This fintech winner has increased its dividend by 8%

Fintel (FNTL:192p), a provider of compliance, business and technology services to financial intermediaries, market-leading software, financial information and product research (Defaqto), and a distribution partner to financial institutions and product providers, continues to make strong progress across all parts of its core business .

For example, since acquiring Defaqto for £74.2 million (half of which was borrowed) in 2019, Fintel has doubled its profit contribution and repaid all loans. Last year, divisional revenue increased by 18.7 per cent to £19.9m to boost the unit’s gross profit by 15 per cent to £12.5m (41 per cent of the total). The robust performance was driven in part by an expansion of rating portfolio coverage and the need for product providers and financial intermediaries to meet increasing regulatory requirements.

The intermediaries business also delivered an eye-catching performance, lifting gross profit by a quarter to £9.5m on 6 per cent higher revenue of £23.5m, boosted by a six percentage point increase in the underlying gross profit margin to 40.4 per cent. Expanding the core compliance offering with the launch of a comprehensive support package in response to the new FCA Consumer Duty regulation contributed to an 11 percent increase in average revenue per customer.

Increased current income from software and distributionsion agreements

Fintel continues to grow Software-as-a-Service (SaaS) and subscription revenue, up 7 per cent to £36.8m and accounting for almost two-thirds of the mix, driven by increased use of its deployment as a service offering. For example, Fintel has expanded its strategic distribution partnership with Schroders.

The global fund manager has joined Fintel’s Risk Controlled investment solution, ensuring that the multi-asset funds, Schroder Blended Portfolios, become central to the investment selection developed by Fintel for the thousands of advisers who use the fintech platform. Designed to improve both adviser efficiency and consumer outcomes, it enables product manufacturers to cater to consumer preferences and risk profiles by optimizing investment solutions for the advice and research processes powered by Defaqto.

The expanded Schroders partnership builds on distribution agreements with Fidelity and Aviva, which have also adapted their distribution strategies to work with Fintel. Around 70 percent of Fintel’s distribution partner revenue has been converted to multi-year subscription agreements, which improves both the visibility and quality of the group’s revenue stream.

Impressive cash creversion

Fintel’s cash flow performance was also impressive, converting £19.3m (118 per cent) of adjusted operating profit into underlying cash flow and delivering free cash flow of £13.8m (13.3p), or 71 per cent of the group’s cash surplus of GBP 19.4 minutes. This explains the fivefold increase in net cash to £12.8m (12.3p) and the board’s decision to increase the dividend per share from 3p to 3.25p, the payout covered four times by free cash flow and adjusted EPS of 12.2p.

Joint real estate broker Zeus Capital expects another year of growth, with 7 per cent higher cash profit of £20.8m and a near doubling of net cash to £23.8m (23p), although the rise in the UK corporation tax rate will ease. growth in adjusted EPS to 12.4p. Still, a forward-adjusted price/earnings (PE) ratio of 14 is hardly demanding, and so is a prospective dividend yield of 1.8 percent.

So, although Fintel’s shares have made only modest progress since I covered the interim results (‘An underrated fintech’, 20 Sep 2022), the fundamental drivers of the business remain robust and continue to support a higher rating. Purchase.

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