Boasting a huge expansion opportunity, improving profit margins and record applications to join its team, FDM (FDM) is a class IT
projects business with substantial wealth creation potential for investors.

There are thousands of businesses and organisations around the world still grappling with the problem of staying relevant in a disruptive, digital world and FDM has the technology expertise to help.

Its customers mainly come from banking, insurance and finance although new areas experiencing technology disruption include energy, media and government departments.

Key to its success is FDM’s Mounties model where technical IT consultants are drawn from university graduates, people returning to work and ex-military personnel. All are trained for free by FDM in return for at least two years of full-time service.

Installed in a client’s operations, FDM’s Mounties provide a wide range of technical and business functions, such as business development, IT testing, project management, data and business analysis, and  production support.

They are also increasingly being trained in areas such as hybrid cloud applications, robotic process automation and artificial intelligence.

With still more than half of its customer base in the UK and Ireland, FDM has huge opportunities to grow both at home and overseas. Revenue from the Asia-Pacific region last year increased by 31% compared to the UK’s 18%. The company is also well presented across North America (potentially its biggest market down the line) and in Europe and the Middle East.

Overall revenue rose a more modest 5% to £244.9m in 2018 but this was largely due to a planned reduction in using outside contractors. The plus side to that switch is faster profit growth and improved margins. Pre-tax profit rose 11% last year while operating margins jumped by a full 1% to 19.7%.

Mounties are in use about 97% to 98% of their time so the more FDM can get out in the field, the better the growth. Mounties on site increased by 18% to 3,747 last year, but FDM remains selective about recruitment. Luckily, more than 84,000 applications were fielded last year, so new talent should not be in short supply.

There remain unknowns from possible Brexit outcomes so opportunities outside of the UK are encouraging, as is the fact that the business is still run by its founder Rod Flavell.

The shares have typically traded on a price-to-earnings multiple in the high 20s. Assuming a PE ratio of 27, and assuming low double-digit earnings growth over the next couple of years (it did 15% in 2018), the share price could easily return to previous £11 levels.

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