COVID-19 update

Osirium Technologies 14 April 2020 Update
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Osirium Technologies

COVID-19 update

FY19 results

Software & comp services

14 April 2020

Price

33.5p

Market cap

£7m

Net cash (£m) at end FY19e

1.1

Shares in issue

19.5m

Free float

91%

Code

OSI

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

100.0

30.8

(70.2)

Rel (local)

129.4

75.1

(61.4)

52-week high/low

114p

17p

Business description

UK-based Osirium Technologies designs and supplies subscription-based cybersecurity software. Its PAM platform includes privileged access, task, session and behaviour management. It recently launched a secure process automation solution (PPA) and a privileged endpoint management (PEM) solution.

Next events

FY19 results

Tbc

Analyst

Katherine Thompson

+44 (0)20 3077 5730

Osirium Technologies is a research client of Edison Investment Research Limited

Osirium provided an update on trading and the impact of COVID-19 on its business. To date, it has not seen a material effect and customers are continuing to renew their contracts. However, management is aware that new business could take longer to sign up and costs are being managed accordingly. The need for secure IT systems is as relevant as ever, particularly with the current dispersed nature of the workforce; combined with the high level of recurring revenues, this should help Osirium to manage its way through this period of disruption.

Year end

Revenue (£m)

EBITDA*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

EV/sales
(x)

12/17

0.65

(1.61)

(18.1)

0.0

N/A

8.4

12/18

0.96

(1.77)

(18.1)

0.0

N/A

5.7

12/19e

1.15

(2.37)

(19.5)

0.0

N/A

4.7

12/20e

1.88

(2.38)

(16.7)

0.0

N/A

2.9

Note: *EBITDA and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Contract renewals highlight recurring revenues

Osirium has provided a trading update confirming that it has seen little material effect on trading from COVID-19 disruption up to the end of March. In FY19, 100% of contracts due for renewal were renewed and in March 2020, Osirium saw a 12-month renewal from a combined UK police force customer for 1,000 devices (up from the initial 250-device deployment). Also in Q120, the company signed new contracts with a major regional UK ambulance service for five years and a large regional UK NHS trust for three years.

COVID-19: Potential to lengthen sales cycles

With many employees already accustomed to remote working, all Osirium staff are now working remotely, including customer support. Management is conscious that the disruption could make it more difficult to sign new business and is updating its contingency plans accordingly. The company had cash of £2.9m at the end of Q120; it has curtailed non-discretionary spend, including a hiring freeze, and will adjust costs further if need be. With FY19 results due in the next few weeks, we make no changes to our estimates at this point.

Valuation: Bookings the key driver

Osirium is trading at a discount to peers on an EV/Sales basis. As it is an early-stage company several years from profitability, we have performed a reverse DCF to analyse the assumptions factored into the current share price, using a WACC of 10% and a terminal growth rate of 3%. We estimate that the share price is discounting average bookings growth of 21% for FY21–28e, break-even EBITDA in FY24, average EBITDA margins of -9.3% for FY21–28e and a terminal EBITDA margin of 28%. In our view, bookings growth is the key driver of share price performance.

Exhibit 1: Financial summary

£'000s

2013

2014

2015

2016

2017

2018

2019e

2020e

31-December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

120.0

207.0

290.2

477.6

647.6

957.5

1,149.7

1,882.7

EBITDA

 

 

(366.7)

(327.1)

(377.9)

(1,136.7)

(1,609.4)

(1,767.3)

(2,374.4)

(2,375.1)

Normalised operating profit

 

 

(679.4)

(714.3)

(790.7)

(1,725.6)

(2,296.8)

(2,674.8)

(3,388.0)

(3,635.9)

Amortisation of acquired intangibles

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Exceptionals

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Share-based payments

0.0

(184.3)

(56.4)

(96.9)

0.0

0.0

0.0

0.0

Reported operating profit

(679.4)

(898.5)

(847.1)

(1,822.5)

(2,296.8)

(2,674.8)

(3,388.0)

(3,635.9)

Net Interest

(35.2)

5.7

(9.9)

9.7

4.2

(0.6)

(37.7)

(202.5)

Joint ventures & associates (post tax)

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Exceptionals

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Profit Before Tax (norm)

 

 

(714.6)

(708.5)

(800.7)

(1,715.9)

(2,292.6)

(2,675.4)

(3,425.8)

(3,838.4)

Profit Before Tax (reported)

 

 

(714.6)

(892.8)

(857.1)

(1,812.8)

(2,292.6)

(2,675.4)

(3,425.8)

(3,838.4)

Reported tax

137.7

134.1

121.0

453.3

409.4

407.6

568.7

575.8

Profit After Tax (norm)

(576.9)

(602.1)

(687.6)

(1,286.9)

(1,883.2)

(2,267.8)

(2,857.1)

(3,262.6)

Profit After Tax (reported)

(576.9)

(758.7)

(736.0)

(1,359.6)

(1,883.2)

(2,267.8)

(2,857.1)

(3,262.6)

Minority interests

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Discontinued operations

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Net income (normalised)

(576.9)

(602.1)

(687.6)

(1,286.9)

(1,883.2)

(2,267.8)

(2,857.1)

(3,262.6)

Net income (reported)

(576.9)

(758.7)

(736.0)

(1,359.6)

(1,883.2)

(2,267.8)

(2,857.1)

(3,262.6)

Basic average number of shares outstanding (m)

0

1

10

10

10

13

15

19

EPS - normalised (p)

 

 

N/A

N/A

(6.61)

(12.38)

(18.12)

(18.14)

(19.49)

(16.74)

EPS - normalised fully diluted (p)

 

 

N/A

N/A

(6.61)

(12.38)

(18.12)

(18.14)

(19.49)

(16.74)

EPS - basic reported (p)

 

 

(296.36)

(144.92)

(7.08)

(13.08)

(18.12)

(18.14)

(19.49)

(16.74)

Dividend (p)

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

Revenue growth (%)

26.3

72.6

40.2

64.6

35.6

47.9

20.1

63.8

EBITDA Margin (%)

-305.7

-158.0

-130.2

-238.0

-248.5

-184.6

-206.5

-126.2

Normalised Operating Margin

-566.3

-345.0

-272.5

-361.3

-354.7

-279.4

-294.7

-193.1

BALANCE SHEET

Fixed Assets

 

 

815.7

805.2

799.7

1,178.8

1,812.1

2,360.2

3,021.5

3,490.8

Intangible Assets

808.6

795.7

793.3

1,134.5

1,731.9

2,307.2

2,944.6

3,414.8

Tangible Assets

7.2

9.5

6.4

44.3

80.2

52.9

76.9

75.9

Investments & other

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Current Assets

 

 

109.3

269.2

428.1

3,953.7

1,646.4

3,134.6

4,642.9

1,673.1

Stocks

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Debtors

77.2

218.6

154.6

380.9

622.6

748.0

786.0

1,027.0

Cash & cash equivalents

32.2

50.6

273.5

3,572.8

1,023.8

2,386.6

3,857.0

646.1

Other

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Current Liabilities

 

 

(235.2)

(294.2)

(365.0)

(648.5)

(857.7)

(1,170.3)

(1,859.3)

(2,418.8)

Creditors

(235.2)

(294.2)

(365.0)

(648.5)

(857.7)

(1,170.3)

(1,859.3)

(2,418.8)

Tax and social security

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Short term borrowings

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Other

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Long Term Liabilities

 

 

(952.5)

(487.6)

(163.3)

0.0

0.0

0.0

(2,737.7)

(2,940.2)

Long term borrowings

(789.0)

(323.7)

0.0

0.0

0.0

0.0

(2,737.7)

(2,940.2)

Other long term liabilities

(163.4)

(163.9)

(163.3)

0.0

0.0

0.0

0.0

0.0

Net Assets

 

 

(262.6)

292.6

699.5

4,483.9

2,600.8

4,324.5

3,067.4

(195.2)

Minority interests

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Shareholders' equity

 

 

(262.6)

292.6

699.5

4,483.9

2,600.8

4,324.5

3,067.4

(195.2)

CASH FLOW

Op Cash Flow before WC and tax

(366.7)

(327.1)

(377.9)

(1,136.7)

(1,609.4)

(1,767.3)

(2,374.4)

(2,375.1)

Working capital

66.3

3.8

120.7

226.8

85.5

187.2

651.1

318.5

Exceptional & other

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Tax

109.8

48.4

134.6

120.4

291.4

407.6

568.7

575.8

Net operating cash flow

 

 

(190.6)

(274.9)

(122.6)

(789.4)

(1,232.5)

(1,172.5)

(1,154.6)

(1,480.8)

Capex

(412.8)

(376.7)

(407.3)

(968.0)

(1,320.6)

(1,455.7)

(1,675.0)

(1,730.0)

Acquisitions/disposals

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Net interest

(35.2)

5.7

(9.9)

9.7

4.2

(0.6)

0.0

0.0

Equity financing

0.0

639.3

762.8

5,047.1

0.0

3,991.5

1,600.0

0.0

Dividends

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Other

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Net Cash Flow

(638.6)

(6.5)

222.9

3,299.3

(2,549.0)

1,362.8

(1,229.6)

(3,210.8)

Opening net (cash)/debt

 

 

118.3

756.9

273.1

(273.5)

(3,572.8)

(1,023.8)

(2,386.6)

(1,119.2)

FX

0.0

0.0

0.0

0.0

0.0

0.0

(0.0)

0.0

Other non-cash movements

0.0

490.3

323.8

0.0

0.0

(0.0)

(37.7)

(202.5)

Closing net (cash)/debt

 

 

756.9

273.1

(273.5)

(3,572.8)

(1,023.8)

(2,386.6)

(1,119.2)

2,294.1

Source: Osirium, Edison Investment Research

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This report has been commissioned by Osirium Technologies and prepared and issued by Edison, in consideration of a fee payable by Osirium Technologies. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2020 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Osirium Technologies and prepared and issued by Edison, in consideration of a fee payable by Osirium Technologies. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2020 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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