Why Fidessa may not be a takeover target

Investors are wrong to hope for private equity bids
Thursday 02 Nov 2017 Author: Steven Frazer

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-headquartered 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.

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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 in-house 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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