- ARR at KX Insights leaps 69 per cent
- Not all business units performing evenly
The rapid revenue growth in outsourcing tech specialist FD Technologies’ (FDP) results showed the benefit of a full-year contribution from its data analytics division KX Insights, which benefits from a partnership with Amazon Web Services. For example, this business segment saw its annual recurring revenue (ARR) surge by 39 per cent to £65mn. However, it is still puzzling why the company struggles to maintain consistent profitability with a low capital base?
There seemed to be issues over both cost management – the company booked £8.7mn of one-off restructuring costs that wiped out profits at the reported level. In addition, expansion meant there was a big uptick in receivables, which increased by £22mn to £96.7mn, while the impairment losses on those receivables quadrupled to £2.64mn. In other words, FD is waiting for payment from more customers, while more of them aren’t paying at all, but it all goes with growing pains. Despite the heavy investment, the company’s gross margins were slightly better than this time last year at 41 per cent. The one area that showed a troubling reversal was MRP, which provides brand recognition services for companies – revenue in this segment fell by 19 per cent and management had to pare back costs to protect the operating margin.
FD’s complex structure – KX Insights is a subsidiary, for instance – plus losses make forecasting EPS tricky and a forward PE ratio virtually meaningless. However, the shares have responded well since we recommended them as a speculative buy and an improvement in other business areas could help the run to continue. Buy.
Last IC view: Buy, 1,430p, 18 Oct 2022
FD TECHNOLOGIES (FDP) | ||||
ORD PRICE: | 1,776p | MARKET VALUE: | £ 497mn | |
TOUCH: | 1,770-1,782p | 12-MONTH HIGH: | 2,385p | LOW:1,202p |
DIVIDEND YIELD: | NIL | PE RATIO: | NA | |
NET ASSET VALUE: | 716p* | NET DEBT: | 10% |
Year to 28 Feb | Turnover (£mn) | Pre-tax profit (£mn) | Earnings per share (p) | Dividend per share (p) |
2019 | 217 | 16.7 | 50.9 | 27.0 |
2020 | 238 | 18.3 | 55.9 | 8.50 |
2021 | 238 | 11.1 | 32.7 | nil |
2022 | 263 | 9.00 | 23.1 | nil |
2023 | 296 | -1.77 | -14.4 | nil |
% change | +13 | - | - | - |
Ex-div: | - | |||
Payment: | - | |||
*Includes intangible assets of £175mn, or 625p a share |