An underrated fintech – Investors’ Chronicle

Fintel (FNTL:185p), a provider of compliance, business and technology services to financial intermediaries, delivered an impressive first half cash flow performance, while reporting a 9 per cent rise in core revenue to £27.1m (excluding a flat) . £5.1mn income contribution from property surveying outside the core area).

The group’s well-respected management team continues to make progress in growing Software-as-a-Service (SaaS) revenue and converting more distribution partners to multi-year subscription agreements. A key factor was the 21 per cent increase in revenues to £9.4m in the group’s fintech and research division (Defaqto), a provider of financial information and research to product providers and intermediaries, as well as ratings that help consumers compare and buy financial products with confidence . Higher uptake and usage of the service, and the positive contribution from a strategic distribution agreement with Tatton Asset Management, were key drivers. Indeed, the Tatton deal helped boost the divisional contribution from high-margin software by almost a quarter to £4.6m. Ratingen’s turnover increased by 10 per cent to 4.2 million pounds.

Not only does the group report higher levels of profitability, but its SaaS and subscription segments generate 66 percent recurring revenue, so it’s also a higher quality revenue stream. Around 70 to 80 per cent of the cash surplus is converted into free cash flow, hence why Fintel’s net cash has tripled to £7.6m in 2022 and could reach £12.5m (12p per share) by the end of the year, according to real estate agent Zeus Hovedstad . Also, net cash could almost double again to £23.6m (23p per share) by the end of 2023, assuming Fintel just maintains this year’s EPS forecast of 12p and its impressive cash conversion.

Against this background, the shares are priced at modest cash-adjusted PE ratios of 14.4 (2022) and 13 (2023), giving a prospective dividend yield of 1.7 per cent (2022). In part, the low rating reflects investors’ risk aversion amid the current stock market uncertainty – the shares have trailed Aim down since the annual results (‘Positioned for strong sustainable growth’, IC, 22 March 2022) – and expectations of modest earnings growth next year.

However, the ranking does not reflect Fintel’s solid growth potential, which is underpinned by an increasingly complex regulatory landscape and the need for consumers to either seek advice or take direct ownership of their own financial planning. Medium term purchase.

Simon Thompson was named journalist of the year at the Small Cap Awards 2022.

■ Simon Thompson’s latest book Successful stock selection strategies and his previous book Stock picking for profit can be purchased online at www.ypdbooks.com at £16.95 each plus postage and packaging. Details of the content can be viewed www.ypdbooks.com.

Promotion: Subject to stock availability, the books can be purchased for £10 each plus £3.95 postage and packaging, or £20 for both books plus £5.75 postage and packaging.