We are pleased to make available a research note from Peterhouse Research:
TechFinancials consists of two complementary businesses: (a) development and supply of proprietary software solutions (TechFinancials) for online brokers providing services for retail traders in binary options and other instruments, and (b) operation of its own online trading platforms (currently OptionFair and one JV).
Its trading software is already licensed to 65 retail binary options trader brands, which leaves it well placed to attract new clients and expand into new markets. The group reported 108.6% y o y growth in active customer numbers in FY14 and another 35% so far this year.
Recent share price weakness reflects an alert in August pertaining to slower than anticipated growth in customer conversion rates at OptionFair, due to a decision to reduce marketing expenditure and the impact of new CySEC regulations in Cyprus. Management believes that it has addressed the key weaknesses and the outlook has since been enhanced by a joint-venture (group 51% share) with a Hong Kong based binary options trader, Optionfortune, focused on the fast-growing Asia Pacific region.
On our forecasts the shares are on a prospective EV/EBITDA multiple of 4.4x for FY16 (net of estimated c US$7.7m cash), supported by a forecast FY16 dividend (33-50% of net cash generated) equivalent to a 3.1% prospective yield.
On a sum of the parts, based upon a stabilised B2C business including the new JV, we argue that either division individually justifies the current group market value, which we see as a case for an initial move above 20p/share on the back of newsflow.