Fusionex International (FXI) (320p and 2.5% of JIC Portfolio) I have bought a new holding in FXI this morning. I was nudged into taking action by a column in the latest edition of Red Hot Penny Shares written by an old colleague and friend, David Thornton, who has just been appointed the new editor of the publication. It’s well worth a look!
FXI is a Malaysian based enterprise software company, which listed on AIM last December. It currently has two offerings: Core Transaction Engine (CTE) and Business Intelligence (BI). CTE, FXI’s first product, provides software to aid the day-to-day running of a business, such as payments, messaging, audit trail and security management. BI is a software suite, which helps its fantastic list of blue chip clients, to make sense of the huge amount of data they collect through their everyday operations, so that they can better manage their business and stay ahead of the competition. Growth has been strong with sales for the year ended September 2013 forecast to be up 31% on 2012 and earnings per share up 46%. A year end trading statement issued yesterday confirms that the “board anticipates that the revenue as well as profit achieved for the full year results for the year ending 30 September will be at least in line with market expectations.”
In the trading statement it says that its “new flagship Big Data product, GIANT, is now in advanced stages of testing. Once launched, GIANT will be able to be deployed to either cloud, on premise or hybrid environments. Fusionex has conducted a number of paid pilots with clients, and full product launch continues to be targeted before the end of calendar year 2013.” GIANT could be a game changer for FXI as it is will be priced at a significant premium to the BI offering and with management claiming that 70% of existing customers have already expressed an interest in it, sales uptake could be pretty rapid.
The company is Malaysian based, reporting in Malaysian ringgits, and is building a substantial presence in the rapidly growing Far East region; it has recently opened offices in Hong Kong and Indonesia. In yesterday’s announcement it highlighted its first new client win in Hong Kong and the importance of its Hong Kong office as a “hub and gateway to North Asia (including China) and a region where management believes strong product demand continues to exist.” It went on to say “the Group has built a steady sales pipeline over the last few months in Hong Kong (which covers Northern Asia), and Management is therefore confident that it will progressively win more new business from Hong Kong and China.”
The Company has a strong reputation and has not yet had a customer leave them. It has a strong relationship with Microsoft where earlier this year it won its Asia Pacific Award for Business Intelligence. Its CEO and founder Ivan Teh owns 51% of the company and no shareholders sold at last year’s IPO.
Valuation; on the house forecasts of 46.8cents for September 2013, 57.7 cents for 2014 and 70.2 cents for 2015 the shares are valued at 35x Sept 13, falling to 28x and then 23.5x for 46% growth followed by 23% and 23% respectively. It generates cash and pays a dividend forecast at 10.5cents for September 2014, giving a yield of 0.6%.
Conclusion: Typically I would be scared off by a PE rating above 20, preferring stocks valued in the mid-teens. In this case, however, I think that there is a good chance that current earnings estimates will prove too cautious as growth exceeds expectations, especially as it rolls out GIANT. My confidence is also boosted by its superb list of clients (see website) and its strong relationship with Microsoft.
I have bought a 2.5% holding (See Transactions)
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