There is a decent chance that you have never even heard of this company, which is kind of funny considering they are the world’s largest hedge fund and private equity administrators as well as the largest mutual fund transfer agency with 45 Trillion in managed assets. SS&C Technologies (SSNC) has over 22,000 employees in 35 different countries. Their net income was $169.5 million for the second quarter of 2020 up 40% from the second quarter of 2019. Obviously the third quarter will be the earnings to wait for, as it will show the full effect of coronavirus on their earnings.
Since 1995 SS&C has acquired 55 companies within their industry. This has allowed them to grow at a significant pace allowing them to become one of the largest players in almost every area they compete in. Obviously it is hard to maintain that high pace of growth as you get bigger, but I would not be surprised if SS&C looked to make more acquisitions to strengthen their position in their industries as well as reduce the number of competitors even further.
SS&C is currently and has been the largest holding in my portfolio since I bought it in 2018. They have been raising their dividends since 2016 the most recent increase being a 12% increase from $0.12 to $0.14 per share quarterly. One of the best things about SS&C is that most of their customers are under contact with them, which guarantees their income for a set period of time and allows them the opportunity to renew or negotiate new contracts without their customers leaving for a competitor. This allows them to have a small moat to competition in their industry.
Due to the industry they are in, there are several factors that allow SS&C to have a decent moat in their respective field. The first of these factors is that to stay relevant and competitive in their market you need to spend large sums of money on research and development (SS&C spent 96.8 Million on R&D in the second quarter of 2020). This makes it difficult for new players to enter the market. It is also very costly and time consuming for customers to change to a new companies products due to training to learn the new system, glitches from running a new system and converting all their products and information to a new system. While this does not guarantee a customer won’t change to a new system but it does help make a switch less likely.
There are two more factors that allow SS&C to have a moat in their industry. The first is that the number of competitors is actually decreasing and more companies are leaving than are entering the market that SS&C competes in. They compete with a large number of companies. I won’t list all of them, but here are a few of the bigger ones: State Street, BNY Mellon, United Health, Magellan, Charles Swab, Fidelity, and Raymond James. Some of these you would definitely have heard of. The second factor is that it is extremely expensive and highly regulated for a new company to enter into the industries SS&C competes in. This makes it extremely difficult for new competition to enter the market.
In the last few years of watching SS&C I have noticed that since they are a relatively unknown company (as far as blue chip stocks go anyway) they don’t always react the way you think they will on earnings. Sometimes they will have a really good earnings and drop for the next few months anyway. The way I like to invest this is actually a good thing because it allows me to buy in at a lower price before the stock eventually goes back up leading up to their next earnings report. Also, because they have relatively low volume 1.58 million average vs. Berkshire B shares 6.08 million average daily a relatively small order will change the share price pretty significantly. This can lead to you being able to pick up shares at a relatively low price if you follow and know the stock well. As an example I was able to open a small position earlier in the year at $40.30 while the current share price is $61.25. Obviously that is still much higher than the 52 week low of $29.51 but still a pretty decent gain if I were to sell today.
SS&C’s current numbers are: Current Price $61.25, Market Cap 15.78 Billion, 52 week range $29.51-$66.74, P/E 32.10, EPS $1.908, Dividend Yield 0.91%, Dividend $0.56.
Their P/E ratio is on the high side for what I normally like but they are a tech company, which tends to have a higher ratio and their forward P/E is 14.97, which is a lot closer to where I like and on the low side for tech. I would probably shy away from buying them at their current share price but would start really looking at them if they were to drop below $55 again. In my opinion SS&C is definitely a company to watch and would be a very good company to consider buying into for the long term.
Disclaimer: I am long on SS&C and will continue to be for the foreseeable future.
Outsider Trading 