- Adjusted pre-tax profit up 15 per cent to £6.9mn
- EPS up 29 per cent to 5.3p
- 124 per cent underlying cash flow conversion
Fintel (FNTL:185p), a provider of compliance, business and technology services to financial intermediaries, delivered an impressive first-half cash flow performance while at the same time reporting 9 per cent growth in its core revenue to £27.1mn (excluding a flat £5.1mn revenue contribution from non-core property surveying).
The group’s well-respected management team continues to make progress with increasing Software-as-a-Service (SaaS) revenue and converting more distribution partners to multi-year subscription agreements. A key take was the 21 per cent higher revenue of £9.4mn in the group’s fintech and research division (Defaqto), a provider of financial information and research to product providers and intermediaries, as well as ratings that help consumers compare and buy financial products with confidence. Higher uptake and usage of the service, and the positive contribution from a strategic distribution agreement with Tatton Asset Management, were key drivers. In fact, the Tatton agreement helped increase the divisional contribution from high-margin software by almost a quarter to £4.6mn. Ratings’ revenue rose by 10 per cent to £4.2mn.
The group is not only reporting higher levels of profitability, but the SaaS and subscription segments generate 66 per cent recurring revenue, so it’s a higher-quality income stream, too. Around 70 to 80 per cent of cash profit converts to free cash flow, hence why Fintel’s net cash has trebled to £7.6mn in 2022 and could hit £12.5mn (12p a share) by the year-end, according to house broker Zeus Capital. Moreover, net cash could almost double again to £23.6mn (23p a share) by the end of 2023 assuming Fintel only maintains this year’s EPS forecast of 12p and its impressive cash conversion.
On this basis, the shares are priced on modest cash-adjusted PE ratios of 14.4 (2022) and 13 (2023), and offer a prospective dividend yield of 1.7 per cent (2022). In part, the low rating reflects investor risk aversion amid the current stock market uncertainty – the shares have followed Aim down since the annual results (‘Positioned for strong sustainable growth’, IC, 22 March 2022) – and expectations of modest earnings growth next year.
However, the rating fails to reflect Fintel’s solid growth potential, which is underpinned by an increasingly complex regulatory landscape and the need for consumers to either seek advice or take direct ownership of their own financial planning. Medium-term buy.
Simon Thompson was named Journalist of the Year at the 2022 Small Cap Awards.
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