A senior manager at global financial trading software supplier Fidessa (FDSA) has sold 10,000 shares, netting a nifty £212,000. Paul Nokes, Fidessa's global buy-side chief is not a director but he's deemed senior enough to have to make the announcement to the market. While not terribly newsworthy itself, given that Nokes retains a 107,827 share stake in the business worth a cool £2 million-plus based on today's £20.30 share price, it does provide an opportunity to throw a few ideas around about the company.
Fidessa has built its business on an equity trading floor, selling very high-spec buy-side, sell-side and data tools to global financial institutions. Many of the City analysts I talk with regularly use it. But the company is in a slump. For about two years it has been expanding into the derivatives space, with muted success, and it's clear that many existing and new customers are still suffering hangovers from the global markets meltdown of 2009/10.
This can be seen in the company's sales trend. Revenues in 2010 rose a respectable 10% to roughly £262 million, edged 6% higher the following year before flatlining in 2012. Analysts see zero growth again this year and even optimistic forecasts beyond 2014 pitch low-to-mid single digit growth. If Fidessa was a base player, it would be batting close to the Mendoza line.
Yet Fidessa has for years been seen as one of the UK tech space's high-quality companies – Panmure Gordon counts it as one prong on an 'elites' trident along with CAD firm AVEVA (AVV) and communications kit tester Spirent (SPT), funnily enough both struggling with their own growing pains of late. The company claims 85% of the world's premier financial institutions as customers.
Yet in last month's brief trading update Fidessa's respected chief executive Chris Aspinwall effectively repeated what he's been saying for months – financial markets are unpredictable (aren't they always?), customers are seeing some improvement but not enough to dust-off the cheque book.
Weird when you think that the FTSE All-Share is up 16% this year, the Dow 23% higher and even the pan-European DJ Eurostoxx 50 Index is up close on 20%. Most analysts seem content to peer deeper into the future for the promised land of growth for Fidessa, yet perhaps that's the wrong way to see the story. As one analyst I chatted with recently suggested, maybe Fidessa's future is not of rapid growth, but as a cash cow, a la Micro Focus (MCRO).
After all, Fidessa has a large installed base of about 25,000 users worldwide, to which it largely sells mission-critical multi-asset products that generate 85% recurring revenues. Yep, 85%. That means roughly £238 million of the £280 million revenue forecast this year to end December was effectively bagged in January. Talk about transparency and predictability.
It generated £40 million of operating cash in the first half to June, with free cash flow expected to return to a more normal £35 million in 2014. The anticipated dividend of 85p next year implies a 4% yield yet there maybe room for another special payout, having returned £25 million last year. It could perhaps make this sort of cash return a regular feature if it decided to concentrate a little less on growth return and a little more on cash flows.