Fintech winner keeps programming the profits For all of its scale and success, First Derivatives is perhaps the most underacknowledged of all AIM companies. First Derivatives is a remarkable AIM company. Headquartered in Newry, it is one of just three Northern Irish companies on the stock market. That’s not where you might first look for a successful provider of financial software. Founder and Chief Executive Brian Conlon owns 33.4% of the total equity. Do not be frightened by Mr Conlon’s control. Shareholders have been well-rewarded by his leadership. The dividend payout has been increased every year since 2004, rising from 1.1p for 2004 to 13.5p for 2015.
revenue from two channels: consulting and software First Derivatives’ success is primarily derived from financial institutions’ increased desire to apply computational procedures to their business activities. This can range from large scale data warehousing, to algorithmic trading and trade analysis. Of any AIM-quoted company, First Derivatives is most worthy of the ‘Big Data’ crown. First Derivatives has been delivering without pumping out the ‘Big Data’ hype that less substantial companies have engaged in. First Derivatives reports its revenue from two channels: consulting and software. In the consulting side of the 8
business, First Derivatives provides technology expertise to financial institutions on a contract basis. Due to the lower barriers to entry, consulting is more competitive and vulnerable to any downturn. In the software side of the business, First Derivatives develops its own systems and products. In the six months ending 31 August, First Derivatives’ consulting revenues were double those earned from software. In recent months, First Derivatives has moved into the digital marketing industry, where its technology is used to analyse large data volumes in real time. A number of leading companies are already signed up as pilot customers. Most of First Derivatives’ software revenues come from its ‘Delta’ stable of products. Delta AlgoLab and Delta Surveillance are two examples. AlgoLab is used to test trading algorithms, while Surveillance is used by regulators to identify suspicious trading patterns.
technology is used to analyse large data volumes in real time First Derivatives’ growth, assisted in part by a series of modest acquisitions, has seen revenues in the last five years increase from £25.5m in 2010 to £83.2m for 2015. Further strong
growth is forecast this year and next. The most recent interim results, released in November, showed a 44% increase in revenues, with adjusted EPS rising by the same amount. The dividend was increased by 52%.
dividend was increased by 52% First Derivatives looks well set to grow at the rate expected for the year ending February 2016. Although the valuation currently reflects much of the company’s success and forecast growth, First Derivatives is an established winner, occupying a leading position in markets benefitting from strong long-term growth drivers such as regulation and automation. First Derivatives (LON:FDP) FOR Growing markets Longstanding success AGAINST High valuation Shares tightly held Market cap Bid:offer P/E (forecast) Yield (forecast) 52week low:high
£370m 1,550p:1,575p 35.2 1.0% 1094p:1598p
Published on Dec 2, 2015