FDM Group (Holdings) PLC

FDM Group (Holdings) PLC (LON: FDM) is a FTSE 250 listed global professional services provider. It provides solutions related to recruiting, business consultancy, training, and deploying its own permanent IT services on-site or remotely. Its capabilities include Data Engineering, Cyber Security, Robotic Process Automation, Machine Learning, Artificial Intelligence, Project Management Office, IT Service Management, Testing, among others.

On 28 July 2021, FDM has scheduled to release its interim results for the six months ending 30 June 2021.

Technological Trend and Advancements

Amid Covid-19 pandemic induced restrictions, the Technology sector has emerged as a defensive bet since the remote working environment encouraged the requirement of cloud computing, artificial intelligence, technology tools to abstain from cyber-attacks, internet-of-things, among others.

To take advantage of supporting market trends, FDM has revised its training courses with greater emphasis on technical disciplines. It has also expanded the network of its pop-up centres to deliver training to meet localised demand. Moreover, FDM has a strong market share in the financial services sector, which has been boosted by the accelerated digitalisation trend induced by the pandemic. The new product launches and deepened client relationship with robust Mounties shall generate further growth.

Growth Prospects

• Solid Fundamentals: FDM has maintained a progressive and sustainable dividend policy on the back of robust cash generation, operational effectiveness, resilient business model despite the Covid-19 pandemic. The solid fundamentals are underpinning its ability to invest in training abilities, develop high-calibre Mounties, diversify client base, and expand the geographic presence.

 (Analysis done by Kalkine Group)

• Resilient Business Model: FDM has a track record of robust credentials with over 30 years of operational success. It has flexible resources with more than 3,500 Mounties assigned to clients at a competitive price. It employs over 5,000 people in around 85 nationalities to provide professional services with bespoke approach.
• Strong Client Relationships: FDM has solid international presence with localised support, extensive award-winning training, cost-effective model, and scalable capacity. FY21 has presented an impressive deal volumes and client activity to increase demand for Mounties.

Risk Assessment

• Impact of Covid-19: The prevailing health emergency can cause a significant reduction in new Mountie placements. Moreover, the pandemic induced restrictions have led to the global economic downturn, adversely impact the revenue and operating profit with the shrinking customer base. Consequently, it can hurt the share price as well.
• High Financial Sector Concentration: As most of the revenue is contributed by the financial services sector, any financial crisis with economic downturn can lead to credit risk and customer loss.
• Inconsistent Demand and Supply: The lag between the inability to recruit Mountie resource timely and a rapid demand upsurge can erode consumer confidence and damage the Company’s reputation.
• Operational Risk: The business is also exposed to several operational uncertainties, such as cyber-attacks, loss of market share with the inability to expand service offerings, business interruption, and failure to comply with regulatory compliance.
  

Now we will analyse some key fundamental and shareholders statistics of FDM Group (Holdings) PLC

Recent News and Regulatory Developments

AGM Statement: On 28 April 2021, FDM unveiled its strong balance sheet position with no debt and £50 million of cash (as on 31 March 2021). Moreover, the Group is well placed to capitalise on the growing demand for Mounties and return to pre-pandemic levels by ramping up recruitment and training programmes.

Financial Highlights (for the year ended 31 December 2020, as on 10 March 2021)

• During FY20, FDM demonstrated a resilient financial and operational performance despite the challenges presented by the Covid-19 pandemic.
• In comparison with FY19, there was a 1% decline in revenue, a 22% decline in profit before tax, and a 24% fall in basis earnings per share. Nevertheless, cash conversion remained robust in FY20 (at 158.4%), with a 46% increase against FY19.
• At the end of FY20, FDM maintained a strong balance sheet with £64.7 million in cash (FY19: £37.0 million), supported by a 15% year-on-year increase in cash flow generated from operations.
• Subsequently, there was a 191% year-on-year jump in total dividend per share for FY20. As a result, the final dividend of 15 pence per share was recommended for FY20.
• FY21 has started well with robust deal volumes and good demand levels across most of its geographies, while the Company has been ramping up recruitment and training levels to meet this demand.

Financial Ratios (FY20)

Share Price Performance Analysis

 (Analysis done by Kalkine Group)

On 4 June 2021, at 10:30 AM GMT, FDM Group (Holdings) PLC’s shares were trading at GBX 976.00, down by 0.61% against the previous day closing price. Stock 52-week High and Low were GBX 1,208.00 and GBX 835.00, respectively.

FDM’s stock price is trading in a long ascending triangle pattern on a monthly chart. Moreover, the price is trading above its 21-period and 50-period simple moving average, which may act as a crucial support zone at lower end in short term. RSI (14) is hovering near to moderate levels ~52 indicating indecision in the stock prices.

Valuation Methodology: Price/Earnings Approach (FY21) (Illustrative)

Business Outlook Scenario

On the back agile and highly cash-generative business model, FDM delivered a solid performance in FY20 despite the exceptional disruption presented by the pandemic. The operational excellence substantiated a successful transition to the remote delivery of Mountie services and remote training. Moreover, FY21 has been optimistic so far with favourable demand dynamics and a strong balance sheet position. The Company has accelerated its recruitment and training activities to capitalise on strong deal volumes and encouraging client activity levels. In a nutshell, FDM is well-positioned for return to growth with solid client relationship, flexible & low-risk business model, and evolving products with favourable digitalisation trends. The Company is targeting the placement of 5,000 Mounties in the medium term.

Based on the solid financial and operational performance, highly cash-generative business model, encouraging demand trends for Mounties, decent dividend policy, and support from the valuation as done using the above method, we have given a “BUY” recommendation on FDM Group (Holdings) PLC at the current market price of GBX 976.00 (as on 4 June 2021 at 10:30 AM GMT) with lower double-digit upside potential based on 38.48x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.). 

*All forecasted figures and Industry Information have been taken from REFINITIV.

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

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

Disclaimer

References to ‘Kalkine’, ‘we’, ‘our’ and ‘us’ refer to Kalkine Limited.

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