Get growth and income with FDM

FDM, which was taken private in early 2010 then re-listed this June, operates in 11 countries and caters to a £10bn professional IT services market. Its Mounties are recruited from local graduate and ex-military populations and trained in areas such as data analysis and project management. They are then placed with clients for an average of 18 months, after which they are hired, rejoin FDM or leave.

The group had over 1,300 Mounties working with clients at the end of last half – a quarter more than a year earlier – and broker Investec expects that figure to exceed 1,500 by the end of this year. FDM also employs around 300 freelancers, but is increasingly phasing them out in favour of Mounties which drive higher margins.

The steady growth of FDM’s army of consultants has translated into financial gains. For instance, the group’s cash profits quadrupled to over £23m between 2009 and 2013. Moreover, in the first half of this year, its net fee income – Mountie revenues plus the gross margin on its freelancers – grew 19 per cent to about £43m. And its operating profit rose 10 per cent to £10.7m once one-off listing costs of about £5m are stripped out.

FDM is highly selective in its choice of trainees – about 700 of 30,000 applicants became Mounties last year. That helps it to attract big-name customers and explains why one additional Mountie brings in an estimated £30,000 in annual gross profit. Moreover, its model lets customers "try before they buy" and encourages long-term partnerships, leading to further hiring for other projects, departments and locations. It’s also flexible, as FDM can tweak its training to focus on in-demand skills such as project management or ‘big data’ analysis and it charges a daily rate for its Mounties.

The benefits of its flexible, adaptable business model can be seen worldwide. FDM deployed 950 Mounties in its core UK market last half - a 21 per cent rise – boosting its Mountie revenues by 15 per cent to about £30m. North America also performed well with Mountie revenues up about 64 per cent, while total sales grew 30 per cent in Asia Pacific, albeit from a small base.

As those figures attest, FDM offers investors significant global exposure. For instance, it recently expanded into South Africa and mainland China, opened academies in Toronto and Glasgow and relocated its flagship London academy to larger premises. Expanding has also boosted capacity, allowing it to train over 1,500 Mounties annually.

FDM’s shares might appear pricy, trading at 17 times forecast earnings for 2015, a premium to peer Computacenter’s rating of 13 times. But that's justified by its larger forecast 2015 yield of over 4 per cent and expected top-line growth of 15 per cent this year, compared to 2 per cent at Computacenter. Moreover, broker Investec - which has a 400p price target on FDM’s shares - expects mid-teen earnings growth both this year and next.

Of course, FDM has encountered some rough terrain. Its decision to no longer provide freelancers resulted in a temporary knock-on 5 per cent slump in Mountie revenues in Europe, the Middle East and Africa. And it may be harder to recruit high-quality, dedicated graduates in a competitive, recovering economy.