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The highs and lows of First Derivatives

The technology group saw its shares ascend on the interim numbers, after bearish concerns
November 6, 2018

It was the best of times, it was the worst of times. With apologies to Mr Dickens, his famous words might apply to First Derivatives’ (FDP) peak-to-trough share price trajectory over the past year. Indeed, July’s high of 4,800p tumbled to a nadir of 2,280p on 11 October – a decline seemingly triggered by bearish research from ShadowFall Capital & Research LLP.

IC TIP: Hold at 3490p

That said, shares in the tech group enjoyed a considerable mark-up on the latest half-year numbers. Top-line momentum sustained throughout the P&L, with gross profits rising 21 per cent to £43.9m – giving an underlying margin of 41.6 per cent, up slightly from the 2017 comparative. The software division saw sales rise 21 per cent to £63.1m (constituting 60 per cent of total revenues) while its gross margin rose 4 percentage points to 55 per cent.

Pre-tax profits also improved, despite a 14 per cent rise in total research and development costs and an increase in other expenses. Moreover, management cites “strong momentum” so far for the second half, giving rise to expectations that full-year revenues and cash profits will be “slightly ahead” of consensus forecasts.

Broker Investec forecasts adjusted pre-tax profits of £26.7m and EPS of 78.2p for the year to February 2019 (from £24.4m and 72.2p in FY2018).

FIRST DERIVATIVES (FDP)  
ORD PRICE:3,490pMARKET VALUE:£907m
TOUCH:3,480-3,500p12-MONTH HIGH:4,800pLOW: 2,280p
DIVIDEND YIELD:0.7%PE RATIO:77
NET ASSET VALUE:536p*NET DEBT:17%
Half-year to 31 AugTurnover (£m)Pre-tax profit (£m)Earnings per share (p)Dividend per share (p)
201787.86.318.27.0
20181067.623.07.7
% change+20+20+26+10
Ex-div:15 Nov   
Payment:06 Dec   
*Includes intangible assets of £157m or 604p a share