On the cusp?

WANdisco 26 September 2019 Update
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WANdisco

On the cusp?

Interim results

Software & comp services

26 September 2019

Price

475p

Market cap

£214m

US$:£1.25

Net cash (US$m) at end June 2019

12.8m

Shares in issue

45.2m

Free float

92%

Code

WAND

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(5.0)

7.6

(16.7)

Rel (local)

(7.5)

8.8

(14.0)

52-week high/low

781p

340p

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 ecosystem including Amazon and Microsoft.

Next events

Capital markets day

15 October 2019

Analysts

Dan Gardiner

+44 (0) 3077 5700

Dan Ridsdale

+44 (0) 3077 5729

WANdisco is a research client of Edison Investment Research Limited

H1 financials fell short of our expectations and we lower our FY19 forecasts accordingly. However, strengthened partnerships with key cloud players demonstrate that WANdisco is making strategic progress. This progress, combined with new FY19 revenue guidance that implies strong growth in H219, 59% y-o-y, enables us to leave FY20 forecasts intact. We remain confident in the longer-term prospects and will update our analysis after the capital markets day presentation on 15 October.

Year end

Revenue ($m)

EBITDA*
($m)

EBIT*
(US$m)

EPS*
(c)

EV/Sales
(x)

EV/EBITDA
(x)

12/17

19.6

(0.6)

(7.5)

(19.4)

12.8

N/A

12/18

17.0

(9.4)

(16.3)

(37.5)

14.8

N/A

12/19e

24.0

(7.0)

(14.0)

(31.7)

10.5

N/A

12/20e

40.7

6.2

(0.8)

(2.0)

6.2

40.9

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

Weak financial performance in H1…

Interim revenue of $6m, implying year-on-year growth of just 5% and Q2 sales of $2m, was below our expectations. The focus on securing a strategic deal with a major cloud player and new products (LiveMigrator and Live Analytics) resulted in a hiatus of new orders. Cash overheads were $15.5m and WANdisco reported an adjusted EBIT loss of $11.1m. As a result of the H1 shortfall, we lower our FY19 revenue forecast by 23%.

…but dramatic improvement expected in H2

WANdisco expects financial performance to dramatically improve in H2, however. New FY19 revenue guidance of $24m implies H2 revenues of $18m, up 59% y-o-y. This growth reflects a substantial strengthening of the order book over the last six months, driven by a pipeline of new deals plus the first sales from new products and its strategic deal. If delivered, it would return WANdisco to profitability, cash generation and a rapid growth trajectory.

Strategic progress key to longer-term outlook

Recent deals with Databricks, Neudesic and the unnamed major enterprise cloud partner highlight the strategic value of WANdisco’s technology in the cloud ecosystem (see Accelerating the customer cloud journey). We will update our view here following the capital markets day, which should provide more details on these deals. The company now looks on the cusp of meeting its next challenge: demonstrating it can translate this value into an improving financial performance.

Valuation: Delivery in H2 a potential catalyst?

WANdisco’s valuation (475p share price implies a 6.2x FY20e EV/Sales multiple) reflects investors’ perception of both its long-term growth prospects and the strategic value of its data replication technology (M&A). If the company can deliver on its H2 guidance, confidence in both its strategic value and long-term execution should rise substantially.

Exhibit 1: 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

24.0

40.7

Cost of Sales

(1.3)

(2.0)

(1.5)

(2.4)

(4.1)

Gross Profit

10.0

17.7

15.5

21.6

36.7

EBITDA

 

 

(7.5)

(0.6)

(9.4)

(7.0)

6.2

Operating Profit (before amort. and except.)

 

 

(16.1)

(7.5)

(16.3)

(14.0)

(0.8)

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)

(5.5)

(6.0)

Operating Profit

(17.9)

(9.7)

(22.1)

(19.5)

(6.8)

Net Interest

(0.3)

(0.3)

(0.1)

0.0

0.0

Profit Before Tax (norm)

 

 

(16.4)

(7.8)

(16.3)

(14.0)

(0.8)

Profit Before Tax (FRS 3)

 

 

(10.0)

(14.0)

(19.4)

(19.5)

(6.8)

Tax

0.8

0.5

0.8

(0.4)

(0.2)

Profit After Tax (norm)

(15.6)

(7.3)

(15.5)

(14.3)

(0.9)

Profit After Tax (FRS 3)

(9.3)

(13.5)

(18.6)

(19.8)

(6.9)

Average Number of Shares Outstanding (m)

33.3

37.8

41.4

45.2

47.7

EPS (c)

 

 

(46.9)

(19.4)

(37.5)

(31.7)

(2.0)

EPS - normalised fully diluted (c)

 

 

(46.9)

(19.4)

(37.5)

(31.7)

(2.0)

EPS - (IFRS) (c)

 

 

(27.9)

(35.8)

(44.9)

(43.9)

(14.6)

Dividend per share (c)

0.0

0.0

0.0

0.0

0.0

Gross Margin (%)

88.1

90.0

90.9

90.0

90.0

EBITDA Margin (%)

(65.6)

(3.0)

(55.2)

(29.2)

15.1

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

(141.5)

(38.2)

(95.5)

(58.2)

(1.9)

BALANCE SHEET

Fixed Assets

 

 

6.5

8.5

8.9

9.5

11.0

Intangible Assets

6.0

7.1

5.5

4.9

5.3

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

42.0

46.5

Stocks

0.0

0.0

0.0

0.0

0.0

Debtors

3.9

0.0

0.0

21.8

26.9

Cash

7.6

27.4

10.8

20.3

19.6

Other

0.0

0.0

0.0

0.0

0.0

Current Liabilities

 

 

(9.5)

(14.1)

(11.9)

(26.4)

(33.5)

Creditors & Deferred Income

(9.4)

(13.2)

(7.9)

(22.4)

(29.5)

Short term borrowings

(0.1)

(1.0)

(4.0)

(4.0)

(4.0)

Long Term Liabilities

 

 

(7.0)

(10.4)

(1.4)

(14.1)

(14.1)

Long term borrowings

(0.3)

(3.3)

(0.1)

(0.1)

(0.1)

Deferred Income

(6.7)

(7.1)

(1.3)

(14.0)

(14.0)

Net Assets

 

 

1.5

11.4

6.4

11.0

9.9

CASH FLOW

Operating Cash Flow

 

 

(2.9)

0.7

(11.0)

0.3

8.1

Net Interest

(0.2)

(0.3)

(0.2)

(0.3)

(0.3)

Tax

0.7

1.4

0.1

0.0

0.0

Capex (inc capitalised R&D)

(5.9)

(7.1)

(5.6)

(7.5)

(8.5)

Acquisitions/disposals

0.0

0.0

0.0

0.0

0.0

Financing (net)

13.5

21.2

0.9

17.0

0.0

Dividends

0.0

0.0

0.0

0.0

0.0

Net Cash Flow

5.2

15.9

(15.8)

9.5

(0.7)

Opening net debt/(cash)

 

 

(2.6)

(7.2)

(23.1)

(6.7)

(16.2)

HP finance leases initiated

(0.6)

0.0

(0.6)

0.0

0.0

Other

0.0

0.0

0.0

0.0

0.0

Closing net debt/(cash)

 

 

(7.2)

(23.1)

(6.7)

(16.2)

(15.5)

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 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 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (‘FTSE’) © FTSE 2019. ‘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

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

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. 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 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 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (‘FTSE’) © FTSE 2019. ‘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

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

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. 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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