Before next Monday’s Finals are announced, Mark Watson-Mitchell takes a new view on Beeks Financial Cloud Group (LON:BKS), currently on 65 times PE

This group has a simple vision – Build, Connect, Analyse.

The growth in the applicability of its Private Cloud for the financial services sector is proving to be a continuing driver for Beeks Financial Cloud Group (LON:BKS).

The Trading Update for the year to end-June, issued in late July, reported that the group had delivered significant double-digit growth on the prior year, driven by a strong performance across Beeks' Private, Proximity and Exchange Cloud offerings.

At that time CEO Gordon McArthur stated that:

"We are delighted to have delivered another set of record financial results and a further year of significant growth.

The increased traction of our products is testament to Beeks' growing reputation across the financial markets as technology provider of choice.

We are confident in our ability to continue satisfying strong demand for our solutions and we remain focused on the conversion of our substantial pipeline."

The Business

Set up in 2011, the Renfrew, Scotland-based group has been the leading managed cloud compute, connectivity and analytics provider in the financial markets since it was established.

It has connections to over 200 exchanges and leverages 20 data centres across the globe.

It delivers bare-metal cloud and low-latency compute, connectivity and analytics, on demand and optimised exclusively for global capital markets and financial services.

With sub-millisecond latencies, the Beeks infrastructure greatly expedites the time taken from placing a trade to its execution – a critical factor given the time-sensitivity demands of the group’s customers.

Its cloud-based ‘Infrastructure-as-a-Service’ (IaaS) model gives organisations the flexibility and agility to deploy and connect to a variety of Exchanges, trading venues and cloud service providers at a fraction of the cost of building their own networks and infrastructure.

Beeks is now recognised as an established technology provider to financial markets, with a track record and compelling reference clients, providing through its Private Cloud, Proximity Cloud and Exchange Cloud services, a strong foundation to drive its business forward.

The Equity

There are some 66.66m shares in issue.

Gordon McArthur holds 36.91% of the equity, while other large holders include Canaccord Genuity Wealth (10.95%), Lombard Odier Asset Management Services (4.97%), Artemis Investment Management (4.44%), Janus Henderson Investors (4.34%), Octopus Investments (2.95%), Gresham House Asset Management (2.25%), Hargreaves Lansdown Asset Management (1.62%), Herald Investment Management (1.50%), and Liontrust Investment Partners (1.42%).

Researcher’s Views

At Canaccord Genuity Capital Markets, its analysts Kai Korschelt and Hayley Palmer rate the group’s shares as a Buy, with a Price Objective of 260p.

They estimate that the year to end-June will have seen £30.0m (£22.4m) of sales, while adjusted pre-tax profits could have risen to £4.1m (£2.3m) and lifting earnings to 5.5p (4.1p) per share.

For the year now underway the analysts go for £39.6m revenues, £6.0m profits and 7.6p per share in earnings.

The year to end-June 2026 could see £45.2m of turnover, with £7.2m of profits and 8.7p of earnings.

Progressive Research analysts George O’Connor and Gareth Evans see Beeks as a long-term secular growth opportunity.

They suggest that the group is established, profitable and growing, with a global opportunity, robust moat, improving unit economics and experienced management team.

Furthermore, they reckon that continued growth is predicated on customers migrating on-prem to cloud as they reconcile cloud’s cost, agility and security advantages, as any residual performance, regulatory and data sovereignty concerns are addressed.

Their estimates for the 2024 year are for £28.4m revenues, £3.9m profits and 5.1p earnings.

For this year they have £38.5m sales, with £5.8m profits and 7.4p earnings per share.

My View

I look forward to reading the Results Statement next Monday morning, together with any guidance from the group for current-year and future prospects.

On the face of it this is a machine that is just rolling progressively ahead, creating ever-building recurring revenues along the way.

After hitting 290p in late August, the £161m capitalised group’s shares, now at 242p look ready for another positive run higher, hopefully on the back of further good corporate news.

(Profile 01.03.23 @ 145p set a Target Price of 180p*)