Current Price: $77 Price Target: $96
Position Size: 2.3% TTM Performance: -2%
Key Takeaways:
· Beat estimates on strong new customer adds and cross-selling progress aided by recent acquisition, Optimal Blue.
- Raised full year guidance again
· Data & Analytics strength (+16% YoY): Seeing continued improvement with cross-selling Data & Analytics (~15% of revenue), which could be a solid future growth driver for them.
Additional Highlights:
- Revenues of $361m, an increase of 23%; Organic revenue growth of 11%
- Now expect FY revenue growth of 17-18% (prior 14-15%) on organic revenue growth of 8-9% (prior 6-8%)
- Interest rates drive mortgage volumes but BKI revs are more tied to loans outstanding, not the cyclicality of volumes. They have a high mix of recurring rev > 90%+ of mix with 5-7 year contracts.
- Should see go-forward margin expansion in both segments – mgmt. goal of 50-100bps total per year LT
- Their stake in D&B is now worth $1.2B. They invested just under $500m in their D&B stake giving them a pre-tax unrealized gain of ~$700m.
- Two tuck-in acquisitions
- Top of Mind Networks – they developed Surefire, a market-leading CRM and marketing automation platform that is designed specifically for the mortgage industry.
- eMBS – the leading provider of performance data and analytics on agency-backed securities. Clients use this data to get critical insights that help them make more informed investment decisions and better manage portfolios of agency-backed securities.
Data analytics segment (~15% of revenue) revenues were up 16%. Driven by growth in their property data and portfolio analytics businesses.
- Organic revenue growth of ~14%
- Trending ahead of LT targets in recent quarters on strong cross-sales related to new client deals, as well as renewals. Demand for products within the segment has ramped as clients seek to add recapture, loss mitigation, and customer acquisition capabilities.
- Current situation is highlighting their unique data sets and analytics. They are the only company with real-time visibility into the majority of active mortgage loans in the US.
Software Solutions segment (~85% of revenue) up 25% YoY.
- Organic growth of ~11%
- Within this segment servicing (~70% of revenue) was up 13% – driven primarily by new clients and higher usage-based revenues on MSP.
- Added 3 new MSP clients, which brings total to 8 new clients so far this year. With these wins, they now have 90 MSP clients.
- They continue to dominate first lien loans with leading share and are growing share in second lien loans. Market share for first-lien mortgages is ~64-65%.
- Originations (~16% of total revs) made up of new loans and refi’s – revenues up 61% (organic rev +6%) driven by Optimal Blue acquisition, new clients, higher consulting revenues and higher origination volumes.
Valuation:
· Trading at ~4% FCF yield on 2022 –valuation has gotten less expensive more recently and is supported by growth potential, strong ROIC with a recurring, predictable revenue model (>90% recurring revenue) and high FCF margins, which is aided by high incremental margins and capex which should taper as they grow.
· Leverage ratio at 3.2x
· Capital allocation priorities include debt pay down, opportunistic share repurchases and acquisitions.
Thesis:
- Black Knight is an industry leader with leading market share of the mortgage servicing industry.
- Digitization of real estate transactions is still in early stages
- Stable business with >90% recurring revenues, long-term contracts and high switching costs.
- BKI has high returns on capital and high cash flow margins.
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[tag BKI}
[category earnings]
Sarah Kanwal
Equity Analyst, Director
Direct: 617.226.0022
Fax: 617.523.8118
Crestwood Advisors
One Liberty Square, Suite 500
Boston, MA 02109
$BKI.US
[category earnings]
[tag BKI]