Should you snap up Fidessa Group plc after 20% rise on possible bid?

Does Fidessa Group plc (LON: FDSA) have further upside potential?

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Software and services company Fidessa Group (LSE: FDSA) has soared 20% higher today after it became a possible bid target.

A statement was released by the firm to say that it is in advanced discussions regarding a possible all cash offer by Temenos. Under the terms, shareholders in Fidessa would receive £35.67 in cash for each share, plus the right to receive the final and special dividends announced by the company yesterday. In aggregate, they are worth £0.797 per share, which brings the total value of the possible offer to £36.467 per share.

Investment potential

Of course, there is no guarantee that a firm offer will be made for the stock. This may be why the company is trading slightly below the total offer value, with its price standing at around £35.50.

The offer appears to be relatively generous. It puts Fidessa on a price-to-earnings (P/E) ratio of around 36. This is relatively high, given that the company is forecast to grow its bottom line by just 4% this year and by a further 3% next year.

Certainly, it has the potential to generate higher growth rates in future years. Demand for its services continues to rise, and this could provide a boost to its overall growth rate. However, with it trading on a high valuation even before today’s announcement, it seems as though its investors would be getting a good deal if the offer comes to fruition.

Clearly, some investors may wish to cash in following the sharp rise in its share price. A bid may not be made, after all. Either way, it appears as though the stock lacks investment appeal at its current price and it may be prudent to sell up and invest elsewhere.

High valuation

Also offering a narrow margin of safety within the software and computer services sector is Computacenter (LSE: CCC). The company’s share price has risen by 40% during the course of the last year. This puts it on a P/E ratio of around 16.5. On its own, its rating is not prohibitively high. However, when the company’s forecasts are factored-in, its valuation seems difficult to justify.

In the current year, the business is expected to report a rise in earnings of just 3%, followed by the same rate of growth next year. This is around half the expected growth rate of the wider index and suggests that investors have become overly optimistic about the company’s prospects.

Certainly, Computacenter has a solid track record of earnings growth. It has been consistent in recent years, with its bottom line growing in four out of the last five. However, it is still priced as a growth stock, and its forecasts over the next couple of years indicate that it no longer fits into that category. As such, now could be the right time to avoid it and look elsewhere for better options.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Peter Stephens has no position in any share mentioned. The Motley Fool UK has recommended Fidessa. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

Man putting his card into an ATM machine while his son sits in a stroller beside him.
Investing Articles

3 essential factors for investors to consider when aiming for passive income success

Mark Hartley outlines three of the most important considerations investors are faced with when attempting to secure a lucrative passive…

Read more »

Investing Articles

£10,000 invested in Barclays shares 1 month ago is now worth…

Barclays shares have carried on where they left off in 2024, by climbing far faster than the FTSE 100. Harvey…

Read more »

Investing Articles

I’ve been watching the easyJet share price like a hawk. Here’s what it did last week

Harvey Jones can't take his eyes off the easyJet share price. He thinks it looks good value and ready to…

Read more »

Investing Articles

A £10,000 investment in Nvidia stock 6 months ago is now worth…

Nvidia stock's shown a lot of volatility for a mega-cap company in recent weeks. Dr James Fox explores how an…

Read more »

Investing Articles

4 reasons Ferrari could continue to be a stock market winner

The global luxury goods market may have struggled in recent years, but you wouldn’t guess that from Ferrari’s soaring stock.

Read more »

Investing Articles

5 perfect starter stocks to consider for a Stocks and Shares ISA in 2025

Wondering which shares to buy for a newly opened Stocks and Shares ISA? Our writer thinks these five investments are…

Read more »

Row of terrace houses.
Investing Articles

Thinking about buy-to-let? Consider these UK stocks instead

Owning UK property stocks could be a better way to invest in buy-to-let, though there are drawbacks. Royston Wild explains.

Read more »

Investing Articles

Here’s a plan to target £7,500 a month in passive income

This writer outlines a roadmap that someone could consider taking to try and aim for a substantial future passive income…

Read more »