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Tag Archives: First Derivatives

2016 – The Great Irish Share Valuation Project (Part II)

30 Monday May 2016

Posted by Wexboy in Uncategorized

≈ 9 Comments

Tags

Circle Oil, CRH, Escher Group Holdings, First Derivatives, Galantas Gold Corp, IMC Exploration Group, Irish shares, Irish Stock Exchange, Irish value investing, ISEQ, iShares MSCI Ireland Capped ETF, Keywords Studios, TGISVP, The Great Irish Share Valuation Project, Total Produce, Tullow Oil

Continued from here:

Company:   First Derivatives   (FDP:LN)

Last TGISVP Post:   Here

Market Cap:   GBP 494 Million

Price:   GBP 2,038p

My last write-up was bang in the middle of a sickening price reversal. While FDP got nearly sliced in half at the time, my price target’s been massively adrift ever since. Clearly, I was wrong to speculate FDP’s consulting business* might eventually grind to a halt – as banks continue to retrench, we’re actually seeing an increasing reliance on IT outsourcing, while reduced head-count & market evolution demanded ever greater technology capacity & automation. [*Let’s not forget consulting (64% of revenue) remains FDP’s primary business, and its margins are far less scale-able than software]. And revenue’s continued to forge ahead, at an average 28% pa in the last three years, assisted by FDP’s serial acquisition strategy (three new acquisitions & a consolidation of Kx Systems in the last 18 months, or so). Earnings growth trailed though, as FDP essentially bought revenue/technology (rather than profits…with new Big Data & IoT opportunities also being touted) & the share count’s been diluted almost 25% in the last couple of years. [Even on a revenue basis, those acquisitions look damn expensive – averaging over 7 times sales, vs. a 4.2 P/S multiple for FDP]. But FY-2016 was clearly a real gang-busters year, boasting 41% revenue & 33% EPS growth.

However, we’re still seeing a huge disconnect between EBITDA & operating free cash flow margins (Op FCF: Operating cash flow, less net PPE/intangible expenditure). But presuming software is the ultimate driver of the business, EBITDA will become increasingly relevant: A decent compromise for now is to use an adjusted margin, averaging the latest 19.9% EBITDA margin & Op FCF margin of 7.2% (noting a prior year margin of just 2.6%) – a 13.6% adjusted margin deserves a 1.33 Price/Sales ratio. And noting FDP’s financial strength (with net debt of just £15 million), we can adjust for (surplus) cash & also add a debt adjustment. [Based on this adjusted margin, I calculate another £23 million in debt (at an assumed 5% rate, for acquisitions etc.) would still limit finance expense to 15% of adjusted margin – as usual, let’s apply a 50% haircut, just to be conservative]. Of course, we also need to value FDP as a growth stock: While earnings growth has accelerated to 33%, we should still recognise the huge/ongoing disconnect vs. cash flow (& reported earnings, which are now about 40% lower than adjusted diluted earnings) – limiting ourselves to a 20.0 Price/Earnings ratio, based on adjusted diluted EPS, seems only prudent (or maybe even generous):

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2014 – The Great Irish Share Valuation Project (Part IX)

05 Monday May 2014

Posted by Wexboy in Uncategorized

≈ 9 Comments

Tags

Conroy Gold & Natural Resources, Dragon Oil, FBD Holdings, First Derivatives, Greencore Group, Hibernia REIT, Independent News & Media, Irish shares, Irish Stock Exchange, Irish value investing, ISEQ, Norish, TGISVP, The Great Irish Share Valuation Project

Continued from here:

[NB: Worth revisiting Part I if you’re a new reader, or you’d like a refresher on TGISVP & my approach to the whole project.]

Company:   First Derivatives

Prior Post(s):   2012 & 2013

Ticker:  FDP:LN

Price:   GBP 1,070p

It’s been a wild ride for investors in the past year:  A year ago, FDP looked fairly valued to me – and for much of 2013, I wasn’t far wrong, with the shares clocking modest gains. But FDP took off abruptly in November…by January, the shares had almost doubled within 2 months & tripled within 6 months. With profits down in the interim results, I suspect this rally was more of a delayed response to FDP’s Aug-Nov news flow (with new contracts reported with Republic Wireless, the NYSE & ASIC). These all highlighted the capability & flexibility of the company’s Delta products/platform to deal with Big Data, both financial and non-financial. That’s a sexy pitch right now for investors & they responded accordingly… As usual, the mugs were the last to be sucked in – it’s no great surprise to see they’ve lost a third of their investment since January, with no particular reprieve in sight.

Even at these less elevated levels, I suspect the shares remain over-valued. While FDP continues to rack up attractive revenue growth, the rest of its accounts don’t paint such a pretty picture. Operating margins continue to compress (now between 11-12%), earnings growth is non-existent & the outstanding share count is mounting steadily. More troubling is the lack of operating free cash flow (cash generated from operations, less PPE & intangibles). However, this has been offset by residential property sales in the past couple of years – unfortunately, this source of cash should dry up fairly soon. Perhaps more troubling is the continued reliance on consulting (almost 75% of revenue), rather than software sales. This is in response to the industry’s need for further cost-cutting, consolidation & compliance, rather than renewed secular growth. But it’s 5 years now since the end of the financial crisis. Perhaps there’s more of the same work to come, but I worry it’ll dry up & the company will suddenly have a death valley to cross…before we see a genuine return to growth in the finance industry.

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2013 – The Great Irish Share Valuation Project (Part II)

30 Wednesday Jan 2013

Posted by Wexboy in Uncategorized

≈ 22 Comments

Tags

First Derivatives, Fyffes, Irish Continental Group, Irish shares, Irish value investing, Ormonde Mining, Petroneft Resources, Rathdowney Resources, TGISVP, The Great Irish Share Valuation Project, Total Produce

Continued from here. Why don’t we just jump into the next (er, smaller!) batch of TGISVP stocks:

Company:   Ormonde Mining

Prior Post:   Here

Ticker:   ORM:LN

Price:   GBP 7.25p

ORM message boarders really took exception to my comments last year – clearly, they’re nuttier than the average Snickers bar… For God’s sake, I posted a marginally bullish valuation! Suggesting dilution might prove an issue seems to have caused most offence & was emphatically rejected. Er, what about the two subsequent placings in 2012 (one arrived a mere 5 weeks after my post)?! Muppet magic… Jesus, they probably won’t even like this year’s valuation!

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The Great Irish Share Valuation Project III

30 Monday Jan 2012

Posted by Wexboy in Uncategorized

≈ 16 Comments

Tags

Allied Irish Banks, Bank of Ireland, First Derivatives, ICON, IFG Group, Independent News & Media, Irish Life & Permanent, ISEQ 20 ETF, Karelian Diamond Resources, Kenmare Resources, Kerry Group, singing dancing duck, Wile E. Coyote

Continued from here:

Right, let’s work our way through another batch of 10 stock valuations. As usual, I’ve updated market prices (and any relevant FX rates) for all stocks covered to date, so remember that each new file published will be a dynamic snapshot of each stock’s upside/downside potential:

The Great Irish Share Valuation Project III     (xlsx file)

The Great Irish Share Valuation Project III     (xls file)

ICON (ICLR:US):   ICON’s at a very interesting point right now. In 2009, they pretty much hit the wall, probably a reflection of the mid-life crisis that most of the major pharma companies are suffering right now. This is a pattern I’ve seen before – and forget to check up on nearly every bloody time (and, of course, it’s far easier to spot with hindsight!):

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