Hogg Robinson Group (HRG) recently provided insight into its technology business, Fraedom, which offers payments, expenses and travel software tools. We explore Fraedom in more depth, looking at the growth strategy, competitive positioning and financial prospects for this part of HRG’s business. This well-established, profitable business looks set to contribute to the group’s growth over the medium term.
The Fraedom technology platform was formally launched in 2015, although was in operation for years before this through the combination of HRG’s in-house technology development and its investment in Spendvision. Fraedom provides software tools for customers to manage travel, expenses and B2B payments, giving greater visibility and control over spending. The platform is sold on a software-as-aservice (SaaS) basis to direct customers and via partner channels.
In FY16, Fraedom saw revenue growth of 14.3% to £25.6m and increased underlying operating margins to 23.0% from 14.3% in FY15 (versus FY16 group revenue decline of 3.6% and underlying operating margin of 14.1%). While the wellestablished expenses management customer base currently generates the majority of revenues, management expects its B2B payments business to grow fastest in the medium term. The Fraedom business expects to grow overall revenues at the mid-teens rate in the medium term, providing ongoing support to HRG revenues and profitability.
Hogg Robinson’s FY17 P/E rating is low (under 9.5x) compared with that of the FTAS UK Support Services sector (c 14x). The company is securely funded, highly cash-generative and committed to a progressive dividend (+8% in FY16). Fraedom’s underlying FY16 operating profit of £5.9m is c 15% of the total. In this note we estimate a potential enterprise value for Fraedom of £75-105m, which compares with Hogg Robinson’s current total EV of £251m.