Enfusion Stock Forecast: Should You Buy ENFN IPO?

The IPO calendar for this week looks solid and several companies are expected to price their IPOs. Enfusion, which is a leading provider of cloud-based investment management software, is also expected to start trading this week. The stock will list under the ticker symbol “ENFN” on the NYSE. What’s the forecast for the stock and should you buy the IPO?

Earlier this month, Allvue, which caters to credit and private capital investment managers and offers software that automates manual processes, withdrew its IPO amid a tepid response from investors.

Enfusion is expected to start trading on Oct. 21. The company has kept the IPO price range between $15 and $17. A total of 18.8 million shares would be on the offer—15.3 million shares would be offered by Enfusion, while the remaining would be sold by existing stockholders.

The underwriters have an option to purchase an additional 2.8 million shares. At the midpoint of the IPO range, Enfusion would raise almost $245 million. This doesn't include the underwriter option to purchase more shares.

The company intends to use the money to purchase equity interests in its operating subsidiary Enfusion Ltd. LLC from certain pre-IPO investors. The company intends to use the remaining funds to repay some of its debt and for general corporate purposes.

ICONIQ Growth, FTV Capital, and Hillhouse Capital are Enfusion's existing investors. Earlier this year, ICONIQ Growth invested $150 million in Enfusion, which valued the company at $1.5 billion.

At the given IPO price, Enfusion is seeking a market cap between $1.7 billion and $1.9 billion. The valuation isn't much different from its most recent private market transaction. Some of the recently listed fintech companies have managed to attract a massive premium over their private market valuation.

For instance, BNPL (buy-now-pay-later) company Affirm commanded a significant premium in its IPO earlier this year. The stock soared on listing but tumbled thereafter. However, it has since rebounded after it partnered with Amazon to offer BNPL solutions on its e-commerce platform.

Enfusion has a diversified revenue base and in 2020 the top 10 clients accounted for only about 12 percent of its total revenues. None of its clients account for over 3 percent of the revenues. Most of Enfusion's revenues are from recurring subscription-based revenues and the customer stickiness on the platform is strong.

According to Enfusion, only about 2 percent of its clients left voluntarily in 2020. It had 635 clients globally at the end of June and 106 of these were only added in 2021. The company’s dollar retention rate was over 122 percent in the June quarter, which looks healthy.

Enfusion estimates that its total addressable market is more than $19 billion. The company reported revenues of $50.8 million in the first half of 2021—a YoY rise of almost 37 percent. The company’s revenues increased 34 percent YoY in 2020 as well.

While most of the recently listed companies are posting losses, Enfusion posted a net profit of $8.4 million in the first half of the year. The company posted a net profit in 2019 and 2020 also.

At the midpoint of the IPO valuation range, ENFN is valued at a 2020 price-to-sales multiple of almost 23x. The valuations might appear steep on a standalone basis but look reasonable considering the business model, which has a very high percentage of annual recurring revenues.