I’m always on the lookout for hidden gems in the FTSE. Recently, my attention has been drawn to IntegraFin (LSE:IHP), a company that’s been making waves in the financial services sector.
With the shares soaring by nearly 50% in the past year, I can’t help but wonder, have I missed the boat on this FTSE company?
A great year
IntegraFin, which provides an investment platform for UK financial advisers and their clients, has certainly had a good year. Not only has its 46.9% return comfortably outperformed the wider UK market over the last year, but it’s also left its Capital Markets industry peers in the dust, with the sector averaging a 16.3% return.
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This stellar performance may have gone under the radar for many. The company’s been consistently growing its earnings at an average annual rate of 3.5% and boasts an impressive return on equity of 27.4%. With net margins of 37.7%, the firm’s clearly doing something right in a competitive industry.
The fundamentals
Digging deeper into the financials, there’s a lot to like here. The company sports a rock-solid balance sheet with zero debt, giving it significant financial flexibility in a period of high interest rates and general uncertainty. Its latest reported earnings showed EPS of £0.074 for the first half of 2024, up from £0.067 in the same period last year.
Moreover, IntegraFin’s revenue has been growing at an average rate of 8% a year, outpacing its earnings growth. This could suggest that the company’s investing heavily in growth, which I like the sound of.
Am I too late?
With such a strong performance, it’s natural to wonder if the best gains are already behind us. However, there are several factors that suggest IntegraFin might still have room to run.
Despite the recent price surge, the shares are trading at a price-to-earnings ratio (P/E ratio) of 21.9 times, which isn’t excessively high for a company with its growth profile and market position.
Analysts forecast earnings to grow by 8.78% a year, indicating continued optimism about the company’s prospects. IntegraFin offers a respectable 2.9% dividend yield, which is well covered by earnings with a 65% payout ratio. This suggests room for dividend growth.
As an investment platform provider, IntegraFin is well positioned to benefit from the growing trend of digitisation in financial services.
Risks
Of course, no investment is without risks. The business operates in a very competitive industry, and its success has likely attracted the attention of larger players.
Recent regulatory changes in the financial services industry could also severely impact the business model, and any economic downturn could affect the demand for investment services.
To me though, the big concern is that the shares are already overvalued. A Discounted Cash Flow (DCF) suggests the current price is about 6% above fair value. Obviously, this isn’t a guarantee, but it doesn’t inspire me that there’s huge potential, despite what some analysts are forecasting.
I’m staying away
So have I missed the boat on IntegraFin? Perhaps not entirely. This FTSE company seems to have the wind in its sails and, for investors willing to weather potential storms, it might still offer an interesting voyage.
However, I think there are probably more lucrative investments out there, with less risk. I’ll be steering clear for now.
