The Motley Fool

Why FINEOS Corporation could be the next $1 billion ASX software company

The FINEOS Corporation Holdings PLC (ASX: FCL) share price is now up around 24% since it hit the ASX boards on August 16 2019 at an initial public offer price of $2.50 per share.

It raised $211 million from local investors by the issue of 84 million CDIs and now has a fully diluted indicative market cap around $880 million based on 284.9 million total CDIs on issue. 

Fineos is actually an Irish company that provides software services or platforms for general, life, accident, and health insurers and appears to be off to a solid start as a listed business. I am not aware of any definitive reasons why it chose to list in Australia over Europe for example. 

For fiscal year 2019 it managed to beat its prospectus forecasts by reporting pro forma EBITDA of €8.4m on revenue of €62.8m, which were up 7.5% and 16.8% respectively.

However, investors should note the bottom line showed a net loss of €1.77m for the fiscal year. 

“Revenue growth includes a 30.8% increase in software subscription revenue over the previous financial year (FY18), driven by continued growth in revenue from FINEOS’ flagship product, FINEOS Claims, as well as upselling of new product modules to clients and the impact of a number of significant new client wins in Q4 FY19.”.

This kind of software-as-a-service type revenue is especially popular with investors these days as theoretically it should be recurring and deliver high gross profit margins. 

The stock is not going to excite value investors on around 8.8x FX-adjusted annual sales of $101.1 million, but is cheap looking compared to popular software rivals such as Wisetech Global Ltd (ASX: WTC) or Xero Limited (ASX: XRO).

While another tech business in iSignthis Ltd (ASX: ISX) had just $7.5 million in revenue for the half year to June 30 2019, yet boasts a market cap over $1.4 billion. This shows how in the tech sector of the share market valuation can be a slippery topic. 

For FY 2020 Fineos is forecasting more investment which means costs and revenues should both rise as the business looks to maintain its growth trajectory. 

It could be one for the watch list and some more research. 

Where to invest $1,000 right now

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.

*Returns as of June 30th

Tom Richardson owns shares of WiseTech Global and Xero.

You can find Tom on Twitter @tommyr345

The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of WiseTech Global and Xero. 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 Scott Phillips.

Related Articles...

Latest posts by Tom Richardson (see all)