Beeks Financial Cloud Group PLC (LON: BKS)

Beeks Financial Cloud Group PLC (LON: BKS) is an FTSE AIM All-Share listed leading provider of cloud computing, connectivity and analytics for the clients engaged in financial services. Moreover, it is a UK-based Company having an international network of 18 data centres, supporting global customers at scale in the leading financial centres.

Technological Initiatives

• Beeks Analytics as a Service: It is the first cloud-neutral network monitoring and trade analytics tool for the financial markets, providing further competitive differentiation and additional cross-sale opportunities.
• Proximity Cloud: It is a private cloud offering specifically developed for capital market participants and financial institutions. Moreover, the Company had managed to sign USD 1 million partner just after four weeks of the launch.

Growth Prospects (also covers Trading Update released on 27 September 2021)

• Increased Proportion of Revenue from Institutional Clients: The Company’s institutional revenue represented almost 91% of the total revenue during FY21, while it was just 85% during FY20.
• Positive Industry Dynamics: With reference to the data available from the industry expert, the global cloud computing market size is expected to grow at a CAGR of around 17.50%, from USD 371.4 billion in 2020 to USD 832.1 billion by 2025. Furthermore, the global cloud infrastructure services market is expected to grow at a CAGR of around 18% between 2019 and 2024, driven by low costs, flexibility, scalability, and security.
• Operational Expansion: BKS had expanded its footprints in data centre geographies, with operations now in Canada and Australia. Moreover, the Company had enhanced future revenue streams through collaboration with SGX, IPC and MEMX. In addition, the successful integration of Velocimetrics into the business had broadened the product offerings.
• Strong Q1 FY22 Performance: The annualised committed monthly recurring revenue had increased from £13.8 million for FY21 to £15.0 million for Q1 FY22. Meanwhile, the Company had managed to win USD 1.1 million multiyear analytics deal with a Tier 1 Bank for an Asian deployment during Q1 FY22.

Key Risks

• Reduced Demand for Products: The Company has several clients who may seek products at a lower price, and it could hamper the growth trajectory.
• Lack of Relevant Technological Advancement: The Company’s top-line business and bottom-line business would be adversely impacted in case BKS lacked innovation in developing new products.
• Federal Tapering: The expected Federal tapering at the pace of USD 15 billion per month starting later this month may adversely impact the equity markets. Moreover, the Bank of England decided to keep interest rates unchanged in its latest meeting.
  

Now we will analyze some key fundamental and shareholders statistics of Beeks Financial Cloud Group PLC.

McArthur (Gordon) is the most significant shareholder as it holds nearly 26.29 million shares as of 30 September 2021. 

Financial and Operational Highlights (for twelve months ended 30 June 2021 as of 27 September 2021)

(Source: LSE Website)

• Robust Revenue Growth: The high levels of recurring revenue and increased customer retention drove revenue higher by around 24% to £11.62 million during FY21.
• Decent Growth in Profitability: On the profitability front, the underlying profit before tax rose by around 13% to £1.61 million during FY21, while it was around £1.43 million for FY20.
• Strengthening of Balance Sheet: With regards to the balance sheet, the Company had witnessed a favourable turnaround and reported net cash of £1.89 million as of 30 June 2021, while it had reported a net debt of £0.75 million for FY20.

Financial Ratios (FY21)

Share Price Performance Analysis

 (Source: Refinitiv, Research done by Kalkine Group)

On 5 November 2021, at 10:46 AM GMT, BKS’s shares traded at GBX 181.80, up by around 1.28% against the previous day closing price. BKS’s 52-week High and Low were GBX 210.00 and GBX 86.50, respectively.

On a daily chart, the stock price is sustaining between the lower Bollinger band and the middle Bollinger band. Hence, there could be an uptick in the stock price in the near term.

BKS’s stock has delivered a decent positive return of ~83.16% in the last one year. Also, it has outperformed the FTSE All-share Software & Computer Services Index with a return of 22.28% and FTSE AIM All-Share with a return of around 26.76%.

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Business Outlook 

The Company had replicated the robust business performance of FY21 into FY22 as well, with record sales of more than USD 5 million of total contract value through July, August and September 2021. Moreover, BKS had anticipated FY22 revenue to remain ahead of the current market expectations. Meanwhile, the Company had decided to invest additional revenue towards the further development of the Proximity Cloud offering, strengthening the growing sales pipeline and significant market opportunity.

Considering the penny nature of the stock, BKS may undergo undesired correction amid rising bond yields and expected tapering by the end of this month. In a nutshell, BKS remained confident of achieving the growth ambitions and generate long-term returns for the shareholders driven by the growing demand for cloud computing and connectivity from financial services organisations.

Considering the solid revenue growth during FY21, several key technological developments, improved cash position, decent bottom-line business, and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on Beeks Financial Cloud Group PLC at the current price of GBX 181.80 (as on 05 November 2021 at 10:46 AM GMT), with lower-double digit upside potential based on 61.07x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.).

*The reference data in this report has been partly sourced from REFINITIV.

*All forecasted figures and Peer information have been taken from REFINITIV.

*Dividend Yield may vary as per the stock price movement.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

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