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Why the GBST Holdings Limited share price is getting slammed today

This morning GBST Holdings Limited (ASX: GBT) shares plunged 27% after the financial technology business updated the market with news that it expects to deliver operating EBITDA of $12.2 million over FY 2017.

This compares to $20.6 million in FY 2016 and the big fall is because the company invested $9.6 million in strategic research & development related to multiple software platforms.

As a result total EBITDA is expected to be down 30% over the year. In total revenues for the year also fell 19% to $88 million in a result the company blamed on the weaker British Pound and “client related project delays”. GBST’s chief executive stated that the underlying business remains “in a strong position” and that projects in the UK are “now progressing well”.

Outlook

Another big factor explaining the share price falls is probably the forecast for product investments of $10 million to $15 million in FY 18, which come in before the forecast of operating EBITDA of $20 million to $25 million.

In other words, GBST investors could be staring at another EBITDA fall over FY18.

In fact $10 million to $12 million of the increased EBITDA spend is related to two new projects named E-VOLVE and ComposerWeb 2.0.

The group retains a strong balance sheet with no debt and cash on hand of around $11.7 million.

All the additional investments required suggest GBST may be feeling the competitive heat in the UK and rising demand from clients in terms of the product quality it provides. Investors looking for a potentially better option in the financial technology space may be better off looking at market leader Iress Ltd (ASX: IRE).

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Motley Fool contributor Tom Richardson owns shares of IRESS Limited.

You can find Tom on Twitter @tommyr345

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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