Launches LiveData with Microsoft Azure

WANdisco 1 June 2020 Update
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WANdisco

Launches LiveData with Microsoft Azure

Product launch

Software and comp services

1 June 2020

Price

590p

Market cap

£284m

US$:£1.23

Estimated net cash (US$m) at 31 December 2019

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

2.8

10.9

14.6

Rel (local)

3.0

21.1

34.0

52-week high/low

592.5p

338.0p

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

June 2020

Analysts

Dan Gardiner

+44 (0) 3077 5700

Dan Ridsdale

+44 (0) 3077 5729

WANdisco is a research client of Edison Investment Research Limited

Launch of public preview confirms WANdisco’s LiveData platform has been successfully integrated at Microsoft Azure and that commercial services can begin. As highlighted previously, we believe this will be a significant financial catalyst. No estimate of the expected revenue contribution is given but the company is aiming to sign 50 new customers over the next 12 months. Our conservative scenario analysis suggests this relationship alone could generate over $80m in annual revenues by 2023.

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)

16.9

N/A

12/18

17.0

(9.4)

(16.3)

(37.5)

19.5

N/A

12/19e

16.0

(14.0)

(21.0)

(45.7)

20.8

N/A

12/20e

28.0

(5.3)

(12.3)

(25.0)

11.8

N/A

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

Deeply embedding LiveData

WANdisco’s LiveData platform provides guaranteed data consistency across multiple computing environments, enabling enterprises to accelerate the migration of data to the cloud. Since announcing a strategic partnership with Microsoft in July 2019, the company has been focused on deeply integrating this platform with Microsoft Azure. Announcing a limited public preview effectively confirms this technical integration phase is complete and commercial services can begin. As a fully integrated service within the Azure customer portal, LiveData will be automatically available to all Microsoft Azure customers (once general availability is announced in Q3) and WANdisco collects revenue automatically.

From strategic significance to financial catalyst

We previously highlighted that WANdisco’s partnership with Microsoft was a major endorsement of both its strategy and technology. Reaching public preview should also be a catalyst for financial performance. Existing customers will now be revenue generating and the company aims to add 50 new clients over the next 12 months. No estimate of the expected revenue contribution is given but, as we set out in Exhibit 1, a conservative scenario analysis suggests this relationship could generate over $80m in annual revenues by 2023. We will update our forecasts following the expected release of FY19 results later this month.

Valuation: Upside with execution and steady pricing

WANdisco’s share price has risen 33% over the year to date as prospects of a Microsoft-driven acceleration in growth have edged closer. A DCF approach that captures the high-margin revenue growth anticipated from this partnership and others (we assume $82m by 2023 and $260m by 2030) implies a per share valuation equivalent to the current price (590p). WANdisco describes the deal with Microsoft as a $1bn opportunity and there could be upside to this DCF if it can deliver and pricing holds up. However, it will be easier to gauge the longer-term prospects as evidence of the rate of adoption of LiveData emerges during H2.

Quantifying the opportunity

In Accelerating the customer cloud journey, we constructed a scenario analysis to estimate the size of the opportunity for WANdisco’s LiveData platform and assess whether its ‘medium-term’ financial ambitions of annual sales of at least $100m in the next three to five years were realistic. 

Microsoft’s analysis suggests the size of the potential market (200–300 Exabytes (EB)) is significantly greater (88x at the mid-point) than we had previously envisioned (our 2023 base case forecast was 2.8 EB). However, it is not clear that all the data included by Microsoft will require consistency and it is unlikely that all of it will be addressable by WANdisco immediately. Our updated analysis below assumes that 80% of the 250 EB is Hadoop based and 20% of that is mission critical and therefore requires consistency at all times. Assuming half of this migrates to the cloud by 2023 and Microsoft captures a 35% share suggests a 7 EB opportunity. Therefore, this analysis suggests the amount of data WANdisco could address through the Microsoft partnership alone could be 2.5x greater than our previous estimate size of the entire market. At current prices ($200m per EB) just the migration element would imply revenues of $1.4bn. The company suggests it has a ‘$1bn market opportunity with Microsoft’.

Delivering on this opportunity will require sustained execution from both WANdisco and Microsoft. Both companies have invested considerable time ensuring the platform can scale smoothly but it may take time for customers to adopt it and the commercialisation of Fusion has encountered setbacks previously. Nevertheless, our scenario analysis, which assumes prices fall substantially as volumes grow, suggests this deal alone would see WANdisco generate revenues over $80m a year annually by 2023, a figure roughly equivalent to our previous base-case analysis for the entire market.

Assessing the longer-term opportunity presented by the Microsoft deal at this point (before the product has started ramping) is highly speculative. A more tangible way of monitoring progress in the near term might be looking at customer numbers. The company is aiming to sign over 50 customers in the next 12 months. It is difficult to predict the size of these customers and the rate of adoption but assuming revenue of $0.2–0.3m per customer suggests $10–15m of incremental revenue by end of H121. We will reassess longer-term prospects as evidence of the rate of adoption of LiveData emerges during H2.

Exhibit 1: Estimating the size of the LiveData opportunity with Microsoft and comparing it to Edison’s previous scenario analysis of the total market and WANdisco’s medium-term ambitions

Phase

 

Company medium term financial ambitions

Edison previous scenario analysis (base case)

Edison analysis of the potential value of Microsoft only

Comments

Market estimate

Microsoft/WANdisco estimate of market* size (Exabyte)

250

Mid-point of 200–300 EB

Hadoop data assumption (Edison estimate, %)

80.0

Mission critical data (Edison estimate %)

20.0

Realisable by 2023 (Edison estimate, %)

50.0

2023 market size (EB)

20

Microsoft share (%)

35.0

Approx. share of the cloud market

Data migrated by Microsoft (EB)

7

1. Migration

Data migrated (EB)

7

Cost per EB ($m)

15

Currently $200m

Total revenue ($m)

$50m+ total

105

Annual revenue ($m)

$17m+ annual est.**

17

35

2. Annual data consistency (Hybrid cloud)

Migrated data requiring consistency (%)

75

Data requiring consistency (EB)

5

Annual cost per EB ($m)

6

40% of migration price

Annual revenue ($m)

$35m+

39

32

3. Annual data consistency (Multi-cloud)

Migrated data requiring consistency (%)

25

Data requiring consistency (EB)

2

Annual cost per EB ($m)

9

Annual revenue ($m)

$25m+

27

16

Total annual revenue (1 + 2 + 3)

77

83

82

Source: Edison Investment Research. Note: *On premise data that can be migrated to the cloud and requires consistency; **Edison estimate of how the cumulative opportunity could convert into 2023 revenue.

Exhibit 2: Financial summary

$m

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 (c)

 

 

(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

 

 

11.5

27.4

10.8

35.4

33.9

Stocks

0.0

0.0

0.0

0.0

0.0

Debtors

3.9

0.0

0.0

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

 

 

1.5

11.4

6.4

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


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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.

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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

Neither this document and associated email (together, the "Communication") constitutes or form part of any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase shares in the Company in the proposed placing should be made solely on the basis of the information to be contained in the admission document to be published in connection therewith.

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 (nor will such persons be able to purchase shares in the placing).

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 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).

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

Neither this document and associated email (together, the "Communication") constitutes or form part of any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase shares in the Company in the proposed placing should be made solely on the basis of the information to be contained in the admission document to be published in connection therewith.

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 (nor will such persons be able to purchase shares in the placing).

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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