A rare London market play on data analytics and artificial intelligence has received £123,000 of boardroom support after the AIM-listed shares slumped to a decade low.
FD Technologies (LSE:FDP), whose KX software division boasts partnerships with leading cloud service providers including Azure and AWS, shed more than a third of its value after it downgraded guidance alongside half-year results in October.
The warning was fuelled by tougher conditions at its two other data-driven divisions, the First Derivative capital markets consulting arm and the sales and marketing-focused MRP predictive analytics unit.
In contrast, KX continues to make good progress after FD stuck by a full-year target of at least 35% growth in annual recurring revenue (ARR).
The Newry, County Down company also fuelled City speculation over a possible standalone future for KX by pledging to complete a review of its overall structure no later than May’s annual results.
KX describes itself as the fastest and best-informed real-time decision-making engine in the world, with the capability to capture data from any location and in any format.
It is widely adopted in the financial industry in a range of data-intensive arenas. The group also recently introduced KDB.AI, a new vector database that boosts Natural Language Processing and generative AI search applications.
Chief executive Seamus Keating, who bought shares worth £97,230 on Wednesday, recently announced a £9-10 million step up in KX investment as he looks to maximise revenues from the cloud service pipeline and a range of opportunities in AI.
An ARR target of £180 million in the 2026 financial year would represent compound growth for KX of 45% from next year.
Keating, who was appointed in January 2020, said in relation to the growth plans: “This investment is a statement of confidence in the prospects for KX and is accompanied by targets that would create significant value for shareholders.”
KX revenues rose 12% to £37.7 million in the half-year results, while the larger First Derivative fell 1% to £89.1 million amid caution among investment banking customers. Overall, adjusted earnings fell 12% to £14 million and led to a bottom-line loss of £4.5 million.
House broker Investec said the post-interims position looked to be an excellent entry point, as both MRP and First Derivative have had the decks cleared in terms of forecasts and KX expectations sit well below management’s mid-term ambitions.
It added: “The formal review of organisational structure will be a catalyst to unlocking value, and together with forecast changes, could force a bigger-picture appraisal of business segments rather than defaulting to near-term price/earnings.”
Investec has a price target of 2,700p, while joint house broker JP Morgan sits at 2,000p after cutting its target by 500p in the wake of the results.
Analysts at Peel Hunt said the company had been “doubling down on its KX jewel for some time” but that taking advantage of the fast-moving opportunity is rife with risks.
- Stockwatch: takeover bids imply stock market in recovery mode
- Richard Beddard: a share that’s easy to like, but should you buy it?
- Jeff Prestridge: cash is king but equities will prevail
The company listed on AIM in 2002 when known as First Derivatives, offering bespoke software development for clients across the European banking sector.
The shares went from their 50p float price to above 4,000p in 2018 as FX became one of the best performing tech companies on AIM. It featured on the shortlist for the best technology stock at last month’s AIM Awards.
Keating and chief financial officer Ryan Preston (£25,700) made their investments last week at prices of 926p and 922p respectively. The shares ended the week at 977p.
More backing for this £1bn university spin-out
Backing for the shares of Oxford Instruments included a £20,000 investment by chair Neil Carson as the FTSE 250-listed company enjoyed a strong week.FD Technologies (LSE:FDP)
The former Johnson Matthey chief executive, who was appointed to the board in 2018, followed Tuesday’s interim results with a purchase at a price of 2,020p. The stock ended Friday’s session at 2,080p, which compared with 1,712p in late October.
The company, whose products and services are used by industry and scientific research communities, boosted City confidence with broadly flat adjusted profits of £7.5 million. It lifted the interim dividend by 6.5%, with 4.9p a share due to be paid on 12 January.
Constant currency revenues growth of 7.5% was driven by leading positions in the key markets of healthcare and life sciences and the semiconductor industry.
Chief executive Richard Tyson, the former boss of TT Electronics who joined the business six weeks ago, reported a strong order book and good pipeline at the start of the second half.
He also praised progress under predecessor Ian Barkshire, who successfully increased the company’s end-market focus. It was originally founded in 1959 as the first technology business to be spun out from University of Oxford.
- World’s biggest dividend stocks in Q3 2023
- The Income Investor: two dividend stocks with capital growth potential
- Share Sleuth: better to buy high-quality firms amid recession fears
Peel Hunt reiterated its “buy” recommendation following the results, describing them as solid against a backdrop of continuing investment and tough trading conditions. The broker has a price target of 2,670p, noting the shares trade on 17.3 times projected 2025 earnings.
It added: “With strengthened market positions, improvement in business infrastructure and a growing cash pile, we look forward to seeing more progress under the new CEO.”
These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.
Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.