UK financial technology stock Beeks Financial Cloud (LSE: BKS) is red-hot at the moment. Over the last month, it’s climbed nearly 30%.
It may not be too late to take a look at it however. Because right now, it’s still well below highs and its valuation doesn’t look stretched.
An under-the-radar UK tech company
Beeks is a cloud computing/technology infrastructure company that serves the financial services industry. Its offerings enable financial institutions to connect to exchanges, trading venues, and cloud service providers at a fraction of the cost of building their own technology infrastructure.
Listed on the UK’s Alternative Investment Market (AIM) market, it currently trades for around £2. At that share price, its market-cap is about £140m, so we’re talking about a small company here.
Why the share price is moving higher
As for why the share price is soaring, it’s related to contract wins. On 8 June, the company announced it had secured its first contract for Market Edge Intelligence – its AI-powered analytics platform that turns raw, complex, market and network data into clear, actionable insights.
This was a five-year contract worth almost $5m with “one of the world’s largest banks”. Beeks noted that over time, the contract has strong expansion potential.
Two days later (10 June), Beeks announced three additional contract wins across its Analytics, Proximity Cloud and Private Cloud offerings. These had a combined total contract value of around £1.7m.
Two of these contracts were with existing customers while the other was with a new one in the tech space.
“These contract wins demonstrate continued demand across our product portfolio and reflect the breadth of opportunities we are seeing across infrastructure, connectivity, analytics and AI-powered insight,” said Beeks’ CEO Gordon McArthur.
Is Beeks worth a closer look?
So the company clearly has momentum, a major plus from an investment perspective.
Note that revenue for the financial year ending 30 June is expected to amount to £40.3m, up from £36.6m last financial year. Next financial year, analysts expect £45.3m.
Growth isn’t the only thing to like here, however. Another plus is that profits (which have been small up to now) are forecast to rise materially. This financial year, analysts expect a net profit of £7.93m versus £2.97m last financial year.
Another positive is that McArthur owns around 30% of the company’s stock, so his interests are aligned with those of shareholders.
On the downside, contracts here can be lumpy. This can lead to earnings and share price volatility.
So while analysts expect earnings per share of 8.55p this financial year and 10.3p next (giving us a price-to-earnings (P/E) ratio of 20), these forecasts might not be achievable. If earnings are well below forecasts, the share price could fall.
Another issue is that Beeks is shifting to revenue-share contracts (where payouts depend on how much revenue clients generate). This means it has to spend a lot of money on compute infrastructure initially so there are cash flow risks.
Weighing this all up, I think the shares are worth considering as a growth play. Position-sizing is going to be important here though – given the risks I would keep an investment here small.
Should you invest £5,000 in Beeks Financial Cloud Group Plc right now?
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Edward Sheldon does not hold any positions in the companies mentioned
