We recently researched Iress (ASX:IRE) in The Dynamic Investor. We concluded that the risk-reward was balanced and that there were limited catalysts other than a potential takeover offer. With the shares having weakened by ~13% since our report, do current levels present value, or a value trap?
About IRESS
Iress is a provider of software and services for trading & market data, financial advice, investment management, life & pensions and data intelligence. The Company’s main operations are located in Australia, the UK, South Africa and Canada.
Following the successful divestment of six non-core businesses over the past two years, Iress has strengthened its balance sheet and transformed into a more focused and streamlined organisation. Its operations are currently centred on two core global enterprise software business units – Wealth and Trading & Market Data.
The Company’s revenue base is highly recurring, accounting for 94% of overall revenue. Notably, 90% of Top 20 clients have a tenure >10 years and client churn is <2% per annum.
Key Fundamental Drivers
Efficiency Program to Drive Margin Expansion
In mid-November 2025, the Company announced the commencement of a business efficiency program. This aims to improve the cash EBITDA margin from an expected ~18% for FY25, to ~25% by the end of FY26 (The Company has a 31 December balance date).
The key aims of the efficiency program are to: i) Remove stranded costs related to its asset sales, ii) Reduce role duplication, iii) Automate processes and iv) Improve product delivery. It is expected that the majority of the cost out is in corporate and functional areas, not reducing operating expenses on growth projects. As an example, one avenue for cost reduction is transferring engineering functions to lower-cost overseas locations.
IRE has stated that the targeted cash EBITDA margin ~25% by the end of FY26 reflects “investment in strengthening core platforms and building new revenue channels for growth, including AI-enabled capabilities and enhanced client solutions”.
Consensus estimates are factoring in only a modest portion of the expected efficiency gains. This is due to the accelerated nature of the program, the aggressive setting of the 25% target and the commencement of a new MD and CEO on 17 November 2025. Investors are preferring to take a more conservative view until the Company provides a more detailed execution plan for its business efficiency program.
Notwithstanding, further progress on cost savings is needed. On a ‘continuing business’ basis (i.e. excluding divested businesses), group operating expenses increased by +6.2% in 1H25 (on a year-on-year basis), driven by an uplift in R&D investment in wealth technologies and IT spend.
Takeover Appeal Remains
Iress’ corporate appeal is underpinned by several factors. These include Iress’ dominant market share in Australian financial software, recent sales of non-core assets and commencement of the business efficiency program.
In August 2025, Iress confirmed engagement with US private equity firms Blackstone and Thoma Bravo. Blackstone previously submitted a proposal at $10.50 per share, which was later withdrawn. By October 2025, Iress confirmed it had opened a “data room” for multiple, unnamed third parties.
In a trading update issued to the ASX in mid-November, IRE noted that multiple parties continue to be engaged with the Company. The lack of progress on securing a deal, as well as the Iress board’s failure to previously secure a deal to sell the business after discussions with suitors in past years, has impacted investor sentiment.
Iress has been courting private equity suitors for a while, with EQT Group making three indicative bids in 2021, before ending discussions. Recent media reports (AFR, 9 December 2025) indicate that Bain Capital, Potentia Capital and BGH Capital had “run the rule over Iress”.
Lower Gearing Increases Capital Management Flexibility
Proceeds from the Superannuation divestment (completed in May 2025) were used to retire debt. Accordingly, net debt as at 30 June 2025 fell to $92.6m, from $291.7m as at 30 June 2024.
Proceeds from asset sales over the previous 24 months have resulted in gearing (on a net debt to EBITDA basis) declining to 0.8x as at 30 June 2025. The lower gearing level is expected to be maintained as further proceeds from asset sales are forthcoming. In turn, this increases flexibility for capital management.
To this end, the Company recommenced dividend payments in 1H25, having not paid dividends in FY23 and FY24 in order to focus on the transformation program, debt reduction, and restructuring. The dividend paid in 1H25 represented a dividend payout ratio of 62.5%, so the lower gearing position enables the board to increase the dividend payout ratio in future.
Fundamental View
IRE’s investment appeal is underpinned by several factors. These include potential corporate activity; an efficiency program aimed at achieving an expansion in cash EBITA margin by FY26 and increased flexibility for capital management.
However, other than an upcoming takeover offer, we struggle to see any catalysts for the shares in the near term. The efficiency program’s targeted cash EBITA margin is aggressive (with little details provided to date). It also relies on improved revenue performance, notably from new product initiatives to drive organic revenue growth across the segments.
The current 1-year forward P/E multiple of ~17.5x is below the bottom end of the trading range over the last three years. Notwithstanding, it is slightly elevated in the context of an EPS growth profile of +11% over FY25-27 on a CAGR basis.
Charting View
IRE has been range-bound for the past 20 years and at the moment there is nothing to suggest that this will change. The past few years in particular have shown that any rallies in the stock are sold into and despite the stock being above the 2023 low, it is still forming lower highs. For the short-term at least, we expect the shares to drift back towards $6.
Michael Gable is managing director of Fairmont Equities.
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