Analysts fear Fidessa is at risk from competitors
Fidessa share price falls as brokers raise concerns over disruption in the sector,stating that the market leader is only a few paces ahead of weak competitors and clients face cost pressures when new regulation on price transparency come into force. Fidelity hosted a Capital Markets day yesterday, its first since 2008, and disappointed with its lack of progress in correlated markets such as fixed income and derivatives. Fidessa’s core competence is equities and, in line with many of itspeers, it is moving towards becoming a multi-asset platform.

Fidessa, which supplies financial software to City traders, has fallen more than 2% in a rising market a day after its latest investor presentation, not the outcome it would have wished for.

Its shares are down 46p at £19.29, with analysts remaining unconvinced by the outlook for the company. Many of it City clientele will face cost pressures when new regulations on price transparency - including how much brokers pay for research - come into force (albeit a new delay means this could take another year from now).

Andrew Darley, tech analyst at finnCap moved from hold to sell and cut his price target from £23 to £17.50. He said:

Fidessa’s equity markets position is strong and generates cash as a mature, subscription-based software model should. However, the forthcoming disruption to the predominantly sell-side customer base still looms large. Forays into already well served derivatives and fixed income markets will not be sufficient to provide material net growth. While there is a risk our call may be early, since the supportive dividend is attractive (albeit uncovered), the 25 times PE rating remains eye-watering for a stock with negligible growth since 2011, where potential catalysts all appear negative.

George O’Connor at Panmure Gordon said:

Whilst there are some sparks of hope our over-riding impression is that Fidessa is only a few paces ahead of weak competitors and markets. We were partly disappointed - the last time Fidessa did a capital markets day was 2008 - so much has changed since. Fidessa has the potential to rock the global fintech (as opposed to cash equities) market but its new ventures falter (it still doesn’t know what to do in Fixed Income and Derivatives, and is three years from profitability). The company is concentrating on its financial ‘returns strategy’ - ie the special dividend - but here investors have better choices, such as (say) Micro Focus (buy) and Computacenter (buy). We are pleased that with individuals like Steve Grob, the strategy guy, there is true vision. More parochially, news of a potential delay on [new regulations] MiFID II should impact estimates as hard-pressed customers are able to hold off non-recurring spend (we downgrade a smidgen). Fidessa repeated the more upbeat note from its last trading update. In the wake of the meeting we are less of the view that Fidessa is stuck and is incapable of innovation, but it struggles to enter co-related markets. On balance, and to reflect a more positive view, we increase our target price to 1712p (from 1587p). Shares are too expensive to purchase, hence we retain our hold.

And Julian Yates at Investec said: