Why SEI shares lag the market
Can the Oaks-based software company recover even without its delayed Global Wealth Platform project?
Why SEI shares lag the market
Joseph N. DiStefano
In three of its four business units - selling support services to investment advisors, institutional investors and investment managers - SEI Investments Co. posts a combined operating margin of 43% - which is as good as cable TV or some of the big software companies you have to pay a fat stock premium to own.
So why are the Oaks-based financial technology supplier's shares stuck at late 2008 levels, while the SNL index for financial tech companies is up 67%? Why does SEI trade at a discount to the market instead of a premium? "Development costs and delays" for SEI's long-awaited Global Wealth Platform (GWP) system "are a primary reason," writes Christopher Donat, managing director at Sandler O'Neill + Partners in New York, in a report to clients. Private banks that manage money for rich people and companies account for 37% of SEI revenues but only 5% of profits, due largely to the slow pace of preparing GWP to replace SEI's old Trust 3000 system, the original version of which dates to the 1980s.
Trust 3000, is an account-based, dollar-based, closed-architecture system; GWP offers client-based, global-currency, open-architecture expand-ability. In a June investor conference, ceo Al West acknowledged being "frustrated with how long it's taken" to add the new system, which now boasts nearly a dozen UK cleints (Premier Asset Management, for example.) According to Donat, "SEI plans a series of several releases tailored to the US market," though it's continuing to sell Trust 3000 here.
SEI has sunk millions into the new platform, which hasn't yet begun to pay for itself. Donat says it will likely take more than a year for that to change. But meanwhile the company's other business lines are highly profitable and growing comfortably. That leaves Global Wealth Platform as "a major initiative" but "not a bet-the-firm type of product," he concludes hopefully. SEI needs renewed growth to justify a stock premium and public share ownership. Expect similar issues at Wayne-based SunGard Data Systems's Financial unit, which is being groomed by its private-equity owners for an initial public stock offering, especially if the company finds a way to sell its large but lower-margin Availability Services business.
I guess waiting for the Eurozone to collapse or expand on a sound fiscal basis, as well as waiting for the Renminbi to explode and leaving the USD the last currency standing or all of it going down the toilet of unrelenting, rolling banking failures, makes getting a new global currency platform an uncertainty not worth paying for, yet. Have I deferred and hedged enough on the matter, or not? On the other hand...
