Shares in Beeks Financial Cloud (LSE: BKS) are having a great day (6 February). As I write, the under-the-radar UK stock is up 32%.
So what’s behind this enormous move in the share price? And can the stock keep climbing?
A UK cloud company
Before I discuss the share price rise, let’s quickly look at what this company does as it has quite a low profile.
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Beeks Financial Cloud is essentially a cloud computing/data company with a focus on the financial services industry. Established in 2011, it specialises in delivering on-demand compute, connectivity, and analytics services to institutions (eg investment managers and trading firms).
By using Beeks’ cloud-based Infrastructure-as-a-Service (IaaS) model, financial institutions can deploy and connect to exchanges, trading venues, and cloud service providers at a fraction of the cost of building their own technology infrastructure. This means far more flexibility and agility.
Beeks is listed on the London Stock Exchange‘s AIM market and is a very small company. At the close of business yesterday, its market-cap was only £71m.
Share price spike
Now, the reason the share price has spiked today is that the company has released a very positive update in which there were several exciting pieces of news.
First, Beeks said that, following the successful deployment of an initial contract with a ‘Tier 1’ investment manager for its ‘Proximity Cloud’ solution, a new contract has been awarded for additional locations. This more than doubles the initial contract’s value to $3.6m in aggregate over a four-year period.
Second, the group told investors it had signed a conditional contract with one of the largest exchange groups globally for its ‘Exchange Cloud’ offer. This deal marks the initial phase of an intended multi-year partnership between Beeks and the exchange.
Third, the company said that, having won a number of competitive tenders in the first half of FY2024 (ending 30 June), it now expects trading in FY2025 to be “significantly ahead” of previous board expectations.
So overall, it was a blockbuster update. And that’s why the share price is up so much.
Further gains to come?
Having read today’s update and looked at Beeks’ offer, I think this stock looks very interesting right now.
For FY2025, analysts at Canaccord forecast revenue of £39.6m and earnings per share of 8.3p. That would represent growth of 34% and 62% from the current FY2024 consensus figures.
The stock’s valuation doesn’t seem to reflect this growth however. Taking that earnings forecast of 8.3p, the price-to-earnings (P/E) ratio is just 17.
For a cloud computing/data company, that’s low. Many companies in this space have P/E ratios in the 30s or 40s, due to their recurring revenues.
It’s worth noting that the price-to-earnings-to-growth (PEG) ratio here is just 0.27, which is very low and suggests the stock is undervalued. So I think there are more gains to come from Beeks.
That said, I do see this stock as higher risk. History shows that its share price can be volatile. Earnings per share can also fluctuate a lot.
I’ve already got a lot of exposure to cloud computing/data through stocks such as Amazon, Microsoft, Alphabet, Snowflake, and London Stock Exchange Group.
But I’m tempted to have a nibble here. I think this stock’s going higher.
