Interactive Investor

Why Fusionex just rocketed 20%

24th October 2016 13:41

Lee Wild from interactive investor

Fusionex has had a terrible year, losing almost two-thirds of its value in January when investors panicked about poor cash collection last year.

However, after making "steady" progress since, the Malaysian software firm specialising in artificial intelligence, Big Data and the Internet of Things expects to smash profit forecasts for 2016. It's why the share price surged 20% to a nine-month high Monday.

Bosses blamed a sharp increase in 2015 receivables on a shift toward channel partners, which are essential for growth, but who typically demand extended terms of trade.

Yet business at the £100 million company has improved since, underpinned by the launch in June of the next generation of its proprietary Big Data Analytics platform, "GIANT 2016".

"GIANT 2016 has opened up a new addressable market across small and medium sized businesses (SMEs)," says Fusionex, adding that the pipeline is "substantial".

Expect this momentum to spill over into the current yearRevenue in the year to 30 September is tipped to meet market expectations - house broker Panmure Gordon pencils in 90 million Malaysian ringgit (RM) (£17.6 million), up from RM77 million in 2015 - and earnings before interest, tax, depreciation and amortisation (EBITDA) - cash profit - should be "significantly ahead of market expectations," despite heavy marketing and promotion spend.

Expect this momentum to spill over into the current year, too. Panmure analyst Michael Donnelly looks for RM135 million of revenue in 2017, up 50%, almost tripling profit to RM9.2 million and doubling earnings per share (EPS) to 23.8 ringgit.

Monday's bullish update comes less than three weeks after Fusionex firmed up a million-dollar contract for GIANT 2016 with one of the world's largest providers of digital media and brand intelligence. That's a good omen, reckons Donnelly, who points out that "clients' budgeting cycles often make fourth-quarter a strong one for vendors, providing the potential for supportive news".

After crashing from 330p to less than 100p early this year, albeit briefly, directors loaded up on Fusionex shares at 120-148p. The trades weren't particularly big, but clearly they have been very profitable. And there could be a much larger windfall if Panmure has got its sums right.

"Despite a strong recent run (16%+ over the past three months) the shares trade on enterprise value (EV)/sales and EV/EBITDA of 2.6x / 21.2x," writes Donnelly, "while peers (Splunk, salesforce.com, Marketo, Tableau, Qlik) trade 50%+ / c.130% higher on average, supporting a target price of 328p."

Even at that price, Fusionex would still only trade on 23 times EPS estimates for 2018,not excessive for high-growth tech stocks. While all seems to be on track, investors might rightly demand further evidence that these kinds of numbers are achievable. More contract wins please.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. 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.