Microsoft relationship deepens

WANdisco 17 October 2017 Update (1-4pgs)
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WANdisco

Microsoft relationship deepens

Deepening tier one partnerships

Software & comp services

17 October 2017

Price

860p

Market cap

£324m

£/US$1.34

Net cash (£m) at 30 June 2017

6.9

Shares in issue

37.7m

Free float

88%

Code

WAND

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

27.8

43.2

456.5

Rel (local)

24.9

40.1

409.8

52-week high/low

862.5p

128.5p

Business description

WANdisco is a distributed computing company. It has developed a suite of solutions based around proprietary replication technology, which solve critical data management challenges prevalent across cloud computing, big data and the ALM software markets.

Next events

Trading update

January 2018

Analyst

Dan Ridsdale

+44 (0)20 3077 5729

WANdisco is a research client of Edison Investment Research Limited

Two new product integrations with Microsoft Azure, together with the recently released Amazon AWS hybrid solution, add up to a meaningful strengthening of WANdisco’s credentials and platform for growth. We see scope for a significant acceleration in operationally geared growth, especially if the company can progress one or two of its tier one relationships into a strategic relationship akin to the one with IBM.

Year end

Revenue ($m)

EBITDA
($m)

PBT
($m)

EPS
(c)

Net cash
($m)

EV/Sales
(x)

12/15

11.0

(16.0)

(26.4)

(87.7)

2.6

39.3

12/16

11.4

(7.5)

(16.4)

(46.9)

7.6

37.5

12/17e

17.0

(3.3)

(10.6)

(26.7)

7.1

25.1

12/18e

21.7

(0.7)

(8.3)

(20.6)

10.4

19.7

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

Two new collaborations with Microsoft

WANdisco has recently unveiled (via RNS reach) two collaborations with Microsoft. Today, in parallel with its Capital Markets Day, the company has announced that Fusion is integrated into Microsoft’s Azure Data Box solution for uploading very large volumes of data to the cloud. Through integrating this solution with Fusion, data can be uploaded more efficiently and without downtime. Prior to this, the company announced that Fusion is integrated with Microsoft’s Azure HDInsight and is downloadable via the Azure Marketplace. Azure HDInsight is Microsoft’s cloud distribution of the Hadoop technology stack to enable customers to easily move large amounts of unstructured data between on-premise and cloud for analytics or data recovery.

Two new collaborations with Microsoft

Both of these collaborations are positive incremental developments. Together, with the recently released Amazon AWS hybrid solution and Oracle MAA compliance earlier in the year, we believe they add up to a meaningful strengthening of the company’s credentials and platform for scalable growth. We are not changing our estimates until we obtain a further update in trading, but believe a further acceleration is possible. The conversion of one or two of WANdisco’s tier one partnerships into a strategic partnership, similar to the IBM OEM agreement, would strengthen the case for upgrades further.

Valuation: Pricing in an acceleration

WANdisco’s FY17e EV/sales rating of 25.1x sales, dropping to 19.7x for FY18e, clearly factors in significant growth and margin expansion. Our DCF suggests sustained growth of c 40% through 2025 with EBITDAC margins exceeding 25%. In practice, we believe that if WANdisco continues to strengthen its platform of tier one channel partners, it should be well placed to grow faster than this, certainly in the nearer term. WANdisco operates at the crux of one of the key structural growth trends within the technology landscape today. With a broad addressable market, a strong IP position and an indirect sales model, healthy 25%+ margins should be readily achievable if execution remains good. WANdisco’s strategic attractiveness should also factor in the valuation equation.

Exhibit 1: Financial summary

$'000s

2015

2016

2017e

2018e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

10,994

11,379

17,029

21,748

Cost of Sales

(749)

(1,349)

(1,784)

(2,349)

Gross Profit

10,245

10,030

15,246

19,399

EBITDA

 

 

(15,988)

(7,464)

(3,254)

(655)

Operating Profit (before amort and except)

 

 

(25,858)

(16,104)

(10,374)

(8,075)

Acquired Intangible Amortisation

0

0

0

0

Exceptionals

(614)

(32)

0

0

Share based payments

(4,057)

(1,787)

(1,400)

(1,400)

Operating Profit

(30,529)

(17,923)

(11,774)

(9,475)

Net Interest

(506)

(268)

(268)

(268)

Profit Before Tax (norm)

 

 

(26,364)

(16,372)

(10,642)

(8,343)

Profit Before Tax (FRS 3)

 

 

(31,035)

(10,047)

(14,339)

(9,743)

Tax

1,129

772

522

354

Profit After Tax (norm)

(25,235)

(15,600)

(10,121)

(7,989)

Profit After Tax (FRS 3)

(29,906)

(9,275)

(13,818)

(9,389)

Average Number of Shares Outstanding (m)

28.8

33.3

37.6

37.8

EPS – normalised (c)

 

 

(87.7)

(46.9)

(26.9)

(21.1)

EPS - normalised fully diluted (c)

 

 

(87.7)

(46.9)

(26.7)

(20.6)

EPS - (IFRS) (c)

 

 

(103.9)

(27.9)

(36.7)

(24.8)

Dividend per share (c)

0.0

0.0

0.0

0.0

Gross Margin (%)

93.2

88.1

89.5

89.2

EBITDA Margin (%)

N/A

N/A

N/A

N/A

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

N/A

N/A

N/A

N/A

BALANCE SHEET

Fixed Assets

 

 

8,813

6,253

5,930

5,761

Intangible Assets

8,583

5,977

5,574

5,325

Tangible Assets

230

276

356

436

Investments

0

0

0

0

Current Assets

 

 

9,283

13,703

14,429

20,085

Stocks

0

0

0

0

Debtors

6,728

6,145

7,358

9,709

Cash

2,555

7,558

7,071

10,376

Other

0

0

0

0

Current Liabilities

 

 

(6,439)

(9,409)

(11,467)

(12,342)

Creditors & Deferred Income

(6,439)

(9,409)

(11,467)

(12,342)

Short term borrowings

0

0

0

0

Long Term Liabilities

 

 

(6,060)

(6,980)

(11,557)

(15,201)

Long term borrowings

0

0

0

0

Deferred Income

(6,060)

(6,980)

(11,557)

(15,201)

Net Assets

 

 

5,597

3,567

(2,665)

(1,697)

CASH FLOW

Operating Cash Flow

 

 

(18,138)

(2,955)

6,056

10,470

Net Interest

59

(161)

(268)

(268)

Tax

552

690

522

354

Capex (inc capitalised R&D)

(8,464)

(5,924)

(6,797)

(7,252)

Acquisitions/disposals

0

0

0

0

Financing (net)

26,175

13,523

0

0

Dividends

0

0

0

0

Net Cash Flow

184

5,173

(487)

3,305

Opening net debt/(cash)

 

 

(2,481)

(2,555)

(7,558)

(7,071)

HP finance leases initiated

0

0

0

0

Other

(43)

(175)

0

0

Closing net debt/(cash)

 

 

(2,555)

(7,558)

(7,071)

(10,376)

Source: Company data, Edison Investment Research

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by WANdisco and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided 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.
Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “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.

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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, 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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by WANdisco and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided 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.
Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “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.

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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, 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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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