Fineos Corporation Holdings PLC

FCL Details

Change in Director’s Interest: Fineos Corporation Holdings PLC (ASX: FCL) is a global software company and provides core software to Life, Accident and Health insurers, and Employee Benefits providers. In a recent update, the company’s director (Michael Kelly), transferred 8,009,040 acquired CDIs by Jacquel Investments Limited and disposed off 8,009,040 CDIs by Carmen Investments for a consideration of $4.30 per CDI.

Annual General Meeting Update: The company has recently declared its FY21 results and reported decent growth in most of the key metrics.

• Revenue grew by 23.3% to €108.3 million in FY21, compared to the prior year. There was a growth of 48.6% and 13.9% to the subscription revenue and services revenue to €40.1 million and €66.4 million, respectively.
• There was a growth of 23% in gross profit to €72 million in FY21.
• It ended the period with an ARR of €45.7 million as of 30 June 2021, compared to an ARR of €30.1 million as of 30 June 2020.

Revenue Highlight (Source: Analysis by Kalkine Group)

Look at Q1FY22 Performance:

• The company successfully completed an oversubscribed A$70 million through an institutional placement and a SPP for retail investors.
• It has witnessed High Product Consulting employee utilisation rate at an average of 91% during the quarter-end, compared to an average of 88% on the prior quarter-end period.
• There was an uptick in cash receipts from customers by 37% to €1 million in Q1FY22, compared to the prior quarter.
• The company ended the period with a significant rise in cash levels to €50.4 million as of 30 September 2021, up from €14 million as of 30 June 2021.

Key Risks: The company’s line of business makes it prone to stiff competition from peers, and hence it has to look to keep itself upgraded with the latest technological trends. FCL is also prone to risk arising from the global economic and political uncertainty and volatility in all marketplaces.

Outlook: The company expects FY22 revenue to be in the range of €125-130 million, aided by subscription revenue growth of ~30%. It anticipates R&D expenses to be on the higher side in FY22 due to acquisition and integration costs and further product development plans. In addition, the company believes that it is well-positioned operationally and financially to executes its growth strategy in FY22 and beyond.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The stock of FCL is trading above its average 52-weeks’ levels of $3.360-$4.950. The stock of FCL gave a positive return of ~20% in the past nine months. It has a support level of $3.9 and a resistance level of $5.0. The stock has been valued using an EV/Sales multiple-based illustrative relative valuation method and arrived at a target price with a correction of high single-digit (in percentage terms). The company might trade at a slight premium to its peers, considering the growing revenue, capital raising program, and increasing cash receipts, etc. For the purpose of valuation, peers such as Infomedia Ltd (ASX: IFM), LiveHire Ltd (ASX: LVH), and Nearmap Ltd (ASX: NEA) have been considered. Considering the recent rally in the stock price, expected correction in valuation, volatile market in healthcare space, and the key risks associated with the business, we suggest investors to book profits and give a ‘Sell’ rating on the stock at the current market price of $4.75, as on 06 December 2021, 10:30 AM (GMT+10), Sydney, Eastern Australia.

FCL Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

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