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Headlines. H125 revenue -31% to £97.3m, EBITA -48% to £9.1m and EPS 6.3p, down 46%. Cash conversion was strong at 155% with net cash £34.6m (H124 £36.9m). H125 billable headcount fell 37% yoy to 2,173, compared to 2,578 FY24 and 2,366 end April. Utilisation was steady at 91.6% with the bench tightly managed. An interim 6.0p dividend (H124 10p) was declared. Tough backdrop continues. Clients continue to delay and defer spending with FDM having little visibility on when orders may fall. There are high levels of client discussions, but orders are protracted. FDM has also been impacted by high levels of internalisations and returners from a large client undergoing a restructuring due to regulatory fines, not related to FDM. This backdrop makes forecasting challenging; we believe the best route is to effectively expect similar conditions in H2. We have reduced our year end consultant heads to 2,033 from 2,518 as discussed overleaf. Cost alignment. Costs have been materially cut over the last couple of years and cutting a lot deeper from here would damage the fabric of the business, impact client service and leave FDM ill-prepared for when the market eventually recovers. We expect further opex realignment but not swathes of costs out, so our H225 headcount and revenue reduction will materially impact profit levels. We cut FY25E EBITA by 38% to £14.1m from £22.8m, with FY26E falling 46% to £13.9m from £25.8m, as discussed overleaf. Low base. Headcount of c2,000, with no large client risk anymore suggests risks are to the upside considering the large deals in the pipeline, with any one deal making a material difference off this low base. However, it is unwise to factor this in for now, but highlights that growth should snap back in due course. View. An early stage 25p EPS recovery scenario at 15x PE gives a 400p TP.
FDM Group (Holdings) plc
FDM+ (FDM, House Stock at 195p) - Tough conditions persist for longer
FDM+ (FDM, House Stock at 249p) - AGM update; managing the uncertainty
AGM update. At FY24 results in March, it was clear to us that FDM was seeing early signs of a sustained recovery and we reiterated our Buy, seeing this as directionally the bottom of the cycle. The statement confirms the positive Q1 trading pattern. However, since the tariff saga, this recovery has largely stalled, with macro uncertainty impacting customers’ deal timings and putting renewed hesitancy into client decision-making. This is evident from the implied soft April headcount month prompting us to reduce FY25E heads to 2,518 (2,848). Cash is strong at £42m (Apr FY24 £46m). FDM outlook. The company is responding to this change of backdrop with further focus on cost management, slowing recruitment and reducing discretionary expenditure, while still maintaining the capability to serve clients and new orders. There are positive areas, such as UK Government (recent increase in activity) and Australia (strong trading performance), but overall headwinds from consultants returning to the bench and fewer new orders than expected are putting pressure on net billable headcount. FDM expects close management of costs, which we outlined, to offset the revenue impact. Forecasts. We opt to build in some caution. If the tariff impact on the macro backdrop lifts soon, we will likely have to move our forecasts back up, but at this stage we believe it prudent to be pre-emptively cautious. FY25E revenue £199.6m (£214.6m) -7%, PBT £23m (£25.5m) -10%, EPS 15.3p (17p) -10%, and DPS 15p (16p) -6%. FY26E revenue £208.9m (£230.8m) -9%, PBT £26m (£29.2m) -11%, EPS 17.3p (19.5p) -11%, and DPS 17p (18p) -6%. View. The tariffs cut short early signs of recovery, but when sentiment improves demand could come quickly and FDM is well placed. The paltry valuation offers material upside when it does, although timing is difficult to call.
The FY update is a touch ahead of our ARR number and within the guidance range, with a relatively strong beat on adjusted EBITDA loss (c.£14.6m vs £20.0m expected) as well as net cash (c.£56m vs £48m expected). The real story is the acceleration in ARR in H2 to give full year ARR growth of 13%, up from H1 ARR growth of 8%. Underlying data is encouraging, with FY25 being a year with some exceptional churn (>10% vs normal 5%-7% churn by value), meaning gross ACV addition was strong, in the c.20%-25% yoy range and leaving the FY26 outlook of “at least 20%” ARR growth appearing credible. We will update forecasts fully at FY results stage, but guidance points to ARR / cash EBITDA upgrades; meanwhile EPS loss is tweaked marginally related to pricing on the H2 special dividend. H2 momentum tallies with results in recent months from certain US data software peers, such as Snowflake and Elastic (both NR), where there is also an “AI” component to growth. DeepSeek fallout should also be a tailwind, with lower LLM inferencing costs helping ROIs around enterprise data deployment. Aerospace and defence has started to work well after several years of seeding, helped by a solid integration partnership (SRC), while recent FDM results point to green shoots of recovery on a widespread basis in capital markets. Sales & marketing investment is rising, in a highly targeted fashion; LTM gross ACV addition / S&M spend is strictly tracked against a target range of 0.7x-0.8x (a US SaaS norm) over relatively short timeframes, with “use cases” within specific verticals much more hard-baked than before, helping account for the improved execution. We retain Buy and our TP, based on c5x FY26E EV/sales, but reiterate that KX has billion-dollar plus long-term value potential (see here for detail).
FDM Group (Holdings) plc FD Technologies PLC
FDM+ (FDM, House Stock at 222p) - FDM+ (FDM, House Stock at 222p)
Numbers. Set against the FY24 challenging backdrop, revenue fell 23% to £257.7m with PBT of £34m a touch ahead of our £32.2m. Adj EPS was 23p with a 22.5p dividend, ahead of the 20p EPS that includes the cash exceptional, a subtle positive message of further cash confidence. Cash conversion was strong at 121% with £40.6m FY24 cash, down 14% from lower profits. Billable headcount finished at 2,578, down 34% with Skills Lab coaching completions reduced to reflect the backdrop, finishing at 877 vs 1,338 in FY23. There was a c£4.9m exceptional charge relating to staff reductions (consultants, bench, operational staff) to adjust to the backdrop. We outline the divisional results and headcount assumptions overleaf. Subtle improving trends. Looking ahead, it is of note that the group is starting to hire across most regions, albeit not at massive pace, but it is in response to improved sentiment and signs of buying across much of the client base. Benches are being depleted through demand in many regions and decisions are being made to gradually increase hiring. Directionally important. The narrative is that deals are still smaller size, but the flow has been improving since late Autumn 2024, with this update suggesting some sustainability. It needs to be balanced that this uptick is required to meet our forecasts, where we have built in a net 270 new billable heads. If demand were to pick up materially, then FDM may need to increase hiring faster, a potential cost, but we expect that would be seen positively. Shares mispriced. The stock decline suggests the market is expecting further headwinds as opposed to what seems to be tentative stages of a recovery. It’s a fast-moving macro with risks abounding, but at 13x PE on ‘trough’ earnings and 8% yield, we judge the stock mispriced vs the business trends. Buy.
FDM+ (FDM, House Stock at 265p) - Managing under pressure
Headlines. FY24 revenue is £258m, -21% cc yoy, with billable headcount at 2,578, below the end-Oct 2,906 and down on 3,892 in 2023. During FY24, FDM reduced internal headcount by 30% with training completions at 877 vs 1,338 in 2023. FDM expects FY24 profits to be in line with its revised Nov 2024 guidance. Cash is strong with 120% conversion and £41m year-end cash. Market trends. In November, the group spoke of increased activity and order flow, but it was too early to call a trend. December saw volumes fall back, but FY25 has started encouragingly, especially in NA and Australia, and we understand deal volumes are ahead of where they were in Oct/Nov. However, the group is taking a cautious stance and not factoring in a sustained recovery, seeing only modest net billable headcount growth this year against a base case of challenging conditions to continue. Client interest levels. We note that the depth and breadth of client conversations and activity (but not material orders) are at encouraging levels, with continued interest in FDM’s proposition across geographies which gives confidence for when budget pressure start to lessen at some stage. Forecasts. We reduce FY25E headcount to 2,848 from 3,052 which assumes a 270 billable head increase vs FY24. We expect a similar focus on costs as in FY24, but a level does need to be preserved to ensure that the strength of the business is retained. FY25E revenue £214.6m (£220.5m) -3%, PBT £25.5m (£30.6m) -17%, EPS 17p (20.4p) -17%, and DPS 16p (19.5p) -18%. Moving past the trough. While the downgrade is not ideal, it reflects the backdrop, and our sense is that we are moving through trough earnings. For us, the crucial point is whether FDM can move profits materially back up when the cycle turns, and here we have high conviction, supporting our Buy.
FDM+ (FDM, House Stock at 322p) - Trading update - in line
Trends. FDM has seen a pick-up in new deal activity in recent weeks with some encouraging indicators, but it is too early to predict if this is sustainable. However, in Q3 the group also saw increased client internalisations which impacted overall billable heads. While this shows the FDM model working well for the client, internalising their consultants, it has not been fully balanced out buy new FDM placements, impacting net billable heads. Forecasting. It is clear there is material pent-up demand and, as spending conditions improve, FDM will be a major beneficiary considering its prime market positioning and directly relevant offering vs client requirements (skill set capability, flexibility, price point). However, for now we feel it is prudent to factor in a more constrained backdrop due to the lack of visibility. Numbers. Consultant numbers ended October at 2,906 vs 4,136 in October FY23 and 3,469 in June 2024. We now forecast FY24E year-end headcount at 2,772 (3,092) and FY25E at 3,052 (3,417). Cash is strong, at £47.7m at end Oct (£36.9m June FY24). With tight costs and elevated internalisations happening at end Q3, FY24 profits are still expected to be in line. However, the lower headcount will impact FY25 revenue and, along with the NI increases and a prudent view on the macro, this prompts our forecast changes. FY24E rev £254.4m (£261.9m) -3%, PBT £32.3m (unch) EPS 21.5p (unch), DPS 20.5p (unch). FY25E rev £220.5m (£243.3m) -9%, PBT £30.6m (£34.7m) -12%, EPS 20.4p (22.5p) -12%, DPS 19.5p (22.5p) -13%. Our View. FDM has a strong base to manage through these more challenging times and looks ideally positioned for when spending improves. As and when this happens, with its lean cost base it should see decent operational gearing, which supports our continued Buy and unchanged 550p PE based TP.
Headline numbers. Revenue -22% to £140.2m and EBITA £17.4m vs H123 £25.5m reflecting the backdrop. Cash flow conversion was strong at 104% with H124 net cash £36.9m. H124 dividend is 10p. H124 billable headcount 3,469, down 25% vs. H123 (3,892 FY23) with training completions at 466 (H123 937). For the first time an exceptional (£2.1m) was taken which should yield c£4m of P&L benefit, with internal staff now 594 (H123 802). Core messages. Signs of stability combined with consultant tenures extending give support to H224E headcount and we nudge up FY24E revenue by 4% (see overleaf). This underpins our unchanged profit forecast, and we expect steady investment consultant rebuild in FY25E with a hopefully improving market. FDM is modestly recruiting in some locations for improved market activity when it arrives. The Skills Lab is a significant development, replacing the Academy with an efficient set-up aligned to client requirements (time, skills flexibility) built around Practices and project sprints led by coaches. Divisionals. While 29 clients were won (H123: 26), the challenging market was felt across FDM. UK heads were -26% yoy to 1,284 (FY23 1,411) with revenue -23% to £54m as increased tenures (higher rates) offset some weakness. Profits fell to £7.8m (H123: £12.2m) due to the bench. NA heads fell 26% to 1,162 (FY23 1,322) with revenue -24% at £53.9m. Early cost action lessened the impact with profits down 17% to £8.7m. EMEA revenue -10% to £11m with heads -9% to 359 and profits were £0.2m (H123 £1.3m) due to the bench. APAC revenue fell 22% to £21.3m with heads down 26% and profits £0.7m. View. Conditions are tough, but it feels the worst of the uncertainty and business change is past. Once budgets loosen, FDM is well set to benefit. Buy.
FDM+ (FDM, House Stock at 413p) - H1 results - in line with expectations
Quadrise+ (QED, House Stock at 2.3p) - Extension of sustainable marine fuels agreement
FDM Group (Holdings) plc Quadrise PLC
FDM+ (FDM, House Stock at 420p) - Growing back better - the 'new' FDM
FDM Group (Holdings) plc GSK plc
Share & share alike - All eyes on the election
Experian^ (EXPN, Buy at 3,691p) - FY result analysis, progression, deltas
FDM Group (Holdings) plc Experian PLC
Trading update. Trading has been in line with expectations with a continued soft backdrop. Consultants on site number 3,543, down 26% vs 4,774 yoy, and compare to 3,892 at FY23 year end. Internal headcount has been reduced 20% yoy, aligning resource to the size of the business. Cash as of 30th April 2024 is £46m vs £47m 2023 yoy. Evolving the model. Reference was made to the continued focus on the levels of consultant recruitment and those in the Skills Lab, ensuring overall un-billed consultants costs are being well managed. The Skills Lab is an evolution of the Academy structure to more practical, hands-on and coaching based processes, which encompasses both new recruits and consultants returning from client site (previously the bench). Skills Lab. It is based on FDM’s Pod model with small ‘scrum’ teams working on ‘real projects’ while being coached in the relevant disciplines. This creates an agile, streamlined and efficient learning process, shortening consultants time to client deployment while increasing the actual relevant / practical experience for end client roles. We expect this evolved model to be rolled out in the coming months and to become a core competitive differentiator for FDM, as well as acting as a growth accelerator with an efficient margin model. The group is further strengthening its position and business model to maximise the opportunities as and when the upturn arrives. View. The valuation is highly appealing for those willing to look beyond this years’ ‘late cyclical’ P&L and into future growth prospects. The group is taking this time to evolve its model to ensure it can best capture the upturn when conditions improve, with the dividend yield offering ‘returns’ support in the current climate. We retain Buy.
Disappointment compounds. Yesterday’s FY23 for FDM was in line with downgraded expectations. However, guidance was again weak. The main driver of the revenue model, the number of consultants deployed, at 3703, was down -5% from the year-end (-25% from FY22). Utilisation also fell. We cut our forecasts again to reflect further expected falls in consultants. We cut our adj EBIT forecasts by another 20% and expect this to fall 36% YoY now. Market forecasts now suggest limited recovery in 2025. Their dividend policy means that the dividend will be cut. We take our price target down in line with the fall in profits. We retain a Hold rating with a target price of 337p. The run rate of consultants has fallen significantly, and management expects this to fall further as a large cohort ends their two-year contract in 2024. This drives a 25% fall in revenue in 2024. FDM can reduce operating expenses given its flexible business model, but the cuts to adj EBIT are still significant. We cut our revenue forecasts for FY24 and FY25 by 12% and 15%; we cut our adj EBIT forecasts by 20% and 29%. Our EPS falls a similar amount. We now expect the dividend to be cut from 36p to 20p. Cash at the bank was £47.2m. Is FDM’s business model vulnerable to GenAI? Taking a “macro” view of what we have seen so far with GenAI, we are concerned that FDM is vulnerable at the margin. Klarna/OpenAI’s announcement of a new customer service enquiry product that could effectively do the job of 700 FTEs s hit the shares of Teleperformance hard (-35%). Last year, the likes of Learning Tech and Chegg were hit as concerns about the ability to learn online weighed on the shares. Our extensive research of Software Automation initially focused on RPA bots, suggesting that while overall, we believe this is positive for productivity and employment, the lower end of the skill base is most vulnerable. To what extent is this a threat to FDM, or is it an opportunity, is unclear. We note that they are deploying a small number of consultants on copilot. While the weakness in the shares has triggered discussion about the potential value here, we need to get a greater degree of confidence that we are close to the bottom, given the poor track record of recent guidance. While we note comments about client engagement and some large master service agreements with Barclays and others, the number of consultants is still falling. This is the number we need to see stabilisation in, to be more constructive. We reduce our target price by the fall in profits to 337p. This leaves the shares trading on EV/Sales of 1.35x with EBIT margins of 12.6%. Whilst this implies fair value with no recovery or no growth, until we get more confidence, this is fair in our view. This is EV/EBIT of 10.6x a PE of 15.4x. We retain a Hold rating.
FDM+ (FDM, House Stock at 391p) - Lower for longer; focus on core strength
No big surprises in FY23 performance but challenging conditions persist and the number of placed Consultants continue to drift down. We cut our profit forecasts by c. 20% in FY24 and FY25. FDM has the scale, business model and balance sheet to withstand this downturn and should be well-placed in a
Headlines. Revenue +1% to £334m with EBITA of £49.6m, -5% yoy, in line with our forecast. Cash conversion was 112% with net cash at £47.2m (FY22 £45.5m). The FY23 dividend is 36p, the same as FY22. Year end consultant numbers fell 21% yoy to 3,892 with 1,338 training completions vs 3,179 in FY22. Utilisation was 92.8% vs 97.5% due to the larger than normal bench. Trends. Q124 headcount has been below expectations, currently at 3,703. While the requirement for FDM consultants, client conversations and activity levels are high, budgets remain constrained, with orders still being pushed out, or at reduced levels. As expected, there has been a material number of year 2 returners to the bench, post the bumper FY22 signings. While conditions could improve, we no longer factor this into our numbers and see the net impact of returners and muted orders leading to FY24E billable heads at 3,162 vs our prior 3,977. Despite cost savings from bench management, operational efficiencies and less training, the revenue reduction and bench cost drives our 21% EBITA cut, see details overleaf. Divisionals. In the UK, while 23 new clients were won, the macro saw headcount fall 28% to 1,411 with revenue -8% to £128m. In response, training completions fell 68% but the bench drove £25.1m EBITA (vs £30.3m in FY22). NA headcount fell 18% although revenue grew 11% to £130.2m (headcount phasing) and with 74% less training completions (largely on-line) profit grew 32% to £20.4m. EMEA headcount grew 3% to 327, profits were flat at £2.1m, training completions were up 15% and a Limerick sales office was opened. APAC heads fell 18% with revenue -4% and profit at £2m (FY22 £4.2m). View. FDM will rebuild from a lower base when the cycle turns, pushing back profits. This will impact the shares, but the model holds and we see long term value with a base level look-though FY26E cash adj PE-based TP of 550p.
Union Jack Oil+ (UJO, House Stock at 18p) - West Newton drilling update
FDM Group (Holdings) plc Union Jack Oil Plc
FDM+ (FDM, House Stock at 451p) - Cautiously optimistic update
The group delivered an in-line FY23, with revenues up 2% in constant fx and we expect it to meet our c. £50m adj. EBIT forecast. Whilst there are early signs of confidence returning, the challenging macro background remains in place and we expect Consultant numbers to continue to drift down this ye
Numbers. FY23 revenue is expected to be £334m, ahead of our £326.2m, up 2% cc. No profit number is given, but the group expects to report in-line and we make no changes to our profit forecasts. Cash conversion was strong at 112% with FY23 net cash of £47m (FY22: £46m) versus our £40.8m. Consultants. FY23 consultants were 3,982 vs our 3,940, down 21% yoy. This implies a net 662 reduction in H223 vs -303 in H123. The UK closed at 1,411 (2022 1,958), implying a net 345 reduction in H223 vs -215 in H123. NA closed at 1,322 (FY22 1,618), implying a net 205 reduction in H223 vs 55 in H123. EMEA ended on 327 (FY23: 318), with APAC on 832 (FY22: 1,011). Trading through the cycle. FDM has flexed its model to respond to the challenging backdrop. However, there is a balance between further cost and efficiency actions, which we expect some more of during FY24, and re-investment back into the resource pool to support delivery as and when demand improves. There are tentative signs of client confidence increasing and some areas of demand improvement. FY24 will be about balancing efficiency savings vs resource investment against the recovery timeline so as and when it arrives, FDM is ready to fully exploit the demand pick-up. View. Our forecasts build in limited headcount growth, conscious of the high level of two-year contracts ending in FY24, albeit there could be a client shift to keeping consultants into their third year as seen in the pandemic. In the longer term, we expect the model to move back towards its 5,000 consultant target, which should move profitability materially higher from current trough levels. For those taking this long-term view, along with the healthy dividend yield, this is an attractive entry point. We retain our Buy with a 700p PE-based TP.
Kooth^ (KOO, NR CNP, 314p) - Platform successfully launched in California
FDM Group (Holdings) plc Kooth PLC
FY23 in-line. FY23 NFI confirmed at £418.8m, slightly ahead of INVe (£418.0m) with NFI -4% LFL yoy (Contract +1% / Perm -22%). A resilient performance, in our view, especially given the record PY comp and with the FY23 outturn at -3% LFL excl. restructured businesses. We were also encouraged by the sequential improvement QoQ (Q4 -5% vs. Q3 at -7%) and the fact that the c.£184m order book provides visibility of c.4 months of NFI. Contract in growth territory yoy. As anticipated, SThree’s unique STEM and Contract focus (c.82% of NFI) was the difference, with Contract +2% (excl. restructured businesses), driven by “robust contract extensions” and with margins holding up well. Engineering stood out at +18%, with Technology also growing at +1%. Geographically, the Netherlands (incl. Spain) and Rest of Europe outperformed at +7%/+3%, offset partially by DACH at -1% (tough PY comp) and the US (-4%). Given the strategic pivot away from Perm (avg. headcount -17%), and despite the sequential QoQ improvement - Perm underperformed Contract with NFI -22% amidst “challenging conditions”. Forecasts reiterated. As usual, there are no profit metrics disclosed in today’s Q4. With reported NFI in-line with pre-statement INVe, and given we also sit in-line with cons. PBT, we elect to leave our headline P&L forecasts unchanged today, pending incremental colour at the 30-Jan-24 prelims (e.g., visibility on the key Dec/Jan contract extensions period, as well as conversion). BUY reiterated. Despite having enjoyed a good run the past c.3 months (+c.16%), the shares have been relatively weak YTD (+c.6%), and that is despite SThree having delivered a series of robust performances and, in our view, being strategically well-positioned to take advantage of secular megatrends in STEM, underpinned by material balance sheet strength (M&A and capital return optionality). Applying a c.13x multiple to our unchanged FY24E EPS (in-line with long-run avg. levels) implies an upwardly revised PT of 530p.
FDM HAS PAGE RWA STEM
Frontier Developments^ (FDEV, Hold at 231p) - A mixed reception for Warhammer title
FDM Group (Holdings) plc Frontier Developments Plc
FDM’s trading update contained yet more disappointment. After cutting numbers at the half year, where H1FY23 saw a dramatically weaker Q2 vs Q1, which continued into H2. (At the interims, they implied that H2 revenues would be down 10% YoY) FDM calls out that macro-economic and geo-political uncertainty continues to impact their clients and the run rate for consultants is 17% below the FY22 number or 10% lower than the number deployed at the end of the half year. This low run rate bites hard into FY24, and we cut forecasts by 35%. We cut our target price to 527p in line with our forecast reduction. We stick with a Hold.
We now expect Consultants placed by year end to be c.1,000 lower than where it ended FY23. This is a cyclical issue, as structurally, there remains systemic shortages of technology skills in all the geographies where FDM operates. This results in a c.28% downgrade to our FY24 EPS forecasts. In the
FDM+ (FDM, House Stock at 467p) - Adapting in the face of pressure
FY23. October headcount is 4,136 (5,014 in H122) versus 4,602 in H123 and our previous FY23E assumption of 4,460. We had assumed a moderation in the decline of net billable consultants into H223, but the backdrop has remained challenging with slower project ramp-ups and client deferrals impacting headcount. Client conversations and engagement are still strong, with plans to move ahead when budgets free up and economic conditions become less tight around corporate spend. As outlined overleaf, good cost control means we modestly adjust FY23E profits despite reducing headcount to 3,940 from 4,460, a net 662 H223 reduction vs -303 in H123. FY24E implications. The forecast read-through for FY24E is likely to be more material after building in the lower FY23 headcount exit rate. In addition, we expect investment to support the recruitment and training cycle starting up as the group replaces consultants finishing two-year placements (FY22 was a strong new placement year), preparing for future growth on the basis that demand improves as new budget cycles start. At this stage, it is difficult to gauge exact outcomes. We expect the group to be able to give its views at the year-end January trading update once it has sight of the year-end close and further visibility on client plans. We reduce FY24E EBITA by 26% as outlined overleaf and will refine when we get more data ahead. Forecasts. FY23E revenue £326.2m (£341.7m) -5%, EBITA £50.3m (£53m) 5%, EPS 33.8p (35.6p) -5%. FY24E revenue £286m (£347.3m) 18%, EBITA £40.4m (£54.4m) -26%, EPS 27.1p (36.4p) -26%, DPS 26.5p (37p) -26%. View. This period is laying the groundwork to drive the platform when conditions improve – we look through to FY25E with a 700p 22x PE-based TP.
FDM reported H1 revenue up 18% and adjusted operating profits up 2%. Q2 was dramatically weaker than Q1. Comments at the analyst meeting suggest H2 revenues will be down c10% YoY. So despite management comments of trading in line with expectations, there are downgrades across the board. We cut our target price to 810p in line with our forecast reduction. The shares are becoming more interesting from a valuation perspective but retain a Hold for now.
We believe FDM has enough agility in its cost base to protect profitability and cash generation, but near-term customer caution will likely hold back growth. Whilst strongly placed for a recovery, we believe the shares will likely tread water until there is a firmer recovery in sight. Long-term dri
FDM+ (FDM, House Stock at 615p) - Working through market challenges
FDM+ (FDM, House Stock at 578p) - NED appointment
FDM (FDM) - House Stock at 652p - When the going gets tough...
FDM saw softer trading in Q2 across its operating territories as clients delayed decisions on placements. Consultants placed with clients at end Apr were down 3% from the YE figure. FDM has adjusted hiring/training to match demand, protecting profitability. We reduce our adj. PBT by 2% in FY23 and
Trading update. While client interest remains high, spend decisions are being delayed or reduced due to the general uncertainty in the macro backdrop. This is happening across all geographies with April headcount softer than expected in all regions. Group billable headcount end April was 4,774 vs 4,905 at FY22 year end. We expect a modest decline over the next couple of months and then would hope for improvement into H223 as the macro stabilises, which could have a prompt positive impact on billing, considering client engagement is high. Net cash was £47.5m at end 30th April (£45.5m FY22) with the group in a strong financial position. Forecast resilience. An attraction of FDM is its flexible operating model, with recruitment / training being slowed and costs tightly controlled. It is supporting the bench through this cycle at present that will be impacting the P&L, with FDM expecting more stable conditions in H2 to exploit. We had already built in forecast cushion, using prudent sell rates and upfront cost loading. As such our headcount adjustment has a less proportionate impact on revenue and we tweak cost assumptions with profits unchanged. If conditions deteriorate materially in H223 then this could pose some forecast risk, but a more stable backdrop with headcount improving would support forecasts. Forecast. We reduce FY23E headcount to 4,925 vs 5,498 with revenue of £350.7m vs £360.4m and EBITA unchanged. For FY24E we forecast 5,445 headcount vs 5,828 with revenue £373.3m vs £387.8m with no profit change. View. The PE is at historic lows suggesting concerns around market forecasts; however, assuming a headcount improvement into H223 with the backdrop stabilising, this trough valuation, supported by a 6% dividend yield, is very appealing and we would expect a re-rating as forecast conviction improves. Our 1200p TP looks through to FY24E with a 26x cash adj PE rating vs our previous 6,000 headcount scenario based TP.
FDM (FDM) - House Stock at 695p - Down but far from being out
FY results is in line with Jan trading update. 2023 has started positively, with encouraging levels of client engagement against an uncertain macroeconomic backdrop. Marginally, there looks to be more cautious decision-making since the group issued its trading update in January. Prudent guidance/fo
Numbers. Revenue was up 19% cc to £330m (Inv £330.2m) with headcount growing 22% to 4,905. Operating profit was up 10% to £52.2m (Inv £51.9m) reflecting the investment going into the business to build the platform for future growth, such as paid training (£21.5m vs £12.5m 2021), salary rises, sales and trainer hires, and infrastructure investment. We do not see a similar step change in FY23E, supporting margin underpin. EPS was up 12% at 37.3p, 10% ahead of our estimate (tax) and we up FY23E EPS by 6%. DPS was in line at 36p. Cash conversion was 108%, with debtor outflow increasing to £11.3m (FY22 £5.1m), reflecting the growth in the business and client mix Headlines. Training completions were 3,179, up 32% yoy, to meet the high level of client demand. The group now has Tech Industry Gold accreditation for eight training courses through its TechSkills partnership, with 548 trainees certified. Progress into new verticals continues with 59% of the 74 new clients signed outside of financial services. The group’s strategic alliances now cover a range of high profile tech names (MSFT, Salesforce, ServiceNow, AWS), further enhancing the appeal of FDM’s offering. Geographies. We discuss regional forecasts overleaf. The UK had a strong H122 but softened into H222 from the government changes, with conditions still slightly subdued as customers control budgets. Headcount grew 8% to 1,958 with revenue up 15% reflecting headcount phasing. NA was strong with headcount up 48% to 1,618 with strength across USA, Canada and all client sizes. EMEA headcount grew 26% to 318 with revenue -21% due to phasing, with year-end stronger supporting a positive outlook. APAC grew 15% to 1,011 with Australia >400 and Singapore >300 with good outlooks. View. There will be puts and takes in the demand backdrop but we see FDM well positioned to deliver another year of solid growth. Supported by a c5% div yield we maintain Buy and our 6,000 headcount scenario 25x PE 1400p TP.
FDM has published a trading update for the year to 31 December 2022. Overall, performance has been very strong, with revenue expected to be £330 million, slightly ahead of our £319 million forecast. Constant currency revenue growth was some 20%, and the group saw an increase in Mountie numbers of 22% across the year. The stand-out performance was from North America, where clearly the group’s recent activity and management focus is bearing fruit. We make no changes to our forecasts for 2023 at this point, although we will revisit these with the full results in March, and clearly the risk to revenue is now on the upside. Once again, FDM has delivered a very strong year; it is increasingly delivering on the American promise, and its diversification in terms of clients, market segments, and now geography stands it in good stead for further performance during 2023 and beyond.
Another solid update from FDM with FY22 revenues showing 20% constant fx growth, in line profits and strong cash generation. Demand levels remain healthy going into FY23 and whilst the group acknowledges the uncertain macro, the flexibility of its model and the diversity of the portfolio (geography
Headlines. Revenue is seen +20% cc to c£330m vs our £318.5m, with profits in line. Consultant placements were up strongly at 22% yoy to 4,905 with particular strength in NA. This compares to our 5,023 with the difference being the UK. We retain our 5,498 FY23E headcount estimates, seeing good growth across all regions. Training completions were 3,179, a record for the business, to satisfy the demand levels, and compares to 2,410 in FY21. Cash conversion was 108% with net cash of £46m (£53m FY21) at year end, reflecting the slightly higher debtor balance as the business grows. UK. Consultant headcount grew 8% to 1,958 with a net 87 H2 reduction vs the 239 additions in H1. The UK government changes in Autumn impacted demand in central government agencies, as well as some corporate clients, which was balanced by continued demand across other areas of the client base. We understand that current trading is stable and the outlook positive, with activity levels picking up. We continue to forecast 200 net consultant additions for FY23E. North America. The region saw very strong growth with consultants up 48% yoy to 1,618, with strength across the board. Continued expansion in regional areas (e.g., Tampa Florida, Austin Texas, Montreal) is working well and are key factors in driving this growth. APAC and EMEA. APAC Consultant grew 15% with Australia passing 400 and Singapore 300, both with positive outlooks. EMEA saw healthy demand with headcount up 26% to 318. View. The business is navigating the uncertain backdrop successfully, with its price / value / skill set / location / diversity / flexible proposition well suited to the backdrop. FY23 should see the benefit of the material cost investment made during FY22, with our forecasts looking well underpinned, and combined with a dividend yield of c5%, supports our Buy and 1400p TP.
FDM has had a strong first half. Revenues were up 16% to £152.8m. Adj Op profit was up 13% to £25.1m. Strong trading across all its regions delivered record levels of activity. Cash conversion was lower than usual due to some seasonal timing issues which are expected to reverse in H2. We are upgrading our revenue forecasts by 7%, though profits are only slightly increased, as costs are higher as it builds for growth. While the valuation is becoming more attractive, at this stage we leave our target price unchanged. We retain a Hold rating.
FDM has announced results for the six months to 30 June 2022. Performance has been strong, with the UK continuing to build on recent gains, and the all-important North America market delivering a very impressive set of results, which now begin to look like a genuine turnaround relative to some disappointing few years. We upgrade our FY22F revenue forecast by some 10%, from £289.5m to £318.5m, and make a more-modest upgrade to profitability with FY22F adj. PBT rising by some 3% to £51.1m. The group has, for some time, seen 5,000 consultants (Mounties) as a medium-term target, and we look forward to seeing this milestone reached during the second half of the year. The business appears exceptionally well placed to continue its extraordinary growth with all three of the UK, North America and APAC continuing their strong runs. HOUSE STOCK
Strong demand; record levels of activity
Results. H1 revenue was up 16% to £152.8m, with EBITA up 13% to £25.1m and EPS up 13% to 17.6p. Cash conversion was 75.3% due to a very busy month end of revenue bookings and we fully expect a c95% conversion for the year end. The interim dividend of 17p prompts us to raise our FY22E dividend to 36p, from 35p. Business strong. Group headcount increased 22% to 4,703, ahead of our total FY22 expectation, with 59% of recruits in their first 12 months (2021 40%) which suggests material underpinning for revenue generation in outer years. We now move our FY22E forecast to 5,023, with the business looking set to move beyond the 5,000 target a year ahead of plan. There are no signs of slowing and the business is investing to support continued expansion. Training completions were up 55% to 1,584, the highest for any six-month period to date. The strength of the results is across the board as we illustrate overleaf. The UK saw revenue up 15%, with NA up 26% and APAC up 39%. EMEA declined yoy due to an expected end of a project in Luxembourg, but increased vs Dec 21. Forecasts. The increase in our FY22E headcount estimate drives revenue 9% ahead of our previous forecast. The business is investing to support this expansion and future growth (trainers, sales, apprenticeship programme, infrastructure) as well as pushing through c10% wage increases and a >£20m bill for paid training which is now across the business. FDM is achieving decent rate increases to offset much of the wage inflation over time (it will take time for the rate increase to become effective across the client base) and the overall impact of these cost increases means we up FY22E EBITA by 2%. Gearing ahead. The business looks well set for future operational gearing, with much of the investment being made now through material one-off yoy increases (eg: salary, paid training) which will support the business for growth in coming years. As such, we see good margin expansion ahead, especially into FY24E, which supports 1400p PE based TP. We reiterate our Buy stance.
Strong headline metrics The group has released a short, but upbeat, AGM trading update. Demand has been strong since the beginning of the year and the company is recruiting and training record numbers of new joiners. This has led to April closing with 4,429 Consultants, up 10% from 4,033 at the FY21 year end and 18% growth yoy. This is an impressive level of new placements in just four months, in our view, with current headcount now not far away from our FY22E year-end estimate of 4,623. April end net cash of £55m is also a good outcome. Keeping numbers as is for now We understand that demand is strong across the business, with all geographies now performing very well and seeing robust placement trends. While it appears that the group will effectively blast through our year end headcount estimate, assuming conditions remain the same in H222, we also expect cost increases to offset some of this headcount upside. The business is continuing to invest in its internal headcount (trainers, sales, recruiters) to support the expansion of the group and we would also allow for some general wage inflation trends, as we have seen across the sector, albeit offset by potential price rises feeding through, as the group started to allude to at the FY21 results. We see upside scope to our revenue forecasts, based on the current headcount trends, and we judge our profit estimates as underpinned, but look to the H122 results to fully understand the revenue / cost balance and to ascertain a more granular level of headcount trends. View The business is clearly trading very strongly, testament to its distinctive market offering and position, as well as the healthy industry backdrop. We value FDM on our 5,000 Mountie scenario looking through to FY23 and placing the implied profits on 27x PE, which arrives at our 1400p target price.
The key metric in FY22 results is c.25% growth in exit ARR for the KX business as a leading indicator, which is ahead of our expectation (c.£47m vs £43m). Together with deal metrics (+65% in deal count), this implies acceleration in momentum in H2 in particular. The deal count plus improving net revenue retention suggests strong endorsement of the new KX Insights product strategy from both new and existing customers, which is the most critical point to the investment case. FY22 was deliberately set to be a transition year of sorts for KX, with reported revenues and profits sharply down as perpetual licence and KX services fell, while opex base scaled across all categories to set up the KX Insights growth strategy. This transition has now largely washed through, and FY23 should be the first of several years of KX double-digit reported revenue growth plus margin improvement. Guidance of 35%-40% growth in ARR specifically refers to KX annuity licence reported revenue, meaning that recurring revenue should be the prime driver of this growth. Meanwhile, First Derivative and the MRP divisions are relatively buoyant, with strong double digit revenue growth plus healthy gross margin improvement, disproving misplaced fears over wage inflation risk. Overall, new FY23 group guidance for revenue and EBITDA lead us to upgrade slightly, whereas EPS is upgraded by double digits due to a variety of changes (see overleaf). FD Technologies embarked on an investment-for-growth strategy last year that deliberately depressed earnings short-term, but with the long term goal of scaling KX ARR above c.£100m combined with an ultimate return to historic levels of KX profitability (>35% EBITDA margin). We support this strategy and see a SOTP as the right way to value the business; as seen at the start of the year, any future defaulting to near-term PE in a valuation compression environment presents an opportunity, in our view.
Following last month’s results, we are refreshing our numbers. Despite the strong demand backdrop for FDM, we maintain our HOLD rating on valuation grounds. We believe there are better opportunities elsewhere in the sector. 2021 saw utilisation rates rebound strongly, but revenues were flat year on year reflecting the phasing of headcount. Adjusted operating profit was up 10.8%. The forward revenue driver of training completions was a record high at 2,410, up 79% on 2020 and 14% higher than the number in 2019. Revenue growth is expected to be 10% in 2022. However, with the shares trading at higher EV/Sales multiples than many pure software names we retain our Hold rating and 955p target price.
FDM's FY21 results showed a resilient performance (revenues up 2% in constant fx, adj. EBIT +11%, adj. EPS +15%), with a stronger H2 and ongoing momentum. The digitisation agenda across most sectors combined with the worldwide skills gap put FDM, with its scale and reputation, in a strong position.
FDM has this morning announced its results for 2021 – the figures were in line with details given in the January trading update in terms of revenue, consultant (Mountie) numbers and net cash. Today’s RNS adds detail on geographic performance, profitability figures, and the dividend recommendation. Adjusted PBT was £46.7m, well ahead of our £44.0m estimate. Adjusted EPS was also ahead of expectations at 33.2p vs our 29.7p forecast. Finally, the dividend for 2021 has been recommended at a level to give a full year payment of some 33p, against our estimate of 32p. We upgrade our revenue estimate for 2022E (from £278.4m to £289.5m), although we leave profitability estimates unchanged (Adj PBT 49.7m, Adj EPS 33.3p), as we expect the group to invest heavily for further growth. We take this opportunity to introduce new estimates for 2023, with revenue of £314.7m, Adjusted PBT £55.9m and Adjusted EPS 37.3p. We also forecast a dividend of some 37p for the 2023 year, as the group is now paying out roughly 100% of Adjusted EPS earnings. A strong 2021, boding well for 2022 and beyond.
Numbers FY21 £267.4m flat revenue (Mountie phasing) and headcount of 4,033, up 13%, was released at the Jan update. EBITA was up 11%, beating our forecast by 4%. EPS of 33.2p was 10% ahead (tax) of our estimate with DPS 33p also ahead by 3%. Cash of £52.1m, with 110% conversion, was in line. Records being set FDM is witnessing a very strong trading backdrop, with its offering totally aligned to the current spend climate. There were 2,410 training completions in 2021, a record high for the group, with client demand now accelerating further across most regions, also at record highs. The group is investing in trainers, infrastructure, recruitment teams and also Mountie wage structures in some locations, to further widen its pool of Mountie recruits, to satisfy demand. Remote training has been a success and also allows for cross border training. This hybrid model is likely to lead to material office cost reductions in coming years, which can be recycled back into many of the ongoing growth initiatives of the business. Avenues of growth The Mountie model is driving strong demand, being pitched at the right price point, skill set, flexibility, location, in-sourcing options and diversity balance, solving acute pain points for its clients in the current IT and business operations talent skills gap. Initiatives such as the Apprenticeship programme, Tech Industry Gold standard accreditation, partnerships (Salesforce, AWS, MFST), pod models, vertical and geographical expansion all add to what we see as a strong growth path ahead. Forecasts As discussed overleaf, we up revenue and headcount forecasts but leave profits the same for now, with investment being made in the business and conscious of the geo-political backdrop. However, we would expect gearing to come through as revenues build and see profits well underpinned. View We expect shares to recover some of the indiscriminate sector sell off with strength of FDM’s momentum clear and dividend yield giving a floor. Buy.
FDM+ (FDM, House Stock at 1086p) - 2021 Trading update
Issuer Sponsored FDM+ (FDM, House stock at 1086p) – 2021 trading update PREMIER FOODS+ (PFD, HOUSE STOCK at 120p) Appointment of Tania Howarth as an NED XP FACTORY+ (XPF, House Stock at 28p) – Positive FY21F trading update FTSE 100 SAGE^ (SGE, Hold at 762p) – Q1 FY22 Trading update, Full year guidance unchanged FTSE 250 BREWIN DOLPHIN^ (BRW, Buy at 325p) – Q1 update indicates very solid net inflows and no further slippage on Avaloq CMC MARKETS^ (CMCX, Buy at 231p) – Q3 trading update to 31 December in line PETS AT HOME^ (PETS, Under review at 418p) – Strong momentum continues in Q3 and another upgrade to forecasts AIM ACCESSO TECHNOLOGY^ (ACSO, Buy, 716p) – Trading update, guidance remains in line from October ANPARIO^ (ANP, Buy at 597p) – Strong FY21 update; in line with market expectations, FY22F unchanged. FLOWTECH FLUIDPOWER^ (FLO, Under Review at 135p) – FY21 revenue below pre-covid levels RENEW^ (RNWH, Buy at 709p) – AGM statement – Q1 trading in line
FDM XPF PFD SGE CMCX PETS ANP ACSO RNWH FLO 0TY
Reassuring update; record training levels
Headlines. FY21 revenue is £267.4m, up 2% cc. However, underlying growth is much stronger, with headcount accelerating during the year as pandemic restrictions lessened. Year-end Mountie headcount was 4,033, up 13% yoy, from 3,850. In total, 2,410 Mounties were trained (2020: 1,341, 2019: 2,115) which is a record number for the business, reflecting the accelerating demand backdrop during the year. Cash of £53.1m is ahead of our £46.3m forecast, reflecting strong W/C collection. Geographies. UK Mounties grew 15% to 4,033, a strong performance, with a good level of new client wins as well as growth within current clients. North America saw 1,095 Mounties deployed (FY20: 1,086), reflecting, we understand, slower progress in the US, offset by good traction in Canada. However, prospects in both regions look upbeat judging by order pipelines. APAC saw significant growth with 880 Mounties deployed, up from 633, driven mainly by Australia which is undergoing rapid expansion and demand. EMEA saw 252 Mounties (FY20: 287), down due to a large project completion. Impressive fundamentals. FDM is gearing up for material growth ahead, with investment going into the sales force, trainers and academy processes. This confidence is driven by the high levels of demand the group is seeing across all territories, with its offering resonating with the requirements of large corporates and institutions in the current backdrop. View. We leave our profit forecasts unchanged at this stage, but as the headcount build delivers the full year revenue effects and the FY21 cost impacts normalise as we go through this year (paid training, internal investment, year three Mountie mix), we see potential upward pressure on FY22E profit forecasts, and, especially, on outer year numbers. We maintain our 1400p TP based on our 5,000 Mountie scenario. Buy.
FDM has delivered a strong H1, with revenues modestly below last year (which included a full quarter pre-COVID) and profitability buoyed by careful cost control and a recovering demand profile across most geographies. The group continues to invest for long-term growth in a number of areas, but despite this, and even with ongoing COVID uncertainty in multiple locations, the tone is confident, and management appear comfortable with delivering at least our (and consensus) estimates for the year. HOUSE STOCK.
Record trainee numbers reflect improved demand
Upbeat messages Trading has progressed well during the initial part of the year, with the group at 3,748 Mounties vs 3,580 at end Dec 2020 and 3,802 a year ago. With 168 net Mounties placed since the start of the year, this suggests that the backdrop is recovering well and the group confirms that utilisation, beached Mounties (not being billed), recruitment and training have all returned to pre-pandemic levels. Demand is accelerating with an active backdrop creating strong demand for Mounties. With c£50m net cash, the B/S remains strong. Outlook The group is trading comfortably in-line with the Board’s expectations which suggest a good degree of forecast underpinning at this stage. However, with the global backdrop still unpredictable due to the evolving pandemic, we err on the side of caution and leave our forecasts unchanged at this stage, preferring to wait until the H121 results to gain more data points on continuation of the positive trends the business is seeing and the broader global macro backdrop. Our View We see FDM as well placed to drive long term growth, as outlined in our Nov 2020 ‘Standing strong and standing out’ report, with our scenario-driven 1300p TP unchanged. Buy reiterated.
FDM has reported 2020 figures exactly in line with the late-January 2021 trading update. The business is seeing a robust recovery across almost all locations, although the USA market clearly remains challenging. Overall, we continue to believe that the group has weathered the COVID-19 challenges exceptionally well. The business is set to emerge from the various lockdowns with a greater degree of focus and operational flexibility and with a strengthened offering, in our view. We leave our 2021 forecasts unchanged and take the opportunity to include 2022 estimates for the first time.
No surprises; good start to year
FDM has published a robust trading update for the year to 31 December 2020, with revenue and PBT fractionally ahead of our estimates. Mountie numbers are slightly below our forecasts, but the momentum clearly remains positive. Net cash was extremely strong at £65m vs our £58m forecast, and the Board is recommending a “second interim” dividend for the 2020 year, effectively making good the payment foregone at the time of the initial onset of Covid-19 – a clear signal of confidence. We maintain our estimates for FY2021F and await further news with the results due on 10 March 2021.
In line update, second interim dividend declared
Headlines. Revenue is expected to be £268m with PBT of £42m, which is ahead of our £262.8m and £40.4m. We leave FY21E unchanged. Billable Mountie headcount at year-end was 3,580, which is 2% ahead of our 3,504 estimate. Net cash was an exceptional £65m (FY19 £37m), materially ahead of our £40.9m estimate, driven by the new billing software and increased cash collection staff resource. Trends. We understand that the year has started strongly with a record first few weeks. However, we would not want to extrapolate this performance at this stage, with some potential pent-up demand from the end of December as new lockdowns came through and the US election process took hold. Nevertheless, this strong start, across all regions, is a very encouraging sign and the business is backing this up with hiring plans close to 2019 levels. Regions. The UK ended FY20 at 1,625 Mounties, implying a broadly flat H2, vs 273 H1 reduction, driven we understand by strong financial services and an improving public sector. North America slowed during the latter part of the year, with 1,086 year-end Mounties, implying a 136 H2 reduction, we suspect due to the uncertain political backdrop and increased lockdown pressures seen in Q4. This seems to have eased since the start of the year, with a good level of Jan new client wins. EMEA was flat while APAC saw a c27% increase in headcount finishing at 633, driven by a strong performance in Australia. Dividends. The strong cash position means we tweak up our dividend estimates. FDM will pay a second interim of 13p to rebalance the overall dividend outflow following the FY19 final cancellation. A normal dividend payment will now resume. We forecast FY20E DPS of 46.5p vs our previous 38.5p, up FY21E to 30p from 27p and FY22E to 32p from 30p. View. The mix of accelerating growth as the FDM model continues to gather momentum, cash generation and dividends supports our Buy and 1300p TP.
Digital skills gap acceleration. FDM thrives on offering its clients near and long-term solutions to address their digital skills gap. Organisations have seen technology as a solution to keep their businesses functioning throughout this crisis fuelling a surge of digital adoption, thus widening their digital skills gap. FDM stands out. Its offering is highly differentiated, providing technology skill sets tailored to clients’ tech needs, via an appropriately priced, locally trained, location-agnostic, and culturally diverse talent pool, at scale with the option of internalising longer term. We illustrate that no other company we are aware of can offer this proposition at scale across multiple international territories. This drove the resilience during 2020 and we see it driving material growth ahead. Supply side evolving. Recruitment and training, the ‘supply’ side of FDM’s model is evolving at pace, partly catalysed by the crisis. Hybrid training (remote/on-site), specialist teams (Pods), varied course lengths (speeds time to client) and potential innovations such as apprenticeships or FDM training accreditations are areas of consideration, which could further propel growth. Tech and diversity creates demand pull. Clients’ widening digital skills gap drives a demand pull, with FDM able to pivot its model to areas most in need through its broad and flexible training structures. An equally powerful and accelerating theme is the need for organisations to increase workforce diversity. FDM recruits a balanced Mountie pool in terms of gender, educational and ethnic backgrounds. Mountie diversity creates an additional attraction for clients, which we see as a fundamental growth driver going forward. View. We present a scenario with >5,000 Mounties taking profit beyond historic levels. Hybrid remote training and deployment models increase capacity and lowers costs, allowing for reinvestment to support new innovations to drive sustainable long-term growth. Our 3-year scenario, average historic PE of 25x and projected cash generation (c15% of current mkt cap) drive our 1300p TP.
FDM has published an update for its Q3 to September, giving up-to-date detail around Mountie numbers and net cash, together with a comment on management’s view on current trading overall. The message is uniformly positive – trading is “comfortably in line” with management’s expectations for the year, cash is very strong at £55.8m, and most importantly the Mountie number has shown growth, rather than decline, since the end of June. We upgrade our estimates for 2020 and 2021 to reflect this strength, and take significant comfort from this morning’s announcement. House stock.
Headcount trends: Mounties placed at end September were 3,721 (3,801 Sept 2019) which compares to 3,656 at end H120, signalling a slight uptick in numbers during the Q3 period. This growth is directionally important, suggesting FDM has managed to keep the new deal flow going over the summer and recent trading period to more than compensate for any Mountie stops. We had previously assumed a modest net reduction in Q3 and Q4 so we have upped our total FY20E billable headcount to 3,504 from 3,359. Profit and cash trends: No comment on profitability has been given, aside of the company being comfortable with market expectations. While the overall headcount trends are encouraging, the group is funding a larger than normal ‘beach’ (Mounties out of training to be placed plus Mounties returned from clients) which will be a modest headwind on profits. We understand the overall unbillable numbers are continuing to reduce despite the company progressing back towards ‘normal’ levels of hiring in most locations. The cash balance of £55.8m (30th Sept 2019: £23.2m) is very strong, giving material support to the overall trading picture of the business. Demand trends: As referenced in the statement, the general trend of improved trading has been seen across the business. Australia and Asia is largely trading well with good new deal flow. North America is broadly reverting closer to ‘normal’ trading conditions, although clearly it’s an ever changing picture regarding local lockdowns. The UK, we understand, has seen public sector demand pick up again, banking continues to be resilient, insurance has improved, and, as expected, travel / leisure is weak. View: We nudge up our headcount estimate, but maintain profits, factoring in the beach cost and also conscious the environment is still uncertain. We see the business building strongly off this base in years ahead and reiterate Buy.
FDM has announced a strong H1…clearly Q1 was largely pre-COVID, and Q2 suffered from the obvious pressures, albeit slightly less than we had expected. We hope that Q3 and, more realistically Q4, will see further stabilisation and the emergence of a recovery. The group has delivered ahead of our expectations for H1, but continues to see challenges across its operations, and with risks remaining around the pace and style of economies’ re-opening, we feel it too soon to upgrade our 2020E forecasts. Nevertheless, the strong cash performance and the signal in the dividend (effectively paying investors the 2019 dividend “they would have had”) both point to the strength and resilience being seen.
Strong cash balance The two KPIs given in the short AGM update were positive and reassuring on FDM’s resilience over the last quarter of trading. As at 15th June, net and gross cash was £53m vs £44.3m at end-Q1, highlighting decent profitability and good working capital management over recent months. This provides a robust financial platform for the business looking forward. Reassuring headcount update Mountie headcount was 3,706 vs 3,802 at the end of Q120, implying a net Mountie headcount reduction of 96. The decline is less than the 122 over the Q120 period and compares favourably to our FY20E headcount forecast which assumes a quarterly c186 reduction. We make no changes to our forecasts at this stage. While the business model appears to have been resilient, generating relatively good levels of demand, we are conscious that the ‘beach’ cost of funding Mounties not being utilised is likely to be rising (e.g. client returns, training completions with no end client role) which the company will need to support. Also, with the strength of any macro backdrop recovery during Q4 still uncertain, we prefer to stay on the side of caution at this stage in terms of our headcount view. View We see this as a positive update, tracking slightly ahead of our expectations, giving reassurance around the resilience of the model and investment case. We retain our Buy.
FDM has announced a trading update for Q1, and detailed a current Mountie (consultant) figure. COVID-19 is beginning to impact, and based on the figures given, we have attempted to model an outcome for 2020, leading to a c.12% reduction in sales, and a nearly-30% decline in Adj PBT relative to our previous estimates. Our model still demonstrates cash generation, ending 2020 at c£46.5m (2019: £37.0m). Clearly the pandemic is still far from over, and the economic impact is far from clear, but hopefully these estimates may turn out to be cautious, and the group can look to continue its global expansion from the “rebased” level later in the year.
Q120 update. Q1 was in line, with revenue up c6% yoy and cash of £44.3m (£37m FY19). Mountie headcount was 3,802 which implies a decline of only 122 from end FY19, a very resilient performance considering the backdrop. COVID-19 impact. With all Mounties working remotely the model is delivering successfully under the remote working requirements. While to date the impact has been limited, we expect an increased number of Mounties to be returned in the coming months as businesses continue to adjust to the COVID-19 fall-out, some increased pressure on rates and a slower level of demand for new Mounties. However, the resilience to date gives confidence that these trends should be manageable in the context of FDM still delivering material profits. Mountie scenario. We assume 3,244 end-FY20E Mounties, implying a drop of c186 per quarter vs 122 in Q1. We see this as an appropriate balance between factoring in an accelerating rate of Mountie returns, but also the resilience given the strategic relevance of Mounties in the client base (skill-set, price points, flexibility). As we get more data points, we will look to refine our estimates. Preserving the model. Our forecasts imply broadly flat opex yoy (less bonus, travel) but includes a ‘beach’ of c600 non-utilised Mounties for 6-9 months. We judge that FDM will keep these staff to be readily deployable when demand improves, hopefully end-FY20 and FY21. FDM will not use furlough support, but absorb the lower utilisation through business model strength. However, if conditions deteriorate materially vs our headcount scenario, we expect the company could take further cost action. Combined with the B/S strength, this places FDM in a strong position to navigate the uncertainty ahead. Forecasts. FY20E revenue £249m (£283m), PBT £40.4m (£55.9m), EPS 28.3p (39.2p); FY21E revenue £261m (£303m), PBT £44.6m (£58.3m), EPS 31.2p (40.8p). View. We remain positive on the strength of FDM to trade through the cycle, building a return to dividend end-FY20/FY21 and a 900p long-term PE based TP.
FDM has this morning announced that, despite current trading being “relatively resilient”, the Directors will no longer be recommending the 18.5p final dividend relating to the 2019 year. This will save the company £20m and add materially to short-term liquidity – which seems entirely logical to us, given the Covid-19 situation. The group mentions that it may choose to pay one (or more) interim dividend(s) during 2020 – presumably if the virus impact on business is limited. We make no changes to estimates other than to increase our FY2020 net cash estimate to reflect the additional £20m hopefully on-hand. Clearly forecast risk has increased, but any downgrade at this time would be based on very limited information and may suggest a degree of spurious accuracy. We expect to revisit forecasts once the situation is clearer, perhaps around the time of the company’s AGM.
Market update covering dividend, AGM and current trading FDM has announced that it will be no longer be recommending the payment of the final dividend to 31st Dec 2019. The group’s B/S is strong with FY19 cash of £37m, but to give maximum resilience to the business it has decided to preserve the cash on the B/S at this stage, although it keeps the option open of considering one or more interim dividends depending on how the trading backdrop evolves during the year. The company is suspending its AGM due 29th April to a date no later than 30th June, based on the social distancing advice currently given by government. Current trading To date the company has seen only minimal impact to current trading from the COVID-19 fall out, with only a relatively small number of Mounties being returned by clients. Nearly all Mounties across the business are working from home on billable projects. However, at this stage the company cannot predict what the impact will be on the business as this will depend on the evolving situation around the global management of COVID-19 and associated economic impact. Our view We would expect some impact on forecasts in due course, but at this stage do not know what the scale of the impact will be. We can run various scenarios, but with the strong B/S we would see FDM trading through this period of uncertainty with its model intact and re-growing the business as conditions stabilise. As such, we place our forecasts under review until we have more data points to enable us to construct a meaningful forecast outlook.
FDM has announced results for 2019 in line with the January trading update. The group is yet to see a recovery in the UK Public Sector market, and clearly there are (hopefully short-term) challenges due to the Coronavirus restrictions in many locations. We choose to leave 2020 forecasts unchanged, and will introduce 2021 forecasts at the time of the group’s AGM in April. FDM is unwavering in its belief in the core proposition, which remains relevant across multiple geographies, technologies and customer verticals.
Results. Mountie revenues +11%cc to £268.2m with profits up 7% to £55.2m. Overall Mountie headcount grew c5% to 3,924 with all regions growing aside of the UK which was impacted by the government slowdown in 2019 from the Brexit impact. DPS will be 34.5p for the year, up 15% yoy. Operating cash flow was £46.8m (£38m FY18) with an improvement in debtor W/C. UK. Headcount declined 5% to 1,910 mainly due to the government ministries reducing headcount by 170. This offset positive progress in the rest of the business with 46 new client wins. Training completions were down 9% yoy as the business reacted to the market backdrop. Mountie revenue was up 6.4% to £134.2m with profits of £37.8m NA. Revenue was up 18% to £96m with headcount up 7% to 1,277 and operating profit up 20% to £16.5m. The group saw 17 new client wins with H2 seeing better market conditions in both the US and Canada. Training completions were down 14% to meet timing of order flow. EMEA. Revenue grew 19% to £16m with profit up 57% to £2.2m. Mountie headcount grew 48% to 240 (30 additions from the UK business) with progress across multiple regions giving the division good broad underpinning. Asia Pac. Revenue +24% to £22.3m with 497 Mounties. Sydney Mounties grew by 64 or 133% (FY18: 48) post the capacity investment which led to a £1.3m loss. Hong Kong grew strongly despite the social unrest in FY19. Outlook. FY20 started slightly ahead of plan but the extent to which coronavirus will impact FDM will depend on how the situation evolves. Potential risks are delays to project start dates and Mountie on-boarding. Working from home could also potentially reduce on-site client billing. FDM is a resilient business, globally diversified with a strong B/S. We trim our TP to 1000p (4% dividend yield) to reflect the wider market de-rating.
Headlines. Mountie headcount grew 5% to 3,924, compared to 3,846 in H119 and 3,747 in FY18. Net group H219 additions were 78 vs 99 in H119 with both periods suffering from reduced UK government spend. Revenue grew 12% cc to £272m, 1.4% below our £275.9m predicated on a 4,092 Mountie estimate. We reduce FY20E headcount to 4,274 from 4,407, bringing revenues to £282.2m, c.4% below our £295.6m. Net cash of £37m was ahead of our £35.4m. UK and Ireland. Headcount fell 5% yoy to 1,910 (2,004 in FY18). H119 net adds were 11 with a net 105 loss in H219, although 30 were moved from UK classification to EMEA. Public sector was the reason behind the decline with other sectors growing. We expect a return to solid Mountie growth in FY20E and we understand the year has started strongly. We expect public sector to improve in H2 post the spending review and bedding down of new government department structures. We trim FY20E headcount to 2,000 from 2,184. North America. Mountie headcount was up 7% yoy to 1,277 vs our 1,296 with net 9 additions in H119 and an improved 72 in H219 from expansion into the current client base, client additions and fewer internalisations. We trim FY20E headcount to 1,397 from 1,416, but expect FY20 to be a good year with some large client internalisations now having mostly worked through. EMEA. Headcount grew 48% to 240 vs our 217, although this benefited from the 30 Mounties reallocated from being reported under the UK. We have increased FY20E to 280 from 252 to reflect this dynamic. APAC. Headcount grew 29% to 497 vs our 485 with 51 H119 net adds and 61 in H219. Sydney continues to expand rapidly and we up FY20E to 597 from 555. Investment view. FDM is making good underlying progress and we expect the model to continue to build through FY20 and beyond as it drives its UK and international expansion. We see this progress combined with an attractive dividend yield supporting the stock.
FDM HSP QLT SAGA SNN SCS UU/ 0TY
FDM’s update this morning provides further clarity on both the challenges being seen in some of the group’s markets, and the response of group management to these pressures. 2019 financial performance appears to have met our expectations, despite a shortfall in Mountie numbers. We reduce our 2020 revenue (and Mountie) forecasts, but based on management’s swift response, and benefiting from previous caution in estimates, we are confident to leave our 2020 profit and cash figures unchanged.
Headlines H119 Mountie sales +14% cc to £134.4m (+16% cc Q119) and group EBITA +7% to £27m. Mountie heads +13% yoy to 3,846, a 99 increase versus FY18 and flat vs Q119 at 3,846. Net additions were behind normal trends largely due to the UK government (political uncertainty) and internalisations not being replaced at a couple of large clients. Otherwise, activity levels were generally high with 40 new clients (2018 38), of which nearly 70% were non-financial services. Cash conversion of 85.7% (H118 85.4%) we see improving with a new billing system. Forecast We have cut the FY19E Mountie headcount to 4,092 (from 4,222), factoring in H119, but leave FY19E PBT unchanged, having already built in contingency given FDM’s exposure to UK central government. As new regions come on stream (Austin, Sydney, Charlotte, Birmingham), this will add incremental H219 growth. UK While Mountie sales grew 11%, with headcount +9% yoy, only 11 net heads were added from FY18. Headwinds from UK Government and a financial service client offset progress elsewhere (Energy, Insurance). H119 is absorbed in our forecast, having built in contingency and the outlook suggests a better H219. NA Mounties grew 17% (revenue +22%), but only 9 net heads were added since FY18 with Q2 activity levels slowing in some financial services clients. With this now largely abated, pipeline outlook and new regions should drive a H219 uptick. Asia Pac & EMEA APAC Mounties +18% to 369, with revenue +10% to £10.2m. Australia had strong growth which we see soon approaching 100 heads. Being in investment mode, we continue to see losses of c.£1m. EMEA is growing off a now stable business, with H119 suggesting >£2m EBITA should be possible for FY19. View The broad spread of FDM’s client base gives it good forecast resilience and growth prospects while the dividend yield of >4% offers valuation support.
FDM has delivered a solid H1 result, fractionally ahead of our estimates in terms of revenue and profitability, albeit slightly behind on Mountie numbers. The group is seeing good growth in most areas, but being held back by UK Government sector and North American Financial Services weakness. With sufficient slack in our forecasts, we make no changes to full-year revenue, PBT or cash estimates – overall forecast risk must have risen with sluggish activityin some areas, but the expansion outside of the UK and outside of Financial Services continues apace, and the market opportunity remains material.
FDM’s trading update published in advance of today’s AGM provides good reassurance around its current business performance. The statement contains (as always) limited detail, but confirms the recent trends – Mountie revenue growth of c.18% is well in line with our expectations, there has been a solid level of Mountie additions to drive this expansion, and non-core revenue is steadily declining as planned. We look forward to delivery on the clear potential across the remainder of the year and beyond.
FDM’s announcement of 2018 results provides additional granularity to the January trading update, and the overall tone remains uniformly upbeat. Highlights include strong growth in multiple geographies, customer diversification and significant investment in platform and scale. We nudge up revenue estimates for FY19 and FY20, but leave profit unchanged and trim cash forecasts to reflect working capital flows. We reiterate our Buy recommendation and our unchanged Target Price of 1050p.
FDM’s trading update provides reassurance around the 2018 outcome (which appears to be ahead of our expectations in terms of revenue and Mountie numbers) and in terms of the outlook for 2019 and beyond. The announcement describes “record levels of client engagement and demand” and presents a strong and upbeat message. We take comfort from both the metrics and the upbeat tone – we make no changes to forecasts, but strongly reiterate our Buy recommendation and 1050p Target Price.
FDM’s H1 has seen strong ongoing growth, with Mountie revenue up 17% at constant currency. This performance has been across the board, with all geographies contributing to growth, and increasing diversification of end market verticals. The group has also been investing heavily, with additional staff and office location costs; despite this, H1 Adjusted EBIT is almost exactly half our full year estimate. We make no changes to forecasts (other than a modest reduction to tax rate) and leave our TP and Buy stance unchanged.
FDM Group plc (FDM.L, 1,010p/£1,086m) Q1 trading update to 31 March 2018 (26.04.18) | Harvey Nash Group plc (HVN.L, 101p/£74.2m) Preliminary results to 31 January 2018 (27.04.18)
FDM Group (Holdings) plc Harvey Nash Group
FDM has delivered a very strong 2017, in line with the January trading update. The group is demonstrating exceptionally robust growth in the UK – which just a year ago felt pressured – and continues to sow the seeds for long term success in North America and Asia. Cash generation remains strong, and the group has surprised on the upside with a material boost to the dividend. We make modest upgrades to 2018 (and later) forecasts, and increase our dividend expectations materially. We retain our Buy recommendation and 1050p TP.
FDM Group : International expansion has only just begun
FDM Group : International expansion has only just begun (19-Feb-2018)
FDM has delivered a robust trading update for the year to December 2017. Although revenue was fractionally shy of our estimate, the statement describes performance for the year as being ahead of previous expectations. We have upgraded our forecasts for EBITDA and PBT for 2017 and 2018, albeit on slightly lower revenue figures. The group continues to deliver material strength across the board – we upgrade our TP to 1,050p from 900p and reiterate our Buy recommendation.
FDM has delivered a strong H1, with both revenue and adjusted profit ahead of the required run-rate to reach our full year expectations. The group continues to deliver on the plan – ongoing growth in the UK (where sentiment appears to have recovered well), strong expansion overseas and a number of new strategic initiatives across the business. Given the strength in H1, and the positive commentary from management, we upgrade our estimates for both 2017 and (more modestly) beyond; our target price rises from 850p to 900p.
FDM’s AGM statement shows trading in Q1 2017 has continued to be strong with group revenues increasing by an impressive 46% YoY. Mountie numbers are tracking well towards our full-year target, although growth is required to be at a fractionally faster pace for the remainder of the year. Management has stated that it remains well placed to achieve 2017 expectations; we reiterate our Buy recommendation and 850p target price.
FDM has delivered a very strong set of results for 2016 – reaching our 2017 sales estimate a year early. The group has seen powerful performances across almost all geographies as it continues to benefit from the compelling nature of the offering. We make a modest upgrade to our 2017 adj. PBT forecast, and remain convinced of the long-term strength of the investment proposition. We raise our Target Price from 670p to 850p – potential upgrades could drive future price performance.
FDM has delivered a characteristically strong 2016, as detailed in today’s trading update. The group will deliver results “ahead of expectations”, and although Mountie numbers are some 1% shy of our forecasts, the group is clearly experiencing very strong growth in a number of key geographies, and the pricing environment remains solid. We make modest (c3%) upgrades to 2016E and 2017E Adjusted PBT estimates to reflect the positive update, and reiterate both our Buy recommendation and our 670p Target Price.
FDM has had a strong start to 2016 with very solid Q1 trading. Growth in Mountie headcount in the quarter was ahead of track for both consensus and our estimates, and led to a significant increase in revenue YoY. However positive our outlook on FDM’s prospects, amidst sustained concerns over the global macro backdrop, and with customers potentially worried over Brexit, we leave our forecasts unchanged at this early stage in the year. We upgrade our Target Price from 595p to 625p to reflect increasing confidence.
FDM has delivered a strong 2015 and appears well set for ongoing growth. Its unique model is finding favour with new customers in new locations, and is being adopted more broadly by existing clients. The 2015 outcome was ahead of our expectations on every metric, and we make modest upgrades to 2016 and 2017. The group continues to generate operating margins in the high teens despite significant investment for future expansion; we reiterate our 595p Target Price and our Buy recommendation.
FDM is a formidable company, having established a vast array of intellectual property and relationship-based assets. These combine to allow the group to earn good margins on IT services work delivered by its growing army of managed consultants (“Mounties”). We initiate coverage with a Buy recommendation, and a 595p target price. Any investor unaware of the group’s story, or who has stubbornly ignored the group since its take-private and re-listing, would be well advised to meet management and learn more.
