In most of FDM’s core markets – the UK, Europe and US – demand for technology roles is up by 20-30% compared to pre-pandemic levels, with Indeed saying close to 40% of technology roles are “hard to fill”.
With FDM specialising in the supply of IT services consultants, which it nicknames Mounties, demand from businesses for a quick supply of its well trained technology talent is therefore likely to be growing, as indicated in a trading update from the company in April when it said Mounties were on client sites at similar levels to pre-pandemic levels.
“As recruitment has now normalised, we could be in store for a surge in revenue in H2 2021E as new intakes finish training in the first half and are deployed to meet rising demand later this year,” said Berenberg analyst Benjamin May.
Last year, the average revenue for the FTSE 250-listed company per Mountie was £75k, up 8% on 2019, in line with wider technology salaries, according to recruiter Reed.
“While there could be a number of reasons for this (eg fewer new graduates as a result of recruitment freezes mid-year), we believe FDM has the capacity to increase rates going forward,” the analyst said.
Given current trends, he forecasts that revenue per Mountie will tick up again in 2021.
Berenberg’s analysis suggests that a 2% increase in utilisation rate could boost earnings by circa 5% given the high drop-through on incremental revenue.
“We believe this is highly likely, given demand pressures in FDM’s end-markets and the fact that utilisation rates troughed at c 95% in FY 2020 versus an average of 97% in recent years.
“With FDM noting that utilisation levels have normalised, we see this upside as highly likely to play through.”
As well as noting that the company’s near 100% cash conversion and circa 80% payout ratio have enabled the business to deliver a “market-leading” dividend yield of around 3.5%, almost twice that of the IT services average, Berenberg upped their target share price to 1,250p from 1,100p.