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FD Technologies: why are institutions holding this stock so tightly?

FD Technologies: why are institutions holding this stock so tightly?

FD Technologies plc LON:FDP is a global company that focuses on solving business-critical problems that have not yet been addressed, using technology and AI. The company aims to unlock insights, hindsight, and foresight for some of the world’s largest and most ambitious companies with their product and services.

FD Technologies enables these organizations to realize the true value of their data, technology, and business operations, driving them forward.

Main operations of FD Technologies

FD Technologies is a very tech heavy company; the company is split into three main business units, which In outline below.

KX Systems: data analytics technology

KX is a company (a subsidiary of FD Tech) that specializes in data analytics technology, focusing on temporal data (data that represents a state in time) and vector databases (super-efficient databases for referencing data entries, and great at finding correlations).

KX’s main selling point is called Data Timehouse, a new class of data and AI management platform designed for temporal data generated by digital transformation. It enriches traditional data warehouses and lakehouse stores, providing a more complete, real-time view of the business, enabling better decision making at the speed of thought.

FD Technologies Data Timehouse

In this comparison on the KX website, we can see the data time house has simplified and sped up the process, adding on the ‘streaming data’ (it could be very useful with the roll-out of the internet of things) and real time data.

The unique point about KX’s services is that they are extremely cost efficient compared to the other cloud computing providers, and very fast at processing the data (real-time), with great flexibility. Data can be processed in the cloud (scalable, relatively cheaper than buying the hardware), on premise (greater control over data and lower latency) or at the edge (combination of both).

Does this look like ‘another’ tech company that just conjured up the words ‘cloud’, or ‘AI’ to generate some hype? Not at all. Essentially, KX does what other companies cannot really do, at a faster speed and lower cost. KX has made a database, that is designed for cloud usage and has Chat GPT-like Natural Language Processing (NLP) embedded in it. This technology could help data scientists/engineers to develop data driven apps, allowing faster decision making processes.

So what kind of industry would use KX? KX is utilized across a range of data-intensive use cases in the global financial markets, but also deployed in industries as diverse as manufacturing, automotive, energy, utilities, and telecommunications. There is huge room for further expansion, especially now business can all be data dependent.

“Our mission is to accelerate the speed of AI-driven business innovation across all enterprises by helping them build a Data Timehouse,” said Ashok Reddy, CEO of KX.

First Derivative: specialist tech consulting

First Derivative is FD Technology’s first business, a specialist consulting firm providing services and solutions plus tech expertise, within capital markets, banking operations, and asset servicing. There are three areas of operation for this subsidiary.

  1. Business services like Regulatory Compliance & Remediation,
  2. Engineering service like Market Data Infrastructure, Data Engineering
  3. Tech services like Cloud Infrastructure and Architecture & Design

All the world’s top 20 banks are working with First Derivative. The company benefits from the growing shift towards digital methods in businesses. Their team of tech and data experts helps bring significant improvements to these large banks, a great synergy with the other subsidiary KX.

“In managed services and consulting, Gartner estimates the total spend on IT services in banking will reach an estimated $761bn by 2025, of which we estimate more than $200bn is addressable by First Derivative,” said David Collins, CEO of First Derivative.

MRP: B2B marketing technology leader

MRP is an award-winning B2B marketing technology and tech-enabled services leader. They help organizations identify, prioritize, and target potential buyers. MRP offers personalised engagement across both digital and non-digital platforms, managing these interactions throughout the buyer’s journey.

MRP helps its clients to connect with the right decision-makers across all key marketing channels in timely and efficient manner, enhancing revenue and engagement on a global scale.

FD Technologies has also formed strategic partnerships, such as with Amazon Web Services, integrating its services with a leading cloud platform, expanding its reach, offering improved performance and cost efficiencies.


Microsoft Azure launched  the first Data Timehouse, offering real-time analytics capabilities, enriching data warehouse technologies, accelerating AI and ML analytics workloads for diverse sectors. Snowflake has helped to further diversify KX’s offerings, providing additional options for data management and analytics.

Corey Sanders, Corporate VP of Microsoft Cloud for Industry, had this to say: “In partnership with KX, we’re excited to launch the industry’s first data timehouse on the Azure platform….we have already seen impressive results for customers in capital markets, healthcare, manufacturing, and energy. We look forward to working with KX to help businesses achieve transformative growth with kdb Insights Enterprise on Azure.”

Management’s targets and incentive plans

Long-term incentive plan

FD Technologies’ management team has set ambitious targets that align with the company’s growth strategy. The long-term incentive plan (LTIP) is tied to achieving approx GBP 200 million of KX Annual Recurring Revenue (ARR) by fiscal 2026. This goal represents a Compound Annual Growth Rate (CAGR) of 45% from GBP 65 million in fiscal 2023.

FD Technologies Recurring Revenue

The LTIP serves as a motivational tool for the management team, linking their rewards to the company’s performance. By setting a high-end target, management is signalling confidence in KX’s growth potential and its ability to execute the strategic plan.

FD Technologies Building The Business

But only talking about growth targets without mentioning the insider share holding is not so convincing. Ultimately if management’s compensation is tied to the shareholding, they would be better placed to achieve the targets and make themselves as well as the shareholders some profit.

In the appendix below, I ran numbers based on the recent annual report of FD Technology’s incentive plan for executives. In short, the CEO will get £410,928 to £1,643,713 depending on the performance of each business, with 65% weight on growing KX’s ARR and EBITDA and 25% on growing First Derivatives’ EBITDA, which will be granted by the next 3 years.

Compare this to the £687,000 compensation a year for the CEO, I have to say the incentive plan is a great way to double the average annual compensation three years down the line.

The CEO now holds 250,000 options in the company, however there does not seem to be any plan as to where these shares would come from – whether by issuing new shares (a red flag for shareholder dilution), or if the shares are to come from the existing shares in the treasury shares in the company’s holding.

Significant share holdings

These are the significant shareholders: Juliana Conlon (wife of the founder) (14.3%), Baillie Gifford & Co (13.1%), Octopus Investments (10.9%), Columbia Threadneedle Investments (9.8%), Liontrust Asset Management (5.9%), T Rowe Price (4.9%), Canaccord Genuity (4.8%) and Invesco (4.4%).

We can see that apart from the significant holding of Juliana Conlon, 66.8% of the shares are held by institutional investors. Add to that the VC/PE Firms holding 11.0%, Individual Insiders own 13.8%, and only 7.5% of the shares are held by the public.

Generally the institutional shareholders are leaning more towards long term investment, so this might lead to a less volatility on this stock,

Competitive advantages

Until now, no competitors have been able to fully replicate the combination of speed and cost advantage that Kdb offers. This unique selling proposition has led to the aforementioned partnerships and continues to set KX apart from its competitors.

During a recent conference call hosted by JP Morgan for KX (Kdb’s parent) CEO Ashok Reddy, it was revealed that the non-financial services new bookings mix is approaching 50%. This significant shift indicates a diversification of KX’s client base and a reduction in dependency on the financial sector, further signifying the growing capacity KX has. Reddy’s statement underscores the rapid growth in non-financial applications and the potential for KX to become a much bigger business by tapping into these new markets.

Challenges and opportunities

One of the most significant challenges for FD Technologies and KX Systems is the transition from a historical services-based organization to a more saleable product-focused company. This transformation requires a fundamental shift in business strategy, organizational culture, and operational processes. KX CEO Ashok Reddy and the FD board are focused on this transition, recognizing its importance in unlocking future growth and value, which have been mentioned in the management incentive part earlier (heavily favouring KX growth).

Sustained progress in non-financial services verticals will also be key to validating KX’s potential and achieving long-term success. However, this might be achieved by the marketing part of the FD Technologies holding where they can detect industries and sectors that are most data intensive, hence could be potential clients of the company over the long term.

Financial performance and valuation

FD Technologies’ financial performance is characterized by robust revenue streams and attractive margins. With a focus on delivering high-value solutions, FD Technologies expects KX long-term operating margins to reach well in excess of 30%, with gross margins substantially over 80%, and annual contract value growing 93% to £18.7m. The company’s ambitious target of £200m of KX ARR by fiscal 2026 also reflects a strong growth trajectory, with a 45% CAGR from £65m in fiscal 2023.

Valuation of business segments

The valuation of FD Technologies can be analyzed based on its different business segments:

KX Systems: Based on comparable SaaS database technologies, KX’s valuation can range significantly. Using Couchbase’s (BASE) 4.38x revenue multiple, KX’s revenue of £80m results in a valuation of £350.4m. Alternatively, using MongoDB’s (MDB) 18.35x multiple, the valuation surges to £1,468m, 3x the current market cap for the entire FD Technology business.

FD Consulting (First Derivative): Growing at 18% in the first half of 2021 and achieving a 28% gross margin, its valuation can be benchmarked against Accenture, which trades at 3x revenue. Applying this to First Derivative’s 2022 revenue of £172m, the segment is valued at approximately £516m.

MRP Marketing Business: MRP, with its predictive analytics platform, is on track to achieve its 20% revenue growth guidance for the year. Valuing it at 2x its 2022 revenue of £41m gives it a valuation of £82m.

If we add these estimates, we will get the estimated market cap for FD Technologies at around £948.4m.

As FD Technologies continues to demonstrate progress in ARR growth, particularly within KX Systems, there is an expectation that FD Technologies stock will be forced to re-rate higher. A potential catalyst includes rumours of FD pursuing an IPO in America, or selling the less relevant MRP subsidiary.

FD Technologies now holds £0.4m net cash, and managed to reduce its loan amount from the last year. Stock is trading in the middle of the 52 week range (1,202.00 – 2,245.00).

Appendix: Executive compensation on performance

FD Technologies Executive Compensation On Performance

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