Fair Isaac - Splendid profitability fuels record share price performance.
The US company, which is comparable to SCHUFA in Germany, has slightly raised its forecast. Even the very high valuation cannot stop the share from soaring.
The Fair Isaac share looks like a flagpole. Since the beginning of the year, it has shot up by 65 percent, compared to 121 percent a year ago. Investors are rewarding the positive business development and are betting that it will continue in an environment of possibly significantly falling US interest rates.
The company offers solutions for assessing the risks associated with loans to consumers and companies, i.e. credit scores. In the USA, the so-called FICO score is "the" score for creditworthiness, for example for mortgage loans.
The company also sells software that supports companies in the creation and management of balance sheets for analysis and reporting purposes, or banks in the areas of risk management, fraud prevention, building good customer relationships and compliance with government regulations.
Business is flourishing, as the figures published on July 31 show. In the third quarter of the 2023/24 fiscal year, which ended in June, turnover increased by 12 percent to 447.8 million dollars.
The scores business grew by 20% to 241.5 million dollars, accounting for 54% of Group revenue. The software segment also grew by 5% to 206.4 million dollars.
In terms of revenue distribution by region, 85% came from North and Latin America, 10% from the Europe, Middle East and Africa (EMEA) region and 5% from Asia-Pacific.
Adjusted earnings before interest and taxes (EBIT) at Group level rose by 10.8% to 233.0 million dollars. Although the margin fell slightly from 52.7% to 52.0%, this is still an excellent figure.
In addition, adjusted earnings per share rose by 10.4% to 6.25 dollars.
Free cash flow shot up by 69 percent to a record 205.7 million dollars.
Outlook raised
When presenting the figures, CEO Will Lansing expressed his satisfaction with the results and raised the forecast slightly.
Accordingly, turnover in the 2023/24 fiscal year ending in September is expected to reach 1.70 billion dollars instead of the previously planned 1.69 billion dollars.
Lansing raised its forecast for adjusted earnings per share to 23.16 dollars instead of the previously announced 22.80 dollars.
The CEO also announced a new, open-ended share buyback program of USD 1 billion and referred to the record cash flow of USD 205.7 million for the third quarter of 2023/24.
The company's CEO also expressed his conviction that possible significant interest rate cuts in the USA would boost business, particularly in the refinancing of mortgage loans
This is what the estimates look like
Analysts are forecasting a 13.1 percent increase in turnover to 1.71 billion dollars for the 2023/24 financial year. In 2024/25, revenue is expected to increase by 14.2 percent to 1.95 billion dollars.
In addition, adjusted EBIT is expected to increase by 15.4% to 883.7 million dollars in 2024/25, followed by a jump of 20% to 1.06 billion euros in 2024/25. The margin is thus expected to rise significantly to 51.6% first, followed by a jump to 54.3% in 2024/25.
What's next for the share
The share is on a record run. The market capitalization is 47.2 billion dollars. Including net debt of 1.9 billion dollars, the enterprise value (EV) is 49.1 billion dollars.
This corresponds to 46.3 times the EBIT predicted by analysts for 2024/25. In my opinion, this is an extremely high valuation, even taking into account the good sales growth and the sensational operating margin.
And the P/E ratio based on the 2024/25 estimates is a hefty 65.7.
Despite the very high valuation, however, I think the share's record run should continue - because many investors are probably betting that possible sharp interest rate cuts in the USA will further boost Fair Isaac's already flourishing business and thus put even more money in the company's pockets than it already has.
