TechFinancials' core product is a Binary Options trading platform accompanied by a suite of back-office modules and applications such as risk management and CRM. TechFinancials targets online marketers or online media businesses looking to diversify into online broking.
The end-user interface is designed to interact with the pricing engine and the back-office modules. The TechFinancials platform is able to process trades automatically and synchronises in real time with the relevant back-office modules such as the customer accounts database and the trade monitoring software. Online brokers and their customers are able to monitor open positions and trading activity continuously.
The Group's proprietary pricing engine allows online brokers licensing the TechFinancials software to limit their financial risk as a result of the complex algorithms that calculate the strike price of the Binary Options and the nature of Binary Options themselves.
Trading on up
Published: Nov 02 2015
We are pleased to make available a research note from Peterhouse Research:
TechFinancials consists of two complementary businesses: (a) development and supply of proprietary software solutions (TechFinancials) for online brokers providing services for retail traders in binary options and other instruments, and (b) operation of its own online trading platforms (currently OptionFair and one JV).
Its trading software is already licensed to 65 retail binary options trader brands, which leaves it well placed to attract new clients and expand into new markets. The group reported 108.6% y o y growth in active customer numbers in FY14 and another 35% so far this year.
Recent share price weakness reflects an alert in August pertaining to slower than anticipated growth in customer conversion rates at OptionFair, due to a decision to reduce marketing expenditure and the impact of new CySEC regulations in Cyprus. Management believes that it has addressed the key weaknesses and the outlook has since been enhanced by a joint-venture (group 51% share) with a Hong Kong based binary options trader, Optionfortune, focused on the fast-growing Asia Pacific region.
On our forecasts the shares are on a prospective EV/EBITDA multiple of 4.4x for FY16 (net of estimated c US$7.7m cash), supported by a forecast FY16 dividend (33-50% of net cash generated) equivalent to a 3.1% prospective yield.
On a sum of the parts, based upon a stabilised B2C business including the new JV, we argue that either division individually justifies the current group market value, which we see as a case for an initial move above 20p/share on the back of newsflow.