Why Fidessa may not be a takeover tar­get

In­vestors are wrong to hope for pri­vate eq­uity bids

Shares - - BIG NEWS -

In­vestors hop­ing to cash in on a takeover of trad­ing sys­tems sup­plier Fidessa (FDSA) look likely to be dis­ap­pointed. At first glance the £884m Wok­ing head quar­tered busi­ness looks a clas­sic tar­get for pri­vate eq­uity buy­ers yet we don’t think a deal will hap­pen.

Fidessa is a global leader in trad­ing sys­tems to fi­nan­cial in­sti­tu­tions. It has cus­tomers all over the world and earns more than two-thirds of its rev­enue out­side the UK.

Bristling with bal­ance sheet strength (it is ex­pected to have £75m to £80m of net cash by the end of the year) on which pri­vate eq­uity could load debt, Fidessa also has su­per cash gen­er­a­tion. Nearly 90% of its rev­enue is re­cur­ring.

So why hasn’t the com­pany fielded bid in­ter­est? There have been ru­mours in the past, most re­cently from the US in April 2016, but a ma­jor snag is the lim­ited scope to bol­ster or­ganic growth with ac­qui­si­tions.

Large fi­nan­cial in­sti­tu­tions not cur­rently Fidessa clients tend to run their own in­house built anal­y­sis and trad­ing en­gines. Fidessa re­mains hope­ful that new fi­nan­cial reg­u­la­tions can ac­cel­er­ate its own growth but doubts re­main.

In the mean­time, low to mid-sin­gle digit rev­enue ex­pan­sion re­mains on the cards. That makes the shares at £22.86 look ex­pen­sive on 23.7 times fore­cast earn­ings for 2018. (SF)

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