Deals slip but Microsoft product on track

WANdisco 4 February 2020 Update
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WANdisco

Deals slip but Microsoft product on track

Trading statement

Software and comp services

4 February 2020

Price

401p

Market cap

£193m

US$:£1.30

Net cash ($m) at end FY19

18.3

Shares in issue

48.2m

Free float

92%

Code

WAND

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(2.3)

2.4

(17.1)

Rel (local)

1.5

1.1

(21.6)

52-week high/low

781p

338p

Business description

WANdisco’s proprietary replication technology enables its customers to solve critical data management challenges created by the shift to cloud computing. It has established partner relationships with leading players in the cloud eco system including Amazon and Microsoft.

Next events

FY19 results

March 2020

Analysts

Dan Gardiner

+44 (0) 3077 5700

Dan Ridsdale

+44 (0) 3077 5729

WANdisco is a research client of Edison Investment Research Limited

Sales of $10m in H219 fell short of the $18m implied by FY19 guidance. WANdisco will now implement large Microsoft co-sell deals via its new integrated platform; these deals are still in the pipeline and it is confident they will be closed in H120. The lower H2 run rate leads us to cut FY20 sales to $28m. However, the commercialisation of the Microsoft platform is on track and should drive a sharp acceleration in growth through the year.

Year end

Revenue ($m)

EBITDA*
($m)

EBIT*
($m)

EPS*
(c)

EV/Sales
(x)

EV/EBITDA
(x)

12/17

19.6

(0.6)

(7.5)

(19.4)

11.9

N/A

12/18

17.0

(9.4)

(16.3)

(37.5)

13.7

N/A

12/19e

16.0

(14.0)

(21.0)

(45.7)

14.6

N/A

12/20e

28.0

(5.3)

(12.3)

(25.0)

8.3

N/A

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

Deals slip into FY20…

WANdisco’s FY19 revenue guidance of $24m implied a half-on-half improvement ($6m in H1 and $18m in H2) that was always likely to prove challenging (see On the cusp?). According to the company, a majority of the delay was due to a small number of large Microsoft co-sell deals that are now likely to be implemented through the embedded platform. The timing of other deals was affected by late changes in scope. The board is confident it can close these deals in H120. Gross cash at year end was $23.3m, implying the business consumed c $10m in H219.

…but embedded product with Microsoft on track

Reaching ‘private preview’ status for the embedded Fusion product is a big operational achievement and suggests the product is on track for general availability in Q220. This launch would be a significant technical and strategic milestone, and is also likely to be very significant financially, in our view. While predicting the precise sales trajectory at this point is tough, we would expect it to make a large contribution to FY20 revenues. The addition of a more scalable, recurring revenue stream would dramatically improve WANdisco’s financial profile, enhancing visibility and turning the business profitable and cash generative.

Resetting FY20: Growth from a smaller base

Having opted to leave our FY20 revenue estimate unchanged until we better understood the trajectory in H219, we now cut our forecast from $40.7m to $28m (see Exhibit 1), reflecting the FY19 performance and lower H2 run rate as well as limited visibility. Our top-line estimate is below consensus of $32m. We now expect gross cash to trough at $15m in H120 and profitability at the EBITDA level in H220.

Valuation: Microsoft launch a key catalyst?

WANdisco’s 401p share price implies an 8.3x FY20e EV/Sales multiple on our updated forecasts. This valuation reflects the company’s long-term growth potential and is underpinned by the strategic value of its unique data replication technology. Achieving general availability of the Microsoft product could see confidence in this strategic value and in long-term prospects rising substantially.

Forecast changes

Exhibit 1: Forecast changes

FY19

FY20

Old

New

% change

Old

New

% change

Revenue

24.0

16.0

(33.5)

40.7

28.0

(31.3)

EBITDA

(7.0)

(14.0)

N/M

6.2

(5.3)

N/M

Adj. EBIT

(14.0)

(21.0)

N/M

(0.8)

(12.3)

N/M

Adj. EPS (cents)

(30.7)

(45.7)

N/M

(1.9)

(25.0)

N/M

Source: Edison Investment Research. Note: EBITDA, EBIT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments,


Exhibit 2: Financial summary

$'000s

2016

2017

2018

2019e

2020e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

11.4

19.6

17.0

16.0

28.0

Cost of Sales

(1.3)

(2.0)

(1.5)

(1.4)

(2.8)

Gross Profit

10.0

17.7

15.5

14.6

25.2

EBITDA

 

 

(7.5)

(0.6)

(9.4)

(14.0)

(5.3)

Operating Profit (before amort. and except.)

 

 

(16.1)

(7.5)

(16.3)

(21.0)

(12.3)

Acquired Intangible Amortisation

0.0

0.0

0.0

0.0

0.0

Exceptionals

(0.0)

0.0

0.0

0.0

0.0

Share based payments

(1.8)

(2.2)

(5.9)

(8.4)

(6.0)

Operating Profit

(17.9)

(9.7)

(22.1)

(29.4)

(18.3)

Net Interest

(0.3)

(0.3)

(0.1)

(0.1)

0.0

Profit Before Tax (norm)

 

 

(16.4)

(7.8)

(16.3)

(21.1)

(12.3)

Profit Before Tax (FRS 3)

 

 

(10.0)

(14.0)

(19.4)

(29.6)

(18.3)

Tax

0.8

0.5

0.8

(0.3)

(0.4)

Profit After Tax (norm)

(15.6)

(7.3)

(15.5)

(21.3)

(12.7)

Profit After Tax (FRS 3)

(9.3)

(13.5)

(18.6)

(29.9)

(18.7)

Average Number of Shares Outstanding (m)

33.3

37.8

41.4

46.7

50.7

EPS

 

 

(46.9)

(19.4)

(37.5)

(45.7)

(25.0)

EPS - normalised fully diluted (c)

 

 

(46.9)

(19.4)

(37.5)

(45.7)

(25.0)

EPS - (IFRS) (c)

 

 

(27.9)

(35.8)

(44.9)

(63.9)

(36.9)

Dividend per share (c)

0.0

0.0

0.0

0.0

0.0

Gross Margin (%)

88.1

90.0

90.9

91.4

90.0

EBITDA Margin (%)

(65.6)

(3.0)

(55.2)

(87.7)

(18.9)

Operating Margin (before GW and except.) (%)

(141.5)

(38.2)

(95.5)

(131.3)

(43.8)

BALANCE SHEET

Fixed Assets

 

 

6.5

8.5

8.9

8.8

10.3

Intangible Assets

6.0

7.1

5.5

4.2

4.6

Tangible Assets

0.5

0.6

0.8

2.0

3.1

Investments

0.0

0.9

2.6

2.6

2.6

Current Assets

 

 

13.7

33.4

18.2

35.4

33.9

Stocks

0.0

0.0

0.0

0.0

0.0

Debtors

6.1

6.0

7.4

12.1

12.9

Cash

7.6

27.4

10.8

23.3

21.0

Other

0.0

0.0

0.0

0.0

0.0

Current Liabilities

 

 

(9.5)

(14.1)

(11.9)

(16.9)

(29.4)

Creditors & Deferred Income

(9.4)

(13.2)

(7.9)

(14.7)

(27.2)

Short term borrowings

(0.1)

(1.0)

(4.0)

(2.2)

(2.2)

Long Term Liabilities

 

 

(7.0)

(10.4)

(1.4)

(9.3)

(9.3)

Long term borrowings

(0.3)

(3.3)

(0.1)

(2.9)

(2.9)

Deferred Income

(6.7)

(7.1)

(1.3)

(6.4)

(6.4)

Net Assets

 

 

3.7

17.4

13.8

18.0

5.5

CASH FLOW

Operating Cash Flow

 

 

(2.9)

0.7

(11.0)

(14.2)

6.5

Net Interest

(0.2)

(0.3)

(0.2)

(0.1)

(0.3)

Tax

0.7

1.4

0.1

0.2

0.0

Capex (inc capitalised R&D)

(5.9)

(7.1)

(5.6)

(6.8)

(8.5)

Acquisitions/disposals

0.0

0.0

0.0

0.0

0.0

Financing (net)

13.5

21.2

0.9

33.5

0.0

Dividends

0.0

0.0

0.0

0.0

0.0

Net Cash Flow

5.2

15.9

(15.8)

12.5

(2.3)

Opening net debt/(cash)

 

 

(2.6)

(7.2)

(23.1)

(6.7)

(18.3)

HP finance leases initiated

(0.6)

0.0

(0.6)

(1.0)

0.0

Other

0.0

0.0

0.0

0.0

0.0

Closing net debt/(cash)

 

 

(7.2)

(23.1)

(6.7)

(18.3)

(16.0)

Source: Company data, Edison Investment Research


General disclaimer and copyright

This report has been commissioned by WANdisco and prepared and issued by Edison, in consideration of a fee payable by WANdisco. 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 Edison analyst 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). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2020. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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

T 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

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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 WANdisco and prepared and issued by Edison, in consideration of a fee payable by WANdisco. 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 Edison analyst 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). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2020. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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

T 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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