0R15 9025.0 0.0% 0R1E 9410.0 0.0% 0M69 None None% 0R2V 247.99 9682.643% 0QYR 1567.5 0.0% 0QYP 439.3701 -2.9016% 0RUK None None% 0RYA 1597.0 1.2682% 0RIH 195.55 0.0% 0RIH 191.4 -2.1222% 0R1O 225.5 9683.0803% 0R1O None None% 0QFP 10475.8496 107.8542% 0M2Z 252.573 0.2373% 0VSO 33.0 -7.3164% 0R1I None None% 0QZI 622.0 0.0% 0QZ0 220.0 0.0% 0NZF None None% 0YXG 222.05 -4.1318%
First Derivatives PLC (LON: FDP) – Well-positioned to capitalise on considerable opportunities ahead.
First Derivatives PLC (LON: FDP) is a FTSE AIM UK 50 Index listed Software & Computer Service Company, which provides consulting services to the world’s leading companies from the technology, energy, and finance domain. Its Kx technology provides pioneer in-memory computing, operational intelligence, and high-performance streaming analytics. The Company has over 20 years of experience and operates from 15 offices across North America, Europe, and Asia Pacific. It is headquartered in Newry and employs over 2,400 people globally.
(Source: Presentation, Company Website)
Growth Prospects and Risk Assessment
The growing demand for digital acceleration has created ample opportunity for the Group. The release of the 4.0 version of Kx shall increase the Company’s competitiveness. The resilience of the business model has ensured revenue growth despite the challenging trading environment. It is also making strong progress against strategic objectives with the enhancement of go-to-market capabilities and internal structure. Further, the Company progressed towards the market leadership position by significant contract wins in the core FinTech market. During H1 FY21, industrial recurring license revenue demonstrated 46% year-on-year growth in revenue. Overall, FDP is confident of growth opportunities in the medium-term and will continue to invest in research and developments to maximise its market position.
However, increasing incidents of cyber-attacks can put data security at risk. Also, the travel restrictions can have an impact on new business and pipeline opportunities. Similarly, lengthening of the sales cycle could have an impact over cash flows. Adjacently, increased competition can affect the Company's leadership position and its growth trajectory.
Industry Outlook Dynamics
The UK technology sector is both diverse and broad as it is involved in the development, scaling, and implementation of various technologies, including the Internet of Things, 5G communications, and artificial intelligence. As per the Valuates’ publication, the market size for global Software as a Service is projected to reach from US$158.2 Billion in 2020 to US$307.3 Billion by 2026, representing a CAGR of ~11% during 2020 to 2026. The drivers that will influence the market size includes the convergence of artificial intelligence, increased usage of smartphones and laptops, and increased adoption of SaaS solutions for human capital management. However, the increased threats to data security could impact market growth.
(Source: Presentation, Company Website)
After understanding the industry dynamics, we will analyse some key fundamental and shareholders statistics of First Derivatives Plc.
Recent Developments
On 25 January 2021: The Company had allotted 28,000 new ordinary shares, which is at a price of 0.5 pence each. Therefore, the total issued share capital of FDP will increase to 27.66 million ordinary shares.
Graham Ferguson had stepped down as Chief Financial Officer and from the Board on 1 January 2021. Ryan Preston has been appointed as a new Chief Financial Officer.
A Glimpse of Business Segments (H1 FY21)
Financial and Operational Highlights (for the six months ended 31 August 2020 (H1 FY21), as on 27 October 2020)
(Source: Company Website)
Financial Ratios
Share Price Performance Analysis
On 2 February 2021, at the time of writing (before the market close, at 9:15 AM GMT), First Derivatives PLC’s shares were trading at GBX 3,140.00, up by 1.29% against the previous day closing price. Stock 52-week High and Low were GBX 3,625.00 and GBX 1,700.00, respectively.
From the technical standpoint, 200-day SMA (2,895.48), and 200-day EMA (2,930.63) are supporting the upside potential.
In the past two years, FDP’s stock price has remained resilient with a positive return of ~45.54%; it has significantly outperformed the FTSE All Technology and FTSE AIM UK 50 index with a positive return of nearly +13.86% and +28.45%, respectively.
Valuation Methodology: EV/Sales Approach (NTM) (Illustrative
Business Outlook Scenario
FDP has been growing recurring revenue within FinTech and having an attractive pipeline of opportunities across geographies and solutions in which they operate. It entered FY21 with good momentum and a clear strategy to deliver strong growth. Moreover, no material impact from Covid-19 was observed over the business. It has a high level of financial liquidity and robust balance sheet to weather any disruption and grow the business further through strategic investments. In the short-term, high level of recurring revenue shall also provide business resilience. In the longer-term, it is confident of the growing demand for Kx streaming analytics from both partners and potential customers.
(Source: Presentation, Company Website)
Considering the resilient performance, high level of recurring revenue, strong liquidity position, sustainable business growth rate trajectory, solid balance sheet, and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on First Derivatives at the current market price of GBX 3,140.00 (as on 2 February 2021, before the market close at 9:15 AM GMT) with lower double-digit upside potential based on 4.42x EV/NTM Sales (approx.) on FY21E sales (approx.).
*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.
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