Shareholders in Fidessa (FDSA) are being handed a very decent 50p per share sweetener alongside today’s full year to 31 December 2016 results.
That special payout alone implies a 2% return based on today’s £25.04 share price, after a 4%-odd rally. There’s another 42.5p from ordinary dividends too, taking the total income for 2016 to 92.5p.
Woking-based Fidessa is a global leader in trading software systems to financial institutions. It has customers all over the world, but although the US remains its biggest single market (43% of revenue), and 87% of those sales are of a annually recurring nature, underpinning its fine cash generating reputation. It is good at what it does and customers tend to stick around.
CASH IN A LOW GROWTH MARKET
But payout returns come in place of growth, which is decidedly limited, a point Shares has discussed many times before. The headline figure of 12% revenue growth is substantially pumped up by large overseas earnings (about 70% of the total) and so benefit from the pound’s plunge. Revenue expansion if you strip out currency effects amounts to just 3%.
The 21% jump in earnings per share (EPS) was also helped by low capex in 2016. A big office move in New York (across the Hudson to New Jersey) will likely depress EPS expansion in 2017.
CEO Chris Aspinwall, who has been with the business since 1986, would love to find more interesting, value-adding ways to reinvest surplus cash, but he’s rightly very fussy about what he buys. In the absence of a ‘Goldilocks’ target, he simply puts M&A to the side and hands back extra cash to shareholders.
Investors are clearly very happy with this arrangement - it’s why the share price has typically traded on a price to earnings (PE) multiple in the mid-20s or higher, as it does currently.
UNCERTAINTY IS EASING
After a 2016 of surprises and uncertainties (particularly Brexit vote and Trump’s win) Aspinwall now thinks that there is a slightly clearer picture emerging, one of opportunity. The introduction of MiFID II regulations across the Eurozone at some point next year will likely include the UK too, upping the demand, the Fidessa CEO hopes, for the company’s compliance-friendly, automated trading software.
The early signs are promising in the US too. There’s been noise about deregulation under Trump, but Aspinwall’s anecdotal evidence so far from the States is that senior financial markets appointments in the new administration are largely welcomed.
‘There’s more technology in finance than ever,’ Aspinwall says, it’s becoming vital for the multitude of ‘robo-trader’ platforms proliferating the markets. Fidessa is well placed to fill the demand gaps with its platform infrastructure.
