Beeks Financial Cloud Group PLC (LON:BKS) wins a whale
Beeks is a cloud computing provider to the financial markets industry. It's a bit like AWS for traders and owns servers located in most major global trading exchanges which it rents out to mainly enterprise clients through the internet. The advantage to the client is speed as they enjoy low latency when executing trades via their algorithms stored in the same location as the exchange.
Today, Beeks announced a US$2.2 million contract over four years with a new institutional client which the company described as "one of the world's largest Foreign Exchange brokers". Over recent times Beeks has started to gain traction with larger institutions due to its Proximity Cloud offering launched last year and this is a further example of progress.
Proximity Cloud provides large institutions with complete privacy over their cloud environment so that only their engineers have access. This is attractive to such clients because they typically have strict data security protocols.
Usually, when Beeks wins a new client revenues grow steadily over time as the relationship develops and the client transitions more of its business across to Beeks' servers. If the same applies in this case then the significance of the deal could turn out to be far greater than implied in today's announcement.
Beeks operates in an attractive fast growing niche which it appears to be dominating and is a defensive recurring revenue business. I do question how much revenue will fall to the bottom line at scale given gross margins are in the 45% to 50% range, but regardless it appears that returns on capital are fairly high since the company's impressive growth to date has largely been self funded. Furthermore, management have indicated a willingness to prefer debt over equity funding in future which makes sense given the certainty of revenues and should boost returns for equity holders.
I don't expect any significant profits from Beeks in the near-term but given the qualities this business possesses (including its highly entrepreneurial founder and majority owner CEO Gordon McArthur) I'm betting that Beeks will ultimately turn out to be a lucrative investment.