FDP is listed on AIM, with a 20m m/cap at 165p. IMO it's likely to earn 15p+ EPS this year to Feb'07, having made 6.9p EPS in H1, not only beating this year's but next year's broker forecasts.

The resulting current year P/E of just 11 is therefore far too low imo. FDP should if anything, given its track record and prospects, be trading on a P/E of around 15 times next year's forecast of, say, 17p EPS, giving a 255p price target.

Web site : http://www.firstderivatives.com/pages/home.asp

First Derivatives delivers computing/algorithmic solutions and support services in respect of derivatives, investment banking, fund management, insurance and financial/mathematical modelling. It also has its own range of e-business applications developed in-house and marketed/distributed effectively free of charge by BT - this business is also now delivering profits.

Its clients include some the world's most respected, wealthiest and free-spending financial institutions. For example, FDP deals with most of the top 10 investment banks in the world:

http://preview.tinyurl.com/ycwq9o
"JP Morgan, London,Dresdner Kleinwort Wasserstein, London,Lehman Bros, London & New York,Merrill Lynch, London & New York,Deutsche Bank, London,Fidelity, Boston,Bank of America, New York,CIBC, New York,Swedbank, Stockholm
Svenska Handelsbanken, Stockholm"

And:
""Software sales to 8 out of 10 top tier investment banks and many hedge funds
Over 50 customers worldwide growing at rate of 10 per year""

The hugely impressive adjusted EPS record is as follows:

Actual:
28/2/03 : EPS 2.4p, no divi, pre-tax profit 406,000
28/2/04 : EPS 4.8p, Divi 1p, pre tax profit 757,000
28/2/05 : EPS 6.1p, Divi 1.46p, pre tax profit 991,000
28/2/06 : EPS 10p, Divi 3p, pre-tax profit 1,720,000
28/2/07 : EPS 17.5p, Divi 5p, pre-tax profit 2,232,000
Goodbody stockbroker's forecasts are:
28/2/08 : old EPS 17.8p, Divi 5.7p forecasts now likely to be heavily upgraded

FDP is and has been continuously profitable, is expanding its blue-chip client list and has opened offices abroad in New York, Stockholm as well as London.

Here's Hemscott's recent coverage of FDP dated 9th May 2006 in which they conclude:
http://www.hemscott.com/news/comment-archive/item.do?id=7300
"House broker Corporate Synergy points out that 70% of sales forecast for the current year have already been secured and analyst Amisha Davda has upgrade forecasts for the current year from 1.8m to 2.2m for profits and from 6.5m to 8m in sales. These forecasts are described as 'arguably prudent'. . The figures show FD on a PE of only 10.8 times forecast earnings for the current 12 months falling to 9.8 times next year."

FDP will also benefit from 2006 onwards from the necessity for its hugely wealthy investment banking clientele to comply with the newly introduced MIFID rules. This could be bonanza time for consultants like FDP. Note the spend here - 50m from the heavyweight investment banks (most of whom are FDP's clients), and note the final paragraph about where it will be spent. This is FDP's precise domain. Recently the FDP director Michael O'Neill said:

http://www.tradersmagazine.com/magazine2.cfm?id=1&aid=2589&year=2006

""Reg NMS in the U.S. and MiFID in Europe are fantastic news for us," says O'Neill, since they will fuel the need for traders to manage and analyze larger volumes of data."

http://www.timesonline.co.uk/newspaper/0,,175-2470698,00.html
Extracts:
"New rules from EU will cost City 1bn - just for starters
Patrick Hosking, Banking and Finance Editor

Regulator gauges outlays on MiFID

City regulators yesterday put a figure on the cost to City firms of implementing the latest reforms from Brussels an upfront hit of about 1 billion plus continuing expenses of about 100 million a year."

"The biggest City banks are budgeting to spend as much as 50 million on computer systems, consultancy and extra compliance staff to meet the new regime."

"Categorising investors, proving trades are executed at the best price and instantly publishing information on equity trade volumes and prices would also load heavy upfront costs on some firms."

In addition, the Times had a recent article about Reuters' results showing the way the City is going:

http://www.timesonline.co.uk/newspaper/0,,173-2410787,00.html

"Reuters is preparing for a big shift in City employment, in which it expects banks to shed many dealer jobs in favour of using computers to conduct trading."

Algorithmic/computerised trading is where it's at worldwide, and FDP is in the sweet spot.

FDP also has some hidden assets which most are unaware of. It owns 4% of Kx, which could be worth a considerable sum (maybe 500k+?). Secondly, it owns a number of properties in London, New York and elsewhere which in early 2005 the broker said (from memory) were worth 750k over book value - a year on and they should be worth considerably more.

FDP also had 860k of cash at the 31/8/06 interims, and paid a maiden 1.4p divi - which suggests a 4.2p total divi for the year, well above the 3.5p broker forecast:
http://www.investegate.co.uk/Article.aspx?id=200609260700444531J

DYOR etc.

Interesting. Having got out of Northgate after three years, on the failed takeover (90+P), and Torex, went from 100+ to 36 and who both pay small dividends I will buy FIRST DERIV.
The interim payment is an excellent sign as you say.
Their web site is not too clever and could do with a revamp.
I'm looking for a long term hold in software. This could be it

.

Rivaldo...Hombre....
These are moving now.

With Chinese stocks like GNG and GFM which I have bought again tentatively.
My question is will Chinese stocks pay a dividend?
Will the Chinese pay profits to UK shareholders?
I have Asian Citrus which at 200p is paying a dividend.
GFM says it won't (?) and has gone for a share buyback.
Therefore how high can the shares go.

I like the look of this one and GNG-but they are well below the radar at the moment. tiny trades, so I'll watch and wait for now.

Nice jump 10p...eat your heart out Renesola

Hi Peter,

Did you see that Goodbody's Stockbrokers (an Irish broker) this week picked FDP as one of their three small caps for 2007, with a target price of 220p based on a projected 57% increase in EPS?

Personally I believe 220p is too low given that I'm hoping for 15p adjusted EPS this year and around 18p-20p EPS next year. Given FDP's tremendous record of EPS growth, plus worldwide growth potential driven by regulation (MIFID), the explosuin in automated trading etc, 240p-260p seems about right to me and maybe a fair bit more.

Yep, GNG is well below the radar - which is good! With a 7.2m m/cap, once people cotton on to the potential, the profitability, the Balance Sheet strength and the management team we may be off to the races.

I doubt GNG will pay a divi for a while given they need to grow the company for a couple of years imo. But if they achieve even close to the forecasts of 5p+ EPS next year GNG could trade at 75p if we're lucky, or 50p on a "Chinese" discount.

Another 12p. No sellers.Always good.

.

Hey rivaldo...is there any concrete reason
that it is rising again today with no real buyers

.

Had to pay 10p spread on 1k shares @217p.... so illiquid, unbelievable. Being marked up 2p for every buy.

Adrian Toner, non-executive director bought approx 8000 shares today
Staying in for 350p

Terrific news. A non-exec taking his maiden stake with only a couple of months to go before the year end, and paying close to the all-time highs at 207p and 210p?! If that's not the best possible clue about how the year is likely to turn out....

Since I started this thread 2 months ago at 165p FDP's price has risen to 290p. Not bad.

At 290p FDP are about to be on a forward P/E of only 13.4 for 2008/9, even before likely upgrades (imo) or stripping out the cash pile. Or taking into account the apparent rethinking in sector valuations going on at present.

Certainly imo the year about to end will produce maybe 15p adjusted EPS. So 2007/8 EPS will likely be upgraded to 19p-20p EPS and the next year to 24p-25p EPS. On that basis we can start to look to a 450p-500p share price for a company that's increased profits almost seven-fold in 4 years.

I also believe the recent FFA takeover price (for a much smaller loss-making company) - and the good recent news from Misys' banking software division - has thrown FDP's valuation into sharp relief for the market and highlighted the value and near-term (and highly desirable) potential of not only the core business but also the excellent Balance Sheet.

Great article in yesterday's FT about the consultancies (i.e FDP) making a mint out of the boom in derivatives and electronic trading, hedge funds and everything else in the City at the moment:

http://www.ft.com/cms/s/f4436ee6-adab-11db-8709-0000779e2340.html

One extract in particular showing how FDP's markets are growing exponentially:

"Meanwhile, the huge growth of the derivatives market in recent years has seen the birth of companies such as Thunderhead, which is turning over almost 20m annually helping banks such as UBS and Lehman Brothers process paperwork for derivatives trades. Founded two years ago, Thunderhead was set up by Glen Manchester, a former gamekeeper with no IT training or banking experience.

The emergence of electronic securities trading is another fertile hunting ground for consultancies......Hatstand is preparing for a busy 2007 amid expectations that the new obligations placed on investment banks by Mifid will generate an increasing amount of business."

Posted out of interest only - no position, but now researching this stock.

First Derivatives PLC
8th February 2007

First Derivatives plc trading update for the year to 28 February 2007

First Derivatives plc ('the Company'), a provider of software and consulting
services to the world's financial markets, is pleased to provide the following
positive trading update.
The strong trading momentum that has characterised the beginning of the year has
continued into the second half of the year. The Company expects normalised
profit before tax to be materially ahead of market expectations.
The enhanced profitability has been a function of securing new customers and an
increased take-up of KX Technology.
The Company will release a more detailed update on it's financial performance in
due course and its financial results for the year to 28 February 2007 in early
May 2007.

FDP are now up to 311.5p, and Goodbody's Stockbrokers have a new 400p valuation with a Buy rec at 333p:

http://www.goodbody.ie/news/morn.html

"First Derivatives (Buy, Closing Price 3.33)
Upgrading estimates and price target following positive trading statement.
Analyst: Philip O'Sullivan

Following First Derivatives' positive trading statement yesterday, in which management guided that earnings for the current year will be materially ahead of market expectations, we are making a number of changes to our forecasts. We now forecast that the company will achieve adjusted eps of 15.2p in the year to the end of February, some 10% above our previous estimate. Our FY'08 earnings estimate rises 5% to 17.8p, but we feel that there is scope for upside to this number, given that the company is expected to roll out a number of new software products over the coming months.

In terms of the valuation, yesterday saw First Derivatives' share price increase by over 25%, but despite this increase we continue to see value in the company at this level. Based on yesterday's closing price and our new forecasts, First Derivatives is trading at 14.8x our FY'09 earnings estimate.

However, this valuation is underpinned by the firm's property portfolio, which is worth c.40p a share (12% of the company's share price), while the continued strong demand from investment banks for financial software products leaves room for continued positive earnings surprises going forward.

Following this upgrade, we are retaining our Buy recommendation, while moving our share price target to 4.00, which implies 20% upside from this level. This equates to 17.8x earnings for the year to the end of February 2009, which is undemanding given the company's track record and prospects."

In addition, FDP's competitor RYB are on a forward P/E of 28, whereas FDP are on a forward P/E of just 13.8 - on forecasts which I fully expect to be increased, and with a large amount of cash (as with RYB) and property and equity assets to boot.

You'd have thought it would be the other way round. As a 360m m/cap company it's going to be almost impossible for RYB to increase profits and EPS quickly, whereas FDP have been doing and are expected to do exactly that.

If FDP were on the same forward P/E as RYB, which is perfectly reasonable given EPS growth in excess of 50% for all but one of the last four years, FDP's share price would be 630p...

A forward P/E of 13.8 just does not do FDP's record and potential any justice imo.

At 347.5p FDP are on a forward P/E of just 15.4. For a company which will have increased PBT seven or eight hundred per cent in four years that's far too low imo -Goodbody's current 400p valuation should be just the start.

With the usual FDP volatility the share price is down to 280p on just a few panic sells.

It's now on a forward P/E of just 12.4, and is 120p below Goodbodys' 400p valuation with what has been flagged to be a bullish detailed trading update due any time soon following the "materially ahead of market expectations" early trading statement.

And that's excluding the cash pile and the hidden property assets.

FDP came out with fantastic results on 10th May:

http://www.investegate.co.uk/Article.aspx?id=200705181020578481W

- 17.5p adjusted EPS, way ahead of forecasts of 15.2p EPS, which had themselves only been recently upgraded from 13.8p EPS following a trading statement.

FYI I've taken the 1.92m PAT, added back the 180k amortisation and 131k share-based payments and divided by 12.77m shares.

And:
- a whacking great 3.6p final divi
- 100% utilisation of staff currently!
- high recurring income
- hugely positive outlook:

"Since the year end the Company has signed further KX Systems contracts and has
seen significant increases in its capital markets activity. Whilst it is too
early to predict the outcome for the full year, the Company expects continued
growth in the first half of the year.'"

As usual FDP haven't presented the "correct" adjusted EPS, which is way ahead of the 15.2p EPS forecast from Goodbody's. They've gone for some obscure tax-based calculation. Must be an Irish thing.

This year's forecasts will have to be heavily upgraded from 17.8p EPS.

FDP will also be listing on the Irish Stock Exchange on June 8th to increase liquidity and interest in FDP's shares.

It so happens that the day before is FDP's AGM. I'm hoping we'll get an AGM trading statement to get the listing off to a roaring start.

FDP's Irish brokers, Goodbody, have also confirmed to me that they'll be issuing a new post-results broker note in "early June". They'll be wanting to make their new issue a success, so I imagine this note will be fairly bulllish in its tone.

Goodbody's had a 400p valuation on FDP pre-results compared to the current 302p share price. I assume the broker forecasts will be cautious as usual, so will accept it if not be very happy if they merely reiterate their previous current valuation of 400p.

I'll leave my own expectations at saying that imo FDP are worth at least 400p at present based on the likely achieving of a conservative 23p+ adjusted EPS this year. If you pencil in 27p EPS for next year you could say that on a forward P/E of only 18.5 FDP easily justifies a current price of 500p.

Check out this interview with Brian Conlon the CEO of First Derivatives.

Its worth a click:
http://www.brrmedia.co.uk/event/98281/brian-conlon-chief-executive-officer