Woking-based fintech company Fidessa (FDSA) has come under investor selling pressure in early trade on Wednesday. At 11am, the shares are down about 2% to £24.61, not a huge move lower but big enough when you consider the firm’s £950m-odd market value.
It makes the stock the UK’s biggest technology faller, based on the London stock market’s techMARK index.
The main reason for today’s decline is an initiation note from analysts at broker Stifel, flagging the catalogue of risks to the business, and current valuation.
WHO IS FIDESSA
Fidessa is a global leader in trading software systems and data to financial institutions. It runs two units. Sell side provides solutions and tools to support cash equities and derivatives trading around the world.
The buy side arm supplies systems that cover all stages of the investment process, for all asset classes.
Customers are spread across the four corners of the globe, the business earns near-90% recurring revenues and it has a super cash generation reputation. That makes for a history of dividends, including one-off bumper payments.
What’s not to like, you might think.
LONG-RUN THREATS
The questions that investors should be asking themselves remain the same as they have for several years; is there any hope of returning to past growth glories, and how does the share price continue to defy gravity?
As Stifel explains, headwinds include the cyclical downturn in cash equity trading, and whether this is masking a structural decline; the impact of MiFID II regulations in January and their expected tough impact on Fidessa’s broker customers, and the persistent uncertainty over Brexit implications.
Regular Shares readers will likely be aware of these issues (click to access our Fidessa article archive).
HIGH-QUALITY BUSINESS, BUT A MATURE ONE
As we have said in the past, we have the greatest respect for the Fidessa management team and CEO Chris Aspinwall, and believe the existing business is a high-quality one.
But it is no longer a growth one. What’s more, as we wrote at the start of November, we do not see a private equity-backed buyout offering shareholders an exit.
Which makes the 2018 forward price to earnings multiple of 25 look expensive. Even more so when you consider the pedestrian low-to-mid single digit growth of both revenues and earnings.
The 2018 dividend yield is currently 3.9%.
