Shares of Fidessa (LSE: FDSA) are trading modestly higher after the FTSE 250 firm released its first-half results this morning. The provider of high-performance trading, investment management and information solutions for the world’s financial community said it had made “steady progress” during the period, with “solid revenue growth across all business lines and regions.”
Long-term opportunities
The company benefitted from the weakness of sterling, with 2% constant-currency revenue growth boosted to 12% at actual exchange rates. Similarly, a 2% increase in profit before tax at constant currency (excluding legitimate one-off costs of an office move) was boosted to 14% at actual exchange rates.
As has been the case for some time, political uncertainty, structural and regulatory changes are continuing to have an impact on the market conditions being faced by Fidessa’s customers. However, near-term prospects appear to be improving, with the company noting that delays in customer decision-making started to ease slightly during Q2. Longer-term, it maintains it’s well positioned to benefit from the opportunities presented by regulatory and structural change.
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Good value
The company had cash of £71m and no debt at the half-year-end. It continues to be a strong generator of cash, even in the less-than-ideal conditions that have prevailed of late. For example, the board paid a 50p-a-share special dividend last year alongside an ordinary dividend of 42.5p and the City expects more of the same this year. A total payout of 94p is pencilled-in, giving an attractive yield of 4.1% at a share price of 2,300p.
Less attractive, on the face of it, is Fidessa’s earnings multiple of 24.7. However, taking into account the company’s strong cash position and what I view as its sound long-term prospects for earnings and dividend growth, I reckon the business is good value for its £890m market cap and I’d buy a slice of it today.
Updated old school
At a share price of around 3,600p, Metro Bank (LSE: MTRO) has a market cap of £3.2bn, trades on an earnings multiple of 124 and pays no dividend.
This challenger bank has a strategy that flies in the face of current banking orthodoxy. It’s opening branches rather than closing them, opening them for longer hours, including evenings and weekends, and making them dog-friendly and child-friendly among other things.
It’s a strategy that billionaire founder and chairman Vernon W Hill II employed successfully with Commerce Bancorp in the US between 1973 and 2007. Metro is currently growing its number of customers — or “fans” as Mr Hill prefers to call them — at a grand old rate and last week raised a further £278m from investors “in order to support this momentum and the company’s future growth ambitions.”
Despite the enthusiasm of its backers, I’ve marked this stock as one I’m avoiding. While the business looks set for terrific growth from a low base in the near term, this looks to be baked-in to the current valuation. Perhaps more importantly is the longer term. I have doubts about whether Metro’s business model will have fans flocking to it in 10, 20, or 30 years’ time. I fear updated old-school may not have a long shelf life as the 21st century rolls on.
