Jefferies upgrades Fidessa, says margins on upward trend

Jefferies upped its rating on Fidessa to ‘buy’ from hold’ on Monday and hiked the price target to 3,100p from 2,400p following the company’s full-year results, pointing to the emergence of clarity on future margin evolution.

It noted that in its results, Fidessa said that in FY19 it will have greater investment capacity that can either be re-invested to develop new opportunities or deliver an increase in margin.

"Given the limited visibility on new markets, we believe margin expansion is more likely and hence increase our FY19E EBIT margin to 16.2% (from 14.3%). Furthermore, if the status quo on new markets remains unchanged, we believe there is scope for continued significant margin expansion albeit for now we assume only a modest EBIT margin increase (c.25bps pa) in FY20E and beyond."

Jefferies said the results were "modestly ahead" and the FY18 outlook was in line. FY17 revenue was 1% better than expected due to FX and combined with lower costs from the US office move resulted in an EBIT/EPS beat of 3%/4%, the bank said.

Earlier on Monday, the FTSE 250 trading and investment management software and services provider reported solid growth in its transforming markets, with revenue rising 7% to £353.9m. Pre-tax profit was ahead 2% at £50m, while its adjusted pre-tax profit surged 10% to £54.3m in the 12 months to 31 December.

Profit after tax was precisely in line with 2016 at £35.7m, although adjusted profit after tax was ahead 11% at £40.4m.

At 1510 GMT, the shares were up 7.4% to 2,797.50p.