I have written previously about the growing need for skilled talent in various industries. However, finding and training individuals capable of fulfilling these roles is quite an expensive process, especially for smaller firms. Given the continual innovations in technology and software, this is particularly true in IT. This sector has some of the highest employee training expenses as it tries to keep up with the shifting landscape.
That’s where this FTSE 250 stock comes into play.
The opportunity
FDM Group (LSE:FDM) operates in the recruit, train, and deploy sector, or more specifically, helps individuals – such as graduates and ex-military – gain the necessary training and experience to thrive in their careers.
The firm specialises in a wide array of technical services from software development and testing to cybersecurity and robotic automation.
After recruiting and training individuals through the firm’s academies around the world, the company deploys them at its ever-expanding portfolio of sites within its client’s businesses.
The FTSE 250 stock charges its customers with consulting fees. In exchange, businesses receive new talent to drive their business forward without having to do any in-house training of their own.
While training and consulting is hardly a flashy sounding business model, the performance of the company has continued to impress shareholders since its 2014 IPO with a return of 226%!
The financials
| £m | 2019 | 2018 | 2017 | 2016 | 2015 |
| Revenue | 272 | 245 | 234 | 189 | 161 |
| Operating Profit | 53 | 49 | 44 | 35 | 30 |
| Return on Equity (%) | 55 | 54 | 50 | 49 | 46 |
| Return on Investment Capital (%) | 57 | 63 | 75 | 78 | 77 |
Each year has been a continual improvement on the last, with revenue and operating profit increasing year-on-year by an average of 14% and 15%, respectively.
What I find truly compelling is the incredibly high return on equity (ROE) of over 50%! As a reminder, ROE is a measure of how efficiently a company is generating income from its equity financing – investors’ money. It should be noted that the jump in 2018’s ROE is actually as a result of an increase in debt levels rather than organic growth.
Looking at the return on invested capital (ROIC) gives more clarity into what is going on under the hood. ROIC is a measure of how efficiently a company is generating income from the capital it has invested in operations and growth. This shows a declining trend, and thus the firm’s returns from its investments have declined. However, an ROIC of 57% is still exceptionally high and provides further evidence of the company’s ability to grow investor wealth.
Both ROE and ROIC should be monitored in the future so that any signs of weaknesses emerging in the business model can be identified quickly.
The bottom line
The FTSE 250 stock is certainly not without competition. One such competitor is the software company Learning Technologies Group, which provides an alternative method for businesses to train their staff.
However, training personnel is a lengthy process, and FDM Group is capable of providing expert consultants at a moment’s notice. I believe this time-saving advantage, combined with both reduced training costs for clients, and FDM Group’s high-standing reputation gives it this FTSE 250 stock the edge needed to continue providing extraordinary returns.
