“If you are looking for a high quality GARP stock with a strong position in a rapidly expanding market – generating robust growth, attractive gross margins (60%) & predictable revenues – then FADEL fits the bill.” – Paul Hill, Founder PMH Capital Limited

In this fascinating interview with Paul Hill, CEO Tarek Fadel of FADEL – a leading brand compliance, rights & royalty management platform – talks about:

Client benefits of #FADL‘s IP licensing & Brand Vision software. 00:00
Synergies, growth rates & characteristics of both divisions. 10:10
Growth strategy & use of IPO proceeds. 20:50
Trading update. 23:55
M&A strategy. 26:15
Long term goals & future newsflow. 28:30

Analyst View

More from Paul Hill on FADEL – #FADL (£30m Mrkcap at 147p)

If you are looking for a high quality GARP stock with a strong position in a rapidly expanding market – generating robust growth, attractive gross margins (60%) & predictable revenues – then FADEL fits the bill.

Indeed after raising £8m at 144p/share in its Apr’23 IPO, the Board is on a mission to more than treble turnover organically over the next 5 years from an Est $14.6m in 2023 (up +11.4% vs $13.1m LY) to $50m by 2028 (27% CAGR). Plus add in some synergistic M&A, then we could ultimately be talking about a $100m revenue business.

So what does FADEL do (see chart)? Well the firm is a leading brand compliance, rights & royalty management software platform, serving a host of blue chip clients such as Hasbro, Whirlpool, Marvel, L’Oreal, Coca Cola & Pearson.

Better still, its two software divisions (IP management & Brand Vision) not only significantly improve client productivity by efficiently processing complex royalty contracts & licensing requirements. But also deliver outstanding RoIs, alongside AI powering marketers to both manage vast libraries of digital content and monitor associated usage rights (eg image & video), for say online infringements. An increasingly important capability in world where generative AI has literally gone parabolic.

In the meantime though, there is still some wood to chop, which was the reason behind the AIM listing. Here FADEL is investing for growth (re new hires & technology) over the next 2 years – before becoming cashflow & adjusted PBT positive in 2025 on forecast turnover of $22.2m.

Likewise in today’s 1st half update, current trading was said to be ‘in line’ with FY’23 expectations (H1’23 revs $5.3m vs $6.7m LY, with est $9.3m for H2’23). Elsewhere there is ample funding (net cash $7.3m Jun’23) to execute its long term strategic objectives, and finnCap Group have a 260p/share price target.

Granted the $14.6m FY’23 sales target will be “heavily” skewed to the 2nd half, reflecting positive growth expected from license/support renewals and net new sales. As evidenced by a number of new contract wins (eg in Life Sciences, Publishing and Tobacco) – together adding $1.5m of recurring TCV to the order backlog. These type of deal are typically for 3 years & worth $250k-$500k pa each.

Let’s not forget either that this strong H2 run-rate will provide real momentum heading into FY’24, especially as 80% of revenues are recurring in nature.

One point however for investors to bear in mind is liquidity. Post IPO, #FADL stock is ‘REG-S’ restricted until Apr’24. Meaning some UK brokers (eg Hargreaves Lansdown) are unable to separately identify US citizens from UK nationals, & so can’t trade the shares until the REG-S status is lifted. That said, this is not an issue for either AJ Bell or Interactive Investors.

CEO Tarek Fadel commenting: “I am pleased to report that trading for FY23 continues to be in line with expectations. We are delighted about our future prospects.”