There is a lot to like about Beeks Financial Cloud (BKS:AIM). Namely rapid and (largely) profitable growth and improving cash flow and margin profiles from an expanding market niche.
Compound average revenue growth since 2019 runs at 31.5%, and while profit has been lumpy, due to expansion investment, the shares have returned 18.5% a year on average over the past five years. Put that another way – for every £1 invested in the shares since just before the pandemic struck, you would have £2.34.
Analysts at Canaccord Genuity see the share price vaulting the 300p level this year to something in the region of 335p, thanks to strong organic growth and scope for EPS (earnings per share) upgrades, implying nearly 30% upside in 2025.
WHAT DOES BEEKS FINANCIAL DO?
Founded in 2010 by chief executive Gordon McArthur, who still owns a 32% stake, the Glasgow-based business provides low latency access for traders of equities, futures, forex and other financial markets. Latency is the time lag you sometimes get when trying to connect to something using the internet.
When retail investors push the trade button, a few seconds delay barely matters because the trade sizes will likely be comparatively small, but with most of Beeks’ client institutions using automated trading systems handling millions of pounds, fractions of seconds matter, potentially making the difference between a profitable trade and one that loses money, and certainly the margin gain (or loss) on a trade.
Beeks uses a cloud infrastructure platform that runs out of data centres located close to major exchanges, currently 19 in financial centres including London, Frankfurt, New York, Chicago, Tokyo, Hong Kong, Singapore and Brazil, including hosting, colocation, connectivity, data feeds and network security.
Beeks describes itself as AWS-like cloud for specific financial activities. It recently added a private cloud offering in the form of Proximity and an Exchange Cloud white label solution, which offer pre-built plug-and-play solutions that can be installed on a customer site or in a Beeks data centre.
Clients access the platform through a configurable portal that means they get exactly want they want with Beeks doing the behind-the-scenes work.
Arguably, deep-pocketed institutions could do this themselves, but it would be costly and a poor use of internal resources, a point demonstrated by the rapid growth in clients, going from 90 in June 2016 to 220 three years later, and now at more than 1,000, including the world’s second biggest exchange Nasdaq, signed in early 2024 but whose identity was only revealed this month as the client went ‘live’. That’s as strong a client recommendation as you could hope for, and it underlines Beeks’ potential to increasingly get top tier exchanges on board.
As Canaccord analysts noted, assuming successful Exchange Cloud take-up by end customers, ‘large exchanges such as Nasdaq and others could potentially each become £10 million to £20 million-plus revenue opportunities for Beeks’.
WHAT TO WATCH OUT FOR
There are some risks to consider. For example, the bigger the client the longer the sales cycle, and onboarding for some top tier clients can run for up to four months thanks to stiffer compliance and procurement processes, versus the couple of days turnaround for smaller customers.
This has been illustrated in the past when Beeks has been forced to tone down growth expectations, with capex requirements sometimes lumpy. But the upsell opportunity can also be considerable, implying upside to existing forecasts.
Now a more mature business with larger scale, we also see Beeks being better placed to managed capex more efficiently and drive better quality and more reliable profit and cash flow, bolstering margins and returns on capital.
Stockopedia consensus pitches revenue increasing 55% over the next two years (to end June) to $45 million, yet those quality metrics previously mentioned could see earnings growing far faster, from 3.36p EPS in 2024 to just shy of 9p in 2026. If Beeks can meet these expectations, it will either slash the current rolling 12-month price to earnings of about 30 or, more likely, see a swathe of new Beeks investor fans propel the shares yet higher.
These articles are provided by Shares magazine which is published by AJ Bell Media, a part of AJ Bell. Shares is not written by AJ Bell.
Shares is provided for your general information and use and is not a personal recommendation to invest. It is not intended to be relied upon by you in making or not making any investment decisions. The investments referred to in these articles will not be suitable for all investors. If in doubt please seek appropriate independent financial advice.
Investors acting on the information in these articles do so at their own risk and AJ Bell Media and its staff do not accept liability for losses suffered by investors as a result of their investment decisions.
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