FDM – a dream too far?

(By Anthony Miller – Tuesday 18th August 2009 8:15am). It’s right and proper to applaud ambition, but sometimes you have to wonder whether management are pursuing a dream too far. In its interim results today, AIM-listed ITSA (IT staff agency) FDM Group CEO, Rod Flavell, confirmed his strategic goal to pursue “the transformation of FDM into a global IT services company”. With some 300 employed consultants (the famous 'Mounties') and a slightly higher number of freelance contractors, we think there’s a long way from here to there. Indeed, over 70% of FDM’s £25m first-half revenues derive from the UK, with about 17% from continental Europe and 11% from the US.

As we have highlighted before (see FDM’s Mounties still mounting and prior posts), FDM’s employed contractor model is great in good times. Even now, Mountie gross margins (51%) are over 3x higher than for freelancers (14%). But as Flavell also noted in last month’s trading update, “client decision making is (taking) longer, leading to a drawn out project appraisal process with shorter contract terms being offered”. Despite this, FDM took the bold decision to expand its Mountie training centres (at some £230k cost) “in expectation of a general economic upturn”. I think they are at least a year too early.

Nonetheless, FDM is still profitable (8.6% operating margins, down 30 bps yoy) – better than some of the larger players. It also has nearly £9.5m cash in the bank, is debt free, and is generating cash. Plus, of course, there’s the ongoing MBO discussion (see Management bids for FDM), though whether management will still stick to its 120p a share offer is to be seen.

A ‘global IT services company’? Doubtful. A nice little earner in private hands? Could be.