Fintel “good progress towards strategic focus” says Zeus Capital

Fintel plc (LON:FNTL) full year results confirm good progress towards strategic focus:

¨ 5% core revenue growth (target 5% to 7%) with core revenue rising £2.4m to £52.2m and total revenue up 5% to £63.9m (FY20: £61.0m) in line with Zeus forecasts

¨ 33% core EBITDA margin (target 35% to 40%), with core margin rising from 31% in FY20 and overall EBITDA margin of 28.6% (FY20: 28.4%) and adjusted EBITDA rising 6% to £18.3m (FY20: £17.3m) beating Zeus forecast of £18.1m

¨ SaaS & subscription 66% of total core revenues (FY20: 61%; target 70% to 80)

¨ 116% operating cash conversion & disposals created net cash of £2.6m (FY20: net debt: £19.4m); balance sheet has £45m revolving credit facility (£38m undrawn)

¨ Adj EPS of 10.5 pence (FY20: 11.3 pence), on a like for like basis excluding the impact of the change in the UK Corporation Tax rate EPS would have been 12 pence

¨ Final DPS of 2p proposed, makes full year DPS of 3p (FY20: 2.85p)

The statement refers to strategic progress: (1) Strategic partnership to deploy proprietary advice technology for up to 2,500 additional users through Tatton Asset Management (2) Successful scaling of distribution as a service (“DaaS”) with 14 partners converted to long term subscription agreements (3) ESG research platform expanded to cover 76 retail investment funds with digital ESG client profiler deployed to over 8,000 wealth managers and financial advisers (4) sale of non-core Zest Technology and disposal of Verbatim funds. Outlook: “2022 has started positively. Trading has been strong and in line with expectations.”

Zeus view
We maintain our revenue and EBITDA forecasts for 2022, assuming non-core “panel management and surveying” business continues to contribute £8.2m to revenue and c £1.2m to EBITDA. The sale of core Verbatim funds will eliminate core revenue growth in 2022. Our 2022 EBITDA forecast remains £19.0m, with 34% core margin and 15% non-core margin. For 2023 we expect core EBITDA margin of 35% and overall EBITDA margin improve to 32.4%.

We take this opportunity to add to £0.5m to our R&D and share based charges: this is a 3% cut to 2022E adj PBT and EPS. We will cover non-cash charges in detail in a subsequent note.

Fintel is a “predominantly” digital business trading on an analogue rating. Its non-core Surveying and Panel Management business generates c 14% of ongoing revenue and c 6% of ongoing EBITDA. Its segmental value on 8.6x EBITDA (i.e. 10% discount to group rating of 9.6x) would be c £10m (i.e. 1.3x revenue). In our opinion, the digital business (growing revenue at 5% and on an EBITDA margin of over 35%) should trade on over 5x revenue (i.e. £262m), making a total Equity Value of £260m (i.e. equity value of over 265p a share).

Summary financials 
Market Cap£203m
Shares in Issue103m
12m Trading Range191p– 254p
Financial forecasts    
Yr end Dec (£’m)2020A2021A2022E2023E
Core revenue49.852.552.555.1
Core/total (%)82828687
yoy growth (%)-35-54
EBITDA margin (%)28.328.331.332.4
Adj. PBT131515.516.5
Adj. PAT10.910.312.412.6
EPS (p) basic adj.8.315.710.410.6
EPS (p) ful dil. Adj.11.310.212.412.6
DPS (p)2.8533.153.3
Net cash/(debt)-19.42.51120
Div yield (%)
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