Investment Insights: FDM

Investment Insights: FDM

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FDM sources, trains and places IT & business consultants, known internally as “Mounties”. The FTSE 250 company operates in the UK, North America, EMEA and APAC. Founded in 1991 the business floated on AIM in 2005 but was taken private in the wake of the financial crisis. The company was re-floated in 2014.

FDM specialises in a range of business & IT disciplines including development testing, IT service management, Project Management, Data Services, Business Analysis, Business Intelligence and Cyber Security. The company hires graduates or ex-forces personnel and, via a training period of up to 14 weeks, seeking to bridge the required gap between academia and real-life work. They have training academies in London, Leeds, Glasgow, New York, Virginia, Toronto, Frankfurt, Singapore and Hong Kong as well as launching remote training schemes during and following the pandemic.

FDM has a strong reputation as a graduate employer, consistently winning recruitment awards every year. They have partnerships with hundreds of universities providing a link to graduates. During 2021, FDM held 825 graduate recruitment events reaching over 250 universities. This attracted 60,000 applications in the year. Of these, FDM accepted and trained 2,410 – a 4% acceptance rate. This abundance of applications allows FDM to choose graduates that fill the roles best & take on additional staff when demand warrants.

The standard training programme involves a paid 3-month training period and looks to combine technical education with industry standard certificates. Almost all training material IP is owned by FDM having been developed in-house over its 30+ years of operation.

Once training is completed, Mounties are selected by clients via an interview, and work on site for the client until they are no longer needed. Clients have to give a 1 week notice period before returning a Mountie to FDM. An impressive part about FDM’s model is their ability to consistently place a growing number of Mounties with blue-chip clients, and for those individual clients to take on an increasing number of Mounties. This has been a trend for almost 30 years.

Economics of a Mountie
Post training Mounties are required to work for a minimum of 24 months or repay their training costs. They are paid between £20k and £30k pa, depending on location, and are charged out at an average of £68k per year.

The average time spend on a client’s site is 19 months. FDM has averaged a utilisation rate of 97.4% since 2007, including following the months after the financial crisis. The lowest utilisation ever reported was 94.8%, during the pandemic.

Typically, Mounties end up being employed by clients in a more senior role having gained company-specific knowledge. Frequently, their previous roles are filled by new Mounties which helps sustain growth for FDM.

FDM has expanded its training academies to a capacity of over 850 seats. These seats can be used up to 3x pa meaning FDM has the capacity to train and place 2,550 Mounties pa on site. New remote training facilities increase capacity far beyond this. Online training allows for greater flexibility, faster training times and improved economics. In 2021, FDM had 4,033 Mounties on placement with clients.

Financials & KPI’s
Revenue has grown at a fairly consistent 20% CAGR in the 5 years leading up to covid. Margins have slightly contracted but are healthy at 16%. The company did have a significant amount of debt when it was taken private by a PE house in 2009, but this was repaid in its 2014 float and is currently debt free. Its cash generation is healthy at a conversion ratio of >100% and its return on capital employed is over 55%.

If we look at their longer track record, we can see why the business has grown from a market cap of £20m to £1bn in 10 years. Revenues have grown from £50m to £267m at a rate of 13% CAGR and profits from £4m to £41m at a CAGR of 18%, including the impacts of the pandemic.

Mounties placed on site have grown at a CAGR of 17% over the last 10 years, and grown every year (except 2020) since 2007. The Mountie utilisation rate has averaged 97% and revenue per Mountie has averaged £68k pa – although this differs significantly based on geography.

FDM’s reputation, training academies and relationships with clients are all very difficult to replicate. Their knowledge and ability to supply labour in niche areas of technology development mean the company has a defendable edge. They provide investors with good levels of transparency and are supported by a global structural driver of increasing levels of IT spend. The financial performance has been excellent and, as long as IT spending continues to increase at a modest rate, they should do well. We feel this will be a good long term investmen

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