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Beeks Financial Cloud (LSE: BKS) is an interesting small-cap stock listed on the London Stock Exchange‘s AIM market. It was a penny share at the end of 2023, but has subsequently jumped 124% to 222p, giving the company a market-cap of £150m.
Since going public in 2017, the share price has risen by around 400%. But Beeks is still flying under the radar.
Is this a potential hidden gem? Let’s take a closer look at the company.
Getting nearer to the action
Beeks is a niche cloud infrastructure provider focused exclusively on the financial services industry. It offers infrastructure-as-a-service, meaning financial firms can rent compute power, storage, and connectivity without having to fork out for and manage their own servers.
The company’s platform is optimised for ultra-low latency trading, which is crucial for traders, hedge funds, brokers, and banks that need to execute trades in microseconds.
Beeks enables institutions to trade in real time by having its Proximity Cloud and Exchange Cloud solutions inside or adjacent to major exchange data centres (London, New York, Singapore, and so on).
Our principal strategy is to grow our institutional customer base in the institutional Forex and Futures markets.
Beeks Financial Cloud.
Impressive growth
Digging into the company, I see a number of things I like. Firstly, revenue growth has been strong, rising from £7.3m in FY19 to £28.9m in FY24.
For FY25 (ended in June), revenue’s expected to be around £35.5m (roughly 25% growth).
Also, Beeks is already profitable. Management sees underlying FY25 EBITDA increasing 29% to £13.8m, and underlying pre-tax profit growth of 41% (£5.5m).
The forward-looking price-to-earnings ratio is about 28.5, which isn’t outrageous for a growth stock.
Looking ahead, I see a very good chance of further scaling and progress. The firm’s benefitting from various secular growth drivers (cloud adoption, compliance, analytics, and data sovereignty).
Beeks is run by founder-CEO Gordon McArthur, while CFO Fraser McDonald’s been in his role since 2016. Continuity in management and strategy is a green flag for me.
Finally, the balance sheet‘s healthy, with a net cash position.
We’re ideally positioned to benefit from long-term trends towards cloud-computing within the financial services industry, with a proven ability to expand into the Tier 1 market.
Beeks Financial Cloud.
Innovation
Now, while Beeks is chugging along nicely, I see a couple of potential risks here. The first is that this is a small-cap firm, so it doesn’t have a lot of financial firepower or a long history of juicy profit margins. A couple of rocky reporting periods could see it slip to a loss.
Also, there’s a lot of innovation going on in the finance industry. So a tech-savvy disruptor could always come along with a better mousetrap, hurting Beeks’ ability to win more contracts.
Hidden gem?
On balance though, I like the stock. Beeks has already built out a lot of infrastructure, so as it adds more customers, its profits should scale faster as operating leverage kicks in.
It recently landed a major new customer in the shape of cryptocurrency exchange Kraken, while the Bolsa Mexicana de Valores and Australian Securities Exchange have also implemented Beeks’ technology.
My view is that this small-cap stock could be a hidden gem, so definitely deserves further attention.
This story originally appeared on Motley Fool
