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FD Technologies signs exciting Microsoft partnership

The partnership means that any Azure users will be able to use FD Technologies' KX Insight platform
May 10, 2022
  • Profits slip after increased investment in marketing and R&D
  • KX Insights annual recurring revenue forecast to grow 35 per cent

FD Technologies (FDP) is providing a welcome ray of light amongst the battered global tech sector. The company which provides technology to help customers better optimise data is pushing on successfully with its growth strategy.  

Its cloud native KX Insights platform signed 99 subscription agreements during the year, a 148 per cent increase on last year. Net revenue retention also increased to 106 per cent. So, not only is it bringing in new customers, but the existing ones are also happy to spend more. A good endorsement of the product.

Another endorsement is new partnership with Microsoft. Any Azure [Microsoft’s cloud product] customer will be able to consume KX Insights and the Microsoft sales teams will be incentivised to sell KX Insights.

Alongside this, Microsoft will “jointly develop applications and services for the financial services sector”. For important context, 95 per cent of all Fortune 500 companies are customers of Azure. However, the general public will have to wait until the first half of 2023 for availability of services.

In these results, cash profits did slip 23 per cent to £31mn because of a £5.2mn increase in research and development (R&D) spend and a £8.1mn rise in marketing costs. On its own, the fall in profits isn’t too worrying, though, because the company is still in a high cost marketing phase.

Adjusted cash profit margin was a respectable 11.8 per cent. Next year, management expects the margin to improve by around a percentage point, while revenue is forecast to rise to between £290mn and £300mn.

Broker Peel Hunt currently has FD Technologies on an expensive 2023 PE ratio of 47.5, but expects it to fall to 34 in 2024. It is true that companies trading on high multiples are currently under pressure. However, when the Microsoft partnership kicks into action and marketing spend is scaled back there should be an uptick in profitability. Buy.         

Last IC View: Hold, 2,070p, 2 Nov 2021                             

FD TECHNOLOGIES (FDP)   
ORD PRICE:2,480pMARKET VALUE:£690mn
TOUCH:2,480-2,505p12-MONTH HIGH:2,810pLOW: 1,276p
DIVIDEND YIELD:nilPE RATIO:107
NET ASSET VALUE:692p*NET DEBT:12%
Year to 28 FebTurnover (£mn)Pre-tax profit (£mn)Earnings per share (p)Dividend per share (p)
201818612.140.424.0
201921716.750.927.0
202023818.355.98.5
202123811.132.7nil
20222639.0023.1nil
% change+11-19-29
Ex-div:na   
Payment:na   
*Includes intangible assets of £156mn, or 560p a share