Formpipe - Temenos expects its TAM to grow rapidly ahead - ABG

Temenos' SaaS sales grew 32% in 2022
Earlier this week, Formpipe's banking platform partner, Temenos, reported its Q4 numbers and hosted a capital markets day (share +5.5%). While Temenos financial track record is good (5% sales CAGR in '17-'22), the company has recently seen lower demand for its products due to lengthened sales cycles as banks have been more cautious on an uncertain 2023 (due to macro), with sales growing -2% in '22, vs. +7% in '21. Share is also down 47% over the last two years, with significant negative revisions for FactSet consensus in recent years. That said, simliar to Formpipe, Temenos continues to see good demand for cloud-based products, driving 32% SaaS growth in '22 (vs. FPIP at 42%). As such, there is a solid correlation (0.5 for Q1'21-Q4'22) for the ACV between Temenos and FPIP; albeit not a perfect correlation, given that Microsoft Dynamics still accounts for the lion's share of FPIP's ACV.

Cautious banks in 2023, but promising LT outlook
In terms of outlook, Temenos says that it expects banks to remain cautious in 2023. Even so, it sees an increasing demand for SaaS and cloud, so the company targets >12% ARR growth in '23e (vs. 13% CAGR in '17-'22). The market Temenos operates was worth USD 23bn in '22, and is forecast to grow at 11% CAGR for '22-'26, of which SaaS will grow at a 34% CAGR as it will reach 30% of the market in '26 (vs. 14% in '22). Given Formpipe's position as a cloud-based partner - both to Temenos and its competitors Mambu and Though Machine - this bodes well for further growth in the coming years for its Private segment. Furthermore, Temenos is increasingly targeting tier one and tier two clients (in terms of size), which reads slightly negative to Formpipe as we understand that its sales growth is more dependent of the number of clients in Lasernet rather than the size of these.

We continue to see good growth prospects for Lasernet
To conclude, we think that the information given at Temenos' CMD aligns well with our expectations of a hestitant market in H1'23, but with strong mid- and long-term growth prospects. As we highlighted in our last research note, we expect rapid growth for Formpipe Private (Lasernet) over the coming years: a '22-'25e sales CAGR of 18% together with gradually improving margins.

Länk till analysen i sin helhet: https://cr.abgsc.com/foretag/formpipe/Equity-research/2023/2/formpipe---temenos-expects-its-tam-to-grow-rapidly-ahead/