Today I am looking at the investment case for three Thursday newsmakers.
Shares in IT giant Fidessa Group (LSE: FDSA) were basically unchanged in Thursday trade, despite the release of a positive trading update.
Although trading conditions remain difficult for the software play’s client base, Fidessa advised that
“the themes Fidessa saw during 2015 are continuing, with more opportunities opening up as customers position their businesses for the future.”
Indeed, Fidessa said that it expects the investments made during the recent downturn to leave it well positioned for the near-term and beyond.
The City certainly believes that Fidessa is a company on the rise, and expects earnings to rise 4% in 2016 and 5% in 2017. While subsequent P/E ratings may be a tad heady on paper, a dividend yield of 3.5% through to the end of next year helps to mitigate these elevated multiples. I reckon Fidessa could prove a canny growth pick as market conditions steadily improve.
Over and out?
Things are not quite as bubbly over at digital radio manufacturer Sepura (LSE: SEPU), however. The stock continues to oscillate wildly, and although shares are up 18% in Thursday business, Sepura’s value is still down almost three-quarters since the start of the month.
Sepura announced at the beginning of April that “two significant opportunities” had not been signed-off in time for the close of the year. As a result, the radio specialists expected EBITDA for the period to March 2016 to register between €16m and €20m.
This estimate was confirmed today, with full-year earnings chalked up at €17m. However, the failure of Sepura to close out the orders has placed huge stress on the balance sheet. The company now plans to raise £50m via a rights issue, and has commenced talks with its creditors over possible covenant breaches.
Still, today’s release further illustrated the breakneck demand for Sepura’s gizmos, with organic revenues rising by 10% last year to €145m.
The City consequently expects earnings to surge 96% and 11% in 2017 and 2018 respectively, resulting in P/E ratios of 9.8 times and 9.1 times. And these ultra-low readings suggests that the near-term risks facing Sepura are currently baked into the share price.
WANdisco dances higher
Software play WANdisco (LSE: WAND) has fared much better in Thursday’s session, with an 18% surge taking the stock to levels not seen since last July.
The market became giddy following news that the firm had inked a non-exclusive OEM sales agreement with IBM, a move that will see WANdisco’s Fusion data replication product installed as a standard component for the US giant’s storage and analytics software.
WANdisco advised that
“whilst we expect that revenues will begin to flow during the second half of this year, we will provide further guidance once product launches have taken place and initial customer uptake has been evaluated.”
News of monster deals like these should, of course, make investors sit up. But the full financial impact of this latest accord is yet to be evaluated. And in the meantime, WANdisco is likely to remain at the mercy of variability in new contract bookings.
The City expects the tech play to remain in the red for the foreseeable future, with losses of 67 US cents and 55 cents expected for 2016 and 2017 respectively. I reckon investors should give WANdisco a miss until it can show signs of sustained revenues growth.
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Royston Wild has no position in any shares mentioned. The Motley Fool UK has recommended Fidessa. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.