SaaS and the City: 5 UK firms leading the cloud revolution

The software-as-a-service (SaaS) sector has revolutionised how businesses operate, offering cloud-based solutions that eliminate the need for cumbersome hardware, extensive maintenance, and manual updates. By providing access to applications over the internet, SaaS solutions streamline processes and boost productivity across industries - from fintech and insurtech to health tech and food tech, SaaS tools have become indispensable for both B2B and B2C organisations.

The integration of artificial intelligence into SaaS platforms has been a significant trend, driving substantial growth and innovation within the sector. The global AI market soared to US$196.63 billion in 2023, and the SaaS segment within AI is projected to grow from US$73.8 billion in 2020 to US$1.5 trillion by 2030. (Verified Market Research). Currently, 35% of SaaS companies utilize AI, with another 42% planning to do so (Dorik). This burgeoning synergy between AI and SaaS is creating smarter, more efficient solutions that are transforming sectors like e-commerce, finance, healthcare, and many others.

The UK is a massive hub of SaaS innovation, with 2,100 registered SaaS companies and 3 billion customers worldwide (Aaron Wallis), second only to the US market. The UK is also a major consumer of SaaS, with the second largest IT spend per business headcount in the world after the US. British SaaS companies routinely generate multiple rounds of equity funding, fuelling 9% of the high-growth sector in the country, and producing more tech unicorns than any other European nation.

Given the size and dynamism of the UK SaaS market, it is no surprise that the space is not dominated by the big B2B and B2C players, and there are plenty of small/mid-cap and emerging companies for growth investors to get excited about.

In this roundup, we present five such UK SaaS companies that are making waves in their respective industries:

Finseta

Finseta (FIN) Follow | FIN is a foreign exchange and payments company offering multi-currency accounts and payment services to businesses and individuals. The company's proprietary technology platform supports payments in 58 currencies across 150 countries. Formerly known as Cornerstone FS, the company has been in business for 12 years, recently demonstrating remarkable growth as its partner network, geographic footprint, and product suite have expanded to support complex cross-border payments.

Finseta recently posted sector-leading results, with FY23 revenues doubling to £9.6m, along with an EBITDA of £1.7m from -£0.9m in FY22. Additionally, adjusted EPS and operating cashflow climbed to 2.20p and £2.0m respectively from -3.65p and -£1.0m last year. Momentum is strong, with H2 turnover, gross margins, and EBITDA climbing to £6.0m, 64.8%, and £1.5m respectively at 25.0% margin, compared to £3.6m, 61.0% and £0.2m at 5.5% margin in H1.

The jump in recent performance has been spearheaded by CEO James Hickman, who since taking over in September 2022, has transformed Finseta from a purely 'white labelled' forex IT system into a rapidly expanding international payments group that serves SMEs and HNW individuals with tailored 'white glove' services.

This strategic shift has not only attracted more clients (+13% in FY23) and generated higher average transaction values (+33% in FY23), but also improved cross-selling and client engagement (ARPU +77% YOY) after the successful upskilling and broadening of both the sales team and range of currency pairs offered.

And this is just the initial phase of the company's growth plan. By combining overseas expansion - most recently in Canada, the UAE, and Hong Kong - continued market share gains, M&A, and new product launches eg credit/debit cards and Finseta Solutions, the board's ultimate goal is to build a £100m+ turnover group - a realistic prospect given FIN's current momentum.

Fintel

Fintel (FNTL) Follow | FNTL is a UK-based fintech and support services business, combining the largest provider of intermediary business support - SimplyBiz - and a leading research, ratings, and fintech business - Defaqto. FNTL provides technology, compliance and regulatory support to thousands of intermediary businesses, as well as data and targeted distribution services to hundreds of product providers.

Fintel delivered outstanding performance in FY23, including significant progress against its M&A strategy. The fintech provider reported growth across all core activities, including key SaaS and subscription, which now represents 66.4% of core revenue. Fintech software revenue rose by 11.5%, following significant expansion of proprietary software solutions. Distribution as a Service revenue was also up 24.9%.

M&A investment continued to increase Fintel's scale, reach, and IP, capitalising on favourable conditions in the sector during the year. Four acquisitions were completed in FY23 - MICAP, a provider of independent research and advice tools; Competent Adviser, a learning platform enabling advisers to meet regulatory competency requirements; VouchedFor, a leading review site for financial advisers; and AKG, a provider of independent assessments and ratings of financial strength.

All four are performing in line with expectations. Three further acquisitions were completed post-period: Owen James, a provider of strategic engagement events in UK financial services; Synaptic Software, an independent provider of financial adviser planning and research software; and ifaDASH, a reg-tech solution that assists intermediaries with efficiency and compliance. Additionally, FNTL signed a new distribution agreement with Mortgage Brain and acquired a 5.8% stake in the company.

In May 2024, FNTL reported trading in line with management expectations, with strong cash generation and continued progress against its growth strategy. The group had a gross cash position of £10.6m as of April 30, 2024, net debt of £0.4m, and £69m of headroom within its £80m revolving credit facility, positioning it well to capitalise on further growth opportunities and its strong M&A pipeline.

We expect near-term growth to be driven by ongoing software adoption across FNTL's customer base, further penetration across the wider market, synergies from recent acquisitions, and more M&A. Growth may be further accelerated by structural drivers, including regulatory pressure, the FCA Consumer Duty, and robust demand for technology and data. Additionally, with interest rates set to adjust positively in 2024, FNTL is well-positioned to benefit from a recovery in the mortgage market.

FADEL

FADEL (FADL) Follow | FADL is a developer of cloud-based brand compliance and rights and royalty management software, working with global licensors and licensees across media, entertainment, publishing, consumer brands and hi-tech/gaming companies. FADEL combines rights management and content compliance with advanced content services, AI-powered visual search, and image and video recognition.

FADEL has two main solutions - the IPM Suite for rights and royalty management for publishing and licensing; and Brand Vision - an integrated platform for brand compliance and monitoring that includes Digital Asset Management, Digital Rights Management, AI-powered content tracking, and a content aggregation platform.

As the global licensing business continues to grow - up 8% to US$300 billion in 2022 - there is ever increasing demand for products and services to manage royalty agreements and deter illegal or inappropriate use of content online. FADEL is positioned ideally to serve this demand, evidenced by strong recent performance and a growing roster of blue chip customers, including Hasbro, Whirlpool, Marvel, L'Oreal, Sanofi, Philip Morris, Coca Cola and Pearson.

After raising £8m in April 2023, the company delivered upbeat FY23 results with sales climbing 10% to $14.5m (2/3rds recorded in H2) and gross margins widening 2% to 62%. Most notably, annual recurring revenues (79% of total) jumped by 31% to $11.4m, thanks to new logo wins, client upselling, product launches, and the ongoing SaaS transition. Net funds closed the year at $3.0m, with gross cash at $4.6m on April 25 after some large customer payments came in post-year end.

FADEL has strong momentum, with H2 2023 sales nearly double H1's turnover. In June 2024 alone, FADL signed two new contracts in Europe and the US, worth a combined $1.7m. We expect the growth trend to continue, especially as FADL's new cloud software LicenSee continues to ramp. This is a 'straight out the box' package, aimed at small/mid sized businesses, which should materially increase FADL's total addressable market.

FADEL is aiming to breakeven at the EBITDA level in FY25. Further out, the goal is to achieve a $50m sales run-rate over the next 5 years (28% CAGR LFL) with high recurring revenues and gross margins, which is entirely achievable given the current trajectory.

Ingenta

Ingenta (ING) Follow | ING is a leading software and services provider to the publishing and media industries, in business since 1998 and trading on AIM since 2000. After a number of smaller acquisitions, the group expanded significantly through a merger with Vista.

The group is headquartered in Oxford, UK with a smaller office in New Jersey, US. ING is an established name in the scholarly publishing arena, currently serving over 400 trade and scholarly publishers.

Most recently, ING reported another year of sales growth, mostly driven by expansion of its web-based content platform and IP products into new markets. New sales activity was H2-weighted, with 6 multi-year deals adding c. £0.5m of implementation revenues in FY23 and driving recurring revenues into FY24 and beyond. A substantial dividend increase of 19% to 4.1p underscores management's confidence in future growth.

FY23 revenue rose to £10.8m, with annual recurring revenues (ARR) now representing 80% of total. Net profit rose to £2.3m from £1.8m last year and adjusted EPS rose to 12.77p from 11.30p. Cash at year-end was £2.7m, up from £2.4m in FY22. Encouragingly, revenue growth was generated from new customer wins on ING's 'Edify' digital content distribution platform.

Ingenta also made significant operational progress in FY23. Ingenta Content saw substantial expansion in terms of number of customers and target markets, notably in the US and the NGO sector. Simultaneously, Ingenta Commercial signed 3 new customers to the Ingenta Commercial IP management platform. The deals are for music and media partners across the globe. ING also reported an uptick in its consultancy arm, with revenues up by £0.6m.

Momentum carried into FY24 with more customer wins, including 2 new Ingenta Content deals closed in Q1. ING's project pipeline is strong and expected to yield significant revenues in H2. So far, trading in FY24 has been in line with expectations.

Overall, ING's core products now have an established customer base over a broad spectrum of target markets - with significant inroads made into North America - which should allow significant opportunities for further growth, potentially enhanced by future M&A.

iomart

iomart (IOM) Follow | IOM is a cloud computing and IT managed services business providing hybrid cloud infrastructure, data management, cyber security services, and digital workplace capability. Listed on AIM since 2000, IOM has grown significantly to become a major provider of business-critical cloud and managed hosting services.

From its large portfolio of datacentres in the UK and connected sites around the world, the company's 500-person team designs and deploys cloud services to customers seeking to reduce the cost, complexity, and risks associated with maintaining their own web and online applications.

Earlier in June, iomart reported another year of significant growth, supported by 2 acquisitions - Extrinsica and Accesspoint - and 17% higher revenues in cloud managed services, the main focus of its commercial and product strategy. IOM saw double-digit growth in orders, supported by an increase in average order value and a higher number of new customer wins. The group delivered 10% total revenue growth, good profitability, and continued strong cash generation with a conversion ratio of 97%, a testament to its business model and focus on cash.

Adjusted EBITDA grew by 4% to £37.7m with adjusted profit before tax of £15.0m, being flatter due to a £1.4m increase in finance costs associated with higher interest rates. The ongoing change in revenue mix resulting from its pivot toward cloud managed services has prompted IOM to increasingly focus on adjusted EBIT, which rose by 9% during the period to £19.2m.

Despite investing £21.7m into its datacentres, network, and acquisitions, IOM's year-end net debt only increased by 6% to £42.3m. This represents a comfortable net debt to adjusted EBITDA ratio of 1.1x.

Momentum has continued post-period with the first 2 months of the new financial year being in line with management expectations, consistent with IOM's high recurring revenue business model, giving it good visibility. IOM has advised that FY25 revenues would likely be H2-weighted.

Looking ahead, the group's robust balance sheet, strong cash generation, and proven success in acquisitions provides a solid foundation for further growth and its continued pivot to cloud managed services and security/cyber/data protection services.