Fineos: Progressing Well Toward Maintainable Earnings Growth

Wide-moat Fineos’ second-quarter 2024 update shows continued progress toward maintainable cash flow generation. We remain optimistic about Fineos’ earnings outlook, which is driven by product up/cross-selling, new client wins, and strong cost control. Free cash flow generation has improved considerably from prior quarters, mainly from cost reductions. Amid these measures, the firm still secured a new client, and numerous product upsells with existing core business clients, demonstrating its product utility. While the loss of two clients is disappointing, these are noncore clients, meaning they are not part of Fineos’ core customers of life, accident, and health insurance carriers. This makes the impact immaterial to our unchanged AUD 3.10 per share fair value estimate.