls, bureau submissions, and statement reconciliations.

Q1FY21 Results: The company reported a 21.05% increase in revenue to USD 109.60 million in Q1FY21 (ended March 31, 2021) compared to USD 90.53 million in Q1FY20, driven by the increase in revenues from Europe and the Rest of the world geographies. SPNS reported an increase in net income to USD 9.90 million in Q1FY21 vs USD 6.89 million in Q1FY20. As of March 31, 2021, the company stood at the cash and cash equivalents (including short-term bank deposits) of USD 172.18 million with a total debt of USD 98.70 million.

Key Risks: Formula Systems (1985) Ltd., owns approximately 43.9% of the SPNS’ common shares (as of FY20). Hence, it can control all matters requiring shareholder’s approval. This ownership and voting power concentration can limit the company’s ability to influence corporate matters like mergers, tender offers, open-market purchase programs, etc.

Outlook: For FY21, the company estimates its revenues to be in the range of USD 459 to USD 464 million. SPNS also revised down its operating margin estimate to 17.0% to 17.4% for the fiscal year due to investment in transport capabilities in the North American P&C CoreSuite business and the recent spike in COVID-19 in India, which will increase the company’s labor costs in the short term.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

(Analysis by Kalkine Group)

• % Premium/(Discount) is based on our assessment of the company's FY21E trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

SPNS Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: SPNS’ share price has declined by 16.57% in the past three months and is currently trading at a lower band of the 52-week range of USD 26.11 to USD 35.85. The stock is currently trading lower than its 50 and 200 DMA levels, and its RSI Index is 33.98. We have valued the stock using the EV/Sales-based relative valuation methodology and arrived at a target price of USD 28.29. Considering the company's growth potential, solid track record of double-digit growth, excellent balance sheet, positive cash flows, and current valuation, we recommend a "Watch" rating on the stock at the closing price of USD 26.37, down by 0.68% as of July 07, 2021.

*All forecasted figures and Industry Information have been taken from REFINITIV.

*The reference data in this report has been partly sourced from REFINITIV.