Fintech Acquisitions And Integration Will Unlock New Synergies

Key Takeaways

• Fintel's acquisition and integration strategy aims to drive efficiencies and increase revenue through a unified platform, capitalizing on scale and cross-selling opportunities.
  
• Expanding SaaS and subscription models, along with new product investments, enhances earnings stability, margin improvement, and shareholder value growth.
  
• Reliance on regulatory-driven demand and high leverage from acquisitions present risks to growth, revenue stability, and operational efficiency if not managed effectively.

Catalysts

Engages in the provision of intermediary services and distribution channels to the retail financial services sector in the United Kingdom.

• Fintel's strategy to create a unified connected platform for intermediaries by acquiring fintech businesses and integrating them into a comprehensive system is likely to drive efficiencies, potentially leading to increased revenue from higher adoption among intermediaries.
  
• The acquisition of 360 and the subsequent addition of over 10,000 advisers to the Fintel platform offer significant scale advantages and potential cross-selling opportunities, which could boost net margins through economies of scale.
  
• Fintel's focus on expanding SaaS and subscription revenue models, as evidenced by core revenue growth of 22% and SaaS growth of 17%, positions the company to enhance earnings stability and predictability.
  
• The company's investment in new products like Matrix 360 and Defaqto Engage and the associated 25% average price increase for clients transitioning to Matrix 360 could improve revenue and earnings as clients upgrade to the new platform.
  
• The anticipated synergy benefits from acquired businesses boosting EBITDA margins back to the targeted 35% medium-term margin could result in higher earnings per share (EPS) and improved shareholder value over time.

Fintel Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Fintel's revenue will grow by 7.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 7.5% today to 18.5% in 3 years time.
• Analysts expect earnings to reach £18.0 million (and earnings per share of £0.17) by about April 2028, up from £5.9 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 23.8x on those 2028 earnings, down from 38.3x today. This future PE is greater than the current PE for the GB Professional Services industry at 20.0x.
• Analysts expect the number of shares outstanding to grow by 0.31% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.86%, as per the Simply Wall St company report.

Fintel Future Earnings Per Share Growth

Risks

• The reliance on heavy regulation as a driver for demand could pose a risk if regulatory landscapes change, potentially impacting revenue and growth prospects.
  
• The integration of multiple recent acquisitions into a cohesive platform presents execution risk, which could affect operational efficiency and net margins if not effectively managed.
  
• High leverage due to acquisition strategies increases financial risk, potentially leading to higher debt service costs and affected earnings if cash flows do not meet expectations.
  
• The focus on the U.K. market limits geographic diversification, leaving the company vulnerable to market-specific risks that could impact revenue stability.
  
• Slower-than-expected organic revenue growth, particularly in core membership fees, may indicate challenges in market demand or competition, potentially impacting overall revenue growth targets.

Valuation

• The analysts have a consensus price target of £3.35 for Fintel based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be £97.2 million, earnings will come to £18.0 million, and it would be trading on a PE ratio of 23.8x, assuming you use a discount rate of 6.9%.
• Given the current share price of £2.17, the analyst price target of £3.35 is 35.2% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.