Fintel core revenue growth is higher than Zeus forecast

Fintel plc (LON:FNTL), the leading provider of Fintech and support services to the UK retail financial services sector, has released a trading update for the six months to 30 June 2022, which reveals: Core revenue grew c.9% to £27.1m, (2H21: £24.9m)

¨ Total revenue (i.e. including surveying) grew 2% to £32.2m, (2H21: £31.7m)

¨ Adjusted EBITDA rose 5% to £8.7m (2H21: £8.3m)

¨ Adjusted EBITDA margin improved to 27.0% (1H20: 26.1%)

¨ Significant financial resources with £7.6m cash and undrawn £45m RCF

¨ Underlying operating cash flow conversion expected to exceed 120% (2H21: 135%)

Conversion of existing revenues to Distribution as a Service (“Daas”) has “seen a greater proportion of these revenues recognised in H1 … on a full year basis, the current core revenue expectation is trading at the upper end of the range of medium term objective” of 5 to 7%.

Digitisation including conversion of contracts to DaaS, has raised SaaS and subscription income to c.66% of Fintel’s Core revenues.

Matt Timmins, Joint CEO confirms that trading is “in line with Fintel’s strategic goals and Board expectations. Growth in Fintel’s Core business has been strong and in-line with the top end of Fintel’s medium-term objectives communicated in Fintel’s CMD (Dec20) with the balance of new revenues continuing to come through SaaS and subscriptions.”

Interim results will be released on 20 September 2022.

Zeus view: Core revenue growth is higher than we forecast. DaaS revenue is less seasonal than previous contracts: so, 9% growth in core revenue in 1H is consistent with 7% growth in core revenue for the full year. We raise our forecast for 2022E core revenue by 5.5% from £53.1m to £56.0m. For 2023E and 2024E we expect core revenue growth at the bottom of medium term objective of 5% to 7% (i.e. 5%): so we raise our 2023E core revenue by 4.8% to £58.8m and 2024E core revenue by 4.3% to £61.7m.

Non-core surveying (including panel management) generated £5.1m of revenue (1H21: £5.1m); last year’s non-core revenue also included £1.7m from Zest, which was then sold.

Overall, we leave our forecasts including non-core revenue and profit unchanged. When non-core has been sold, the profitability of the core business will become clearer.

Valuation: Fintel is trading on PER of 17x, EV/EBITDA of 10x and only 3x revenue.

Fintel is a digital business trading on an analogue rating. A credible rating for a SaaS and subscription business, growing at 5% to 7% pa, and operating on EBITDA margin of 35% to 40%, would be: revenue multiple of 4x, EBITDA multiple of 10x to 11x and PER of circa 18x.

Summary financials

Market Cap£209.1m
Shares in issue103.2m
12m Trading Range189p– 254p
Next EventInterims: 20 September

Financial forecasts

Yr end Dec (£’m)2021A2022E2023E2024E
Core revenue52.35658.861.7
Core/total (%)82909090
yoy growth (%)5-544
Core EBITDA17.118.119.921.9
Core EBITDA margin (%)33343637
EBITDA margin (%)29313233
EPS (p) basic adj.11.61212.413.4
EPS (p) ful dil. Adj.11.51212.413.4
DPS (p)
Net cash/(debt)2.611.422.334.1
Div yield (%)
Source: Audited Accounts and Zeus estimates
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