Regulatory Tailwinds And Matrix Threesixty Expansion Will Drive Future Profitability

Key Takeaways

• Fintel's strategic integration of acquired businesses through API connections aims to boost enterprise revenue, offering a comprehensive platform for intermediaries.
  
• Strengthening compliance support offerings and leveraging regulatory shifts are expected to drive revenue growth and enhance Fintel's market position and profitability.
  
• Fintel's reliance on regulatory support, acquisitions, and SaaS models poses risks to revenue streams, profitability, and financial flexibility amid potential market and execution challenges.

Catalysts

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

• Fintel's strategy of integrating the acquired businesses via two-way API integrations to provide a connected platform for large-scale enterprise sales is aimed at increasing enterprise-level revenue growth by offering an efficient one-stop shop for intermediaries. This is expected to drive future revenue and profit growth.
  
• The acquisition and integration of compliance and regulatory support businesses like Threesixty enhance Fintel's service offerings, providing potential for increased sales to existing clients and new clients from cross-selling opportunities, which could have a positive impact on future revenue and earnings.
  
• The development of the Matrix Threesixty platform is anticipated to double or triple its revenue over time. By expanding functionality to include additional datasets like pricing data, the platform aims to capture more of the GI, banking, and asset management markets, thus potentially increasing Fintel's future revenue streams.
  
• As regulation becomes stricter in the financial services market, intermediaries are expected to outsource compliance and regulatory tasks to firms like Fintel, creating additional demand for its services. This regulatory tailwind is anticipated to support sustained revenue and margin growth.
  
• The focus on monetizing recent acquisitions and optimizing the firm's integrated supply chain indicates a strategic shift towards organic growth and debt reduction, which is likely to improve future profitability and shareholder value through enhanced earnings and cash flow efficiency.

Fintel Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Fintel's revenue will grow by 9.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from 8.6% today to 19.5% in 3 years time.
• Analysts expect earnings to reach £17.8 million (and earnings per share of £0.14) by about February 2028, up from £5.9 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 24.0x on those 2028 earnings, down from 47.5x today. This future PE is lower than the current PE for the GB Professional Services industry at 28.8x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.0%, as per the Simply Wall St company report.

Fintel Future Earnings Per Share Growth

Risks

• Fintel's market relies heavily on regulatory support, meaning any changes in regulation or the competitive landscape could impact their recurring revenue streams and net margins.
  
• The company has undertaken significant acquisitions, which may introduce integration risks or operational inefficiencies that could affect earnings and overall profitability.
  
• Fintel's strategy of creating a one-stop shop for intermediaries is still in its early phases and may face execution challenges, delaying anticipated revenue growth from large-scale enterprise sales.
  
• Heavy reliance on SaaS and subscription models (65% of revenue) means any disruption in customer retention or shifts in market demand could negatively impact revenue predictability and financial performance.
  
• The company's debt levels and financial obligations due to acquisitions might constrain future borrowing capacity or require stringent cash flow management to maintain healthy profit margins and investor returns.

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 £91.4 million, earnings will come to £17.8 million, and it would be trading on a PE ratio of 24.0x, assuming you use a discount rate of 7.0%.
  
• Given the current share price of £2.69, the analyst price target of £3.35 is 19.7% 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.