Stifel initiates coverage of Fidessa at 'sell', highlights headwinds

Software and services company Fidessa was under pressure on Wednesday as Stifel initiated coverage of the stock at 'sell' with a 2,054p price target, pointing to a number of headwinds.

On the plus side, it noted that Fidessa has a solid balance sheet, reserves aplenty andno debt. In addition, it is "reliably" cash-generative, has substantial recurring revenue and an annual special dividend.

However, it also noted headwinds form the cyclical downturn in cash equities, which mask a structural decline, MiFID II’s expected tough impact on the group's broker customers and the persistent uncertainty over Brexit’s implications.

"Fidessa’s stock is trading on a P/E 26.0x (23.7x ex-cash) versus a sector average 20.0x, and a 2.3x price-to-earnings growth ratio. Such ratios fail to offset the increasingly harsh operating realities - and we think a buy-side software provider would offer a superior return at the moment.

"Thus, we break the market adage - never sell your winners - and based on our 2,054p fair value target, we initiate coverage with a sell rating."

At 1410 GMT, the shares were down 2.3% to 2,456p.