Berenberg downgrades FD Technologies to 'sell', slashes target price

Analyst at Berenberg downgraded FD Technologies from 'hold' to 'sell' on Wednesday and cut its target price on the stock from 2,200.0p to 1,600.0p, citing "misplaced optimism".

Berenberg stated that in its view, FD Technologies was a classic case of valuation being unsupported by business fundamentals, noting that it believes that investors overestimate the growth opportunity of the company's Kx and MRP platforms as both have "a chequered record" of operating in difficult competitive landscapes.

The German bank said this backdrop also limits the potential growth impact of FD's recent ramp-up in investment, creating a long-term doubt about margins, while limited growth from the software-based Kx and MRP businesses also undermined the stock's valuation.

"FD trades on 65.0 times full-year 2023 price-to-earnings for what remains a 65% services-based business with sub-10% earnings before interest and tax margins and limited returns on capital," said Berenberg.

The analysts added that the platform also faces competition from large faster-growing competitors and that FD was spending "significantly more" on the opportunity.