Opus: taking the work out of IT security

Osirium Technologies 7 May 2019 Update
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Osirium Technologies

Opus: taking the work out of IT security

Product launch

Software & comp services

7 May 2019

Price

95p

Market cap

£13m

Net cash (£m) at end FY18

2.3

Shares in issue

13.6m

Free float

92%

Code

OSI

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(21.1)

(24.4)

(32.6)

Rel (local)

(22.2)

(28.0)

(31.2)

52-week high/low

153p

90p

Business description

UK-based Osirium Technologies designs and supplies subscription-based cyber security software. It has four products: privileged access management (PAM), privileged task management, privileged session management and privileged behaviour management.

Next events

FY18 results

8 May 2019

Analyst

Katherine Thompson

+44 (0)20 3077 5730

Osirium Technologies is a research client of Edison Investment Research Limited

Osirium is building on the success of its privileged task automation technology with the launch of a new product, Opus, to provide privileged IT process automation. Opus enables the automation of more complicated processes that require privileged access to multiple systems, and provides for human interaction where choices and exceptions arise. Opus will be sold as a separate module and management expects it to have a growing and material impact on its financial performance.

Year end

Revenue (£m)

EBITDA*
(£m)

EPS*
(p)

DPS
(p)

P/E
(x)

EV/sales
(x)

12/16**

0.48

(1.14)

(12.4)

0.0

N/A

21.7

12/17

0.65

(1.61)

(18.1)

0.0

N/A

16.0

12/18e

0.92

(2.00)

(18.4)

0.0

N/A

11.3

12/19e

1.41

(1.82)

(17.4)

0.0

N/A

7.4

Note: *EBITDA and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. **14-month period ended 31 December 2016.

Opus: Privileged IT process automation solution

Osirium’s privilege task automation tool (PTM) has been highlighted by industry analysts as differentiating Osirium from its PAM software competitors. Gartner recently included automation of privileged processes as one of the four pillars required to build a mature PAM practice within a business. Building on the success of its PTM module, Osirium has launched Opus to securely automate privileged IT processes.

Supporting more complex processes; widening addressable market

Opus will enable multiple tasks requiring privileged access to be combined to create secure automated processes. This should improve the efficiency and accuracy of IT operations and free up IT service desks to perform more valuable work. As Opus can access credentials from third-party vault providers, it widens Osirium’s addressable market significantly. Management expects Opus will contribute to a growing and material impact on the company’s financial performance. We make no changes to estimates, pending results on 8 May.

Valuation: Bookings growth key to upside

As an early-stage company showing revenue growth ahead of its peer group, Osirium is trading at a premium to peers on an EV/sales basis. We have performed a reverse DCF to analyse the assumptions factored into the current share price, using a WACC of 11% and a terminal growth rate of 3%. We estimate that the share price is discounting average annual bookings growth of 23% for FY21–27, break-even EBITDA in FY23, average EBITDA margins of 8.7% for FY21–27 and a terminal EBITDA margin of 35%. In our view, bookings growth will be the key driver of share price performance.

Launching Opus – securing IT process automation

Building on the foundations of privileged task automation

One of the most innovative modules available on the Osirium PxM platform is PTM – Privileged Task Management. PTM software enables a business to automate frequently performed tasks that require privileged access such as user password resets or switching/closing off firewall ports. This enables companies to delegate the task rather than the privilege, ie the user will be able to perform specific tasks on a device but will not have more general privileged access to the device. We view this as a form of robotic process automation, with the focus on security.

Analysis of the use of task automation by several customers has shown that time savings of up to 98% per task are possible, which has the benefit of freeing up staff to undertake more complex work. By predefining tasks and reducing the amount of user input required, accuracy is greatly increased, which improves both efficiency and security. This is particularly helpful for companies that outsource a high volume of support activity, as it means that third parties do not need to be granted as much privileged access. An MSSP (managed security services provider) can delegate the top 20 or 30 tasks to first-line support, sure in the knowledge the tasks will be performed securely and accurately. As long as the user is authenticated by the Osirium server, the user will then have access to all their individual delegated tasks.

Over the last year, Osirium has invested in developing its task automation technology to provide wider process automation functionality.

Opus – privileged IT process automation

Based on several years’ experience in providing privileged task automation technology and customer feedback, Opus provides a significantly more powerful approach to securing privileged process automation. New features and functionality include:

■

Automation of wider processes by linking together a series of automated tasks.

■

Co-ordination across different systems so that the user does not need to log in to each system separately, eg ServiceNow, Active Directory, Infoblox. It also enables the output from one system to be the input into another system, without human intervention.

■

Human guided processes. The system can ask the human operator for input where different options are available, or to deal with exceptions as they arise.

■

Ability to access credentials from suppliers other than Osirium. As well as the ability to pull credentials from the PxM platform, Opus can also access credentials held in HashiCorp1 vaults. Osirium can add access to other vault providers as required.

  HashiCorp is an open-source vault focused on DevOps infrastructure.

■

Ability to be used with customers’ existing tools (“bring your own code”) and for tasks to be written in different programming languages. This allows a customer to re-use existing tasks and scripts, but also ensures no credentials are exposed within the tools.

■

Provides a full audit trail of all operations, tracking who runs which processes, where and when.

■

Use of containerisation to create different layers of security isolation. Opus allows for any API or library to be added to a container (previously only APIs or libraries created by Osirium were available in the PTM module). Older systems may need libraries with known issues and vulnerabilities that would not be allowed on the PxM Platform. With Opus, these can be neatly secured, isolated and controlled for use with only the relevant legacy systems.

■

Improved integration with ServiceNow (IT service management (ITSM) software). A process can run without a ServiceNow ticket until the point at which a notable event or exception occurs, at which point a ticket can be raised as part of the task.

■

Each task is given a unique URL identifier which can be included in the ITSM ticket.

■

Permissions from the PxM platform can be mapped onto Opus.

■

Long-running tasks do not have to be completed by the same operator – a task can be started during one operator’s shift and continue into and be completed by an operator on the next shift.

Early adopters of Opus have found that tasks that were complex enough to need second or third level administrators to deal with them can now be delegated to first-line support engineers.

Multiple use cases

The company highlighted a variety of use cases for Opus (see Exhibit 1). While we would expect Opus initially to be of interest to IT operations teams, it is possible that some privileged automated processes could ultimately be delegated to other business departments. For example, HR teams typically request that new joiners are provided with email addresses and added to particular email groups. Opus would allow the IT department to create an automated process to do this, which could be delegated to authorised HR staff and bypass the IT department entirely.

Exhibit 1: Examples of automated processes enabled by Opus

New starter – developer

Network operations

Reset password

Create account in Active Directory

Update ports

Verify requesting user ID

Create virtual machines for development & test

Create DNS records

Set temporary password in Active Directory

Create development databases

Create accounts in CI/CD tools

Configure routings, across different hardware vendor platforms

Set "reset next log-in" flag

Update ServiceNow ticket

Update HR records

Source: Osirium

Widens addressable market

As Opus can operate using credential vaults other than Osirium’s PxM platform, it can be used by customers using PAM software from a different vendor. Osirium has found that within some companies, different PAM software is used for different processes. This gives Osirium the potential to sell into all processes using PAM software rather than just those processes that depend on the PxM platform.

We expect the company to sell Opus as a separate module, which can be licensed on its own or alongside the PxM platform.

Our forecasts are unchanged, pending FY18 results scheduled for 8 May.

Exhibit 2: Financial summary

£000s

2013

2014

2015

2016

2017

2018e

2019e

2020e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

120.0

207.0

290.2

477.6

647.6

922.6

1,406.7

1,957.9

EBITDA

 

 

(366.7)

(327.1)

(377.9)

(1,136.7)

(1,609.4)

(1,995.5)

(1,816.0)

(1,432.6)

Normalised operating profit

 

 

(679.4)

(714.3)

(790.7)

(1,725.6)

(2,296.8)

(2,759.0)

(2,775.8)

(2,581.6)

Amortisation of acquired intangibles

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Exceptionals

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Share-based payments

0.0

(184.3)

(56.4)

(96.9)

0.0

0.0

0.0

0.0

Reported operating profit

(679.4)

(898.5)

(847.1)

(1,822.5)

(2,296.8)

(2,759.0)

(2,775.8)

(2,581.6)

Net Interest

(35.2)

5.7

(9.9)

9.7

4.2

2.0

1.0

0.0

Joint ventures & associates (post tax)

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Exceptionals

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Profit Before Tax (norm)

 

 

(714.6)

(708.5)

(800.7)

(1,715.9)

(2,292.6)

(2,757.0)

(2,774.8)

(2,581.6)

Profit Before Tax (reported)

 

 

(714.6)

(892.8)

(857.1)

(1,812.8)

(2,292.6)

(2,757.0)

(2,774.8)

(2,581.6)

Reported tax

137.7

134.1

121.0

453.3

409.4

413.6

416.2

387.2

Profit After Tax (norm)

(576.9)

(602.1)

(687.6)

(1,286.9)

(1,883.2)

(2,343.5)

(2,358.6)

(2,194.3)

Profit After Tax (reported)

(576.9)

(758.7)

(736.0)

(1,359.6)

(1,883.2)

(2,343.5)

(2,358.6)

(2,194.3)

Minority interests

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Discontinued operations

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Net income (normalised)

(576.9)

(602.1)

(687.6)

(1,286.9)

(1,883.2)

(2,343.5)

(2,358.6)

(2,194.3)

Net income (reported)

(576.9)

(758.7)

(736.0)

(1,359.6)

(1,883.2)

(2,343.5)

(2,358.6)

(2,194.3)

Basic average number of shares outstanding (m)

0

1

10

10

10

13

14

14

EPS - normalised (p)

 

 

N/A

N/A

(6.61)

(12.38)

(18.12)

(18.38)

(17.42)

(16.21)

EPS - normalised fully diluted (p)

 

 

N/A

N/A

(6.61)

(12.38)

(18.12)

(18.38)

(17.42)

(16.21)

EPS - basic reported (p)

 

 

(296.36)

(144.92)

(7.08)

(13.08)

(18.12)

(18.38)

(17.42)

(16.21)

Dividend (p)

0.00

0.00

0.00

0.00

0.00

0.00

0.00

0.00

Revenue growth (%)

26.3

72.6

40.2

64.6

35.6

42.5

52.5

39.2

EBITDA Margin (%)

-305.7

-158.0

-130.2

-238.0

-248.5

-216.3

-129.1

-73.2

Normalised Operating Margin

-566.3

-345.0

-272.5

-361.3

-354.7

-299.1

-197.3

-131.8

BALANCE SHEET

Fixed Assets

 

 

815.7

805.2

799.7

1,178.8

1,812.1

2,464.9

2,921.4

3,188.8

Intangible Assets

808.6

795.7

793.3

1,134.5

1,731.9

2,358.4

2,788.5

3,029.6

Tangible Assets

7.2

9.5

6.4

44.3

80.2

106.5

132.9

159.2

Investments & other

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Current Assets

 

 

109.3

269.2

428.1

3,953.7

1,646.4

3,161.3

829.8

(1,048.9)

Stocks

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Debtors

77.2

218.6

154.6

380.9

622.6

666.3

801.6

923.7

Cash & cash equivalents

32.2

50.6

273.5

3,572.8

1,023.8

2,494.9

28.1

(1,972.6)

Other

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Current Liabilities

 

 

(235.2)

(294.2)

(365.0)

(648.5)

(857.7)

(1,376.0)

(1,859.6)

(2,413.6)

Creditors

(235.2)

(294.2)

(365.0)

(648.5)

(857.7)

(1,376.0)

(1,859.6)

(2,413.6)

Tax and social security

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Short term borrowings

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Other

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Long Term Liabilities

 

 

(952.5)

(487.6)

(163.3)

0.0

0.0

0.0

0.0

0.0

Long term borrowings

(789.0)

(323.7)

0.0

0.0

0.0

0.0

0.0

0.0

Other long term liabilities

(163.4)

(163.9)

(163.3)

0.0

0.0

0.0

0.0

0.0

Net Assets

 

 

(262.6)

292.6

699.5

4,483.9

2,600.8

4,250.2

1,891.6

(273.8)

Minority interests

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Shareholders' equity

 

 

(262.6)

292.6

699.5

4,483.9

2,600.8

4,250.2

1,891.6

(273.8)

CASH FLOW

Op Cash Flow before WC and tax

(366.7)

(327.1)

(377.9)

(1,136.7)

(1,609.4)

(1,995.5)

(1,816.0)

(1,432.6)

Working capital

66.3

3.8

120.7

226.8

85.5

480.1

351.0

432.0

Exceptional & other

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Tax

109.8

48.4

134.6

120.4

291.4

409.4

413.6

416.2

Net operating cash flow

 

 

(190.6)

(274.9)

(122.6)

(789.4)

(1,232.5)

(1,106.0)

(1,051.5)

(584.4)

Capex

(412.8)

(376.7)

(407.3)

(968.0)

(1,320.6)

(1,416.3)

(1,416.3)

(1,416.3)

Acquisitions/disposals

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Net interest

(35.2)

5.7

(9.9)

9.7

4.2

2.0

1.0

0.0

Equity financing

0.0

639.3

762.8

5,047.1

0.0

3,991.5

0.0

0.0

Dividends

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Other

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Net Cash Flow

(638.6)

(6.5)

222.9

3,299.3

(2,549.0)

1,471.2

(2,466.8)

(2,000.7)

Opening net (cash)/debt

 

 

118.3

756.9

273.1

(273.5)

(3,572.8)

(1,023.8)

(2,494.9)

(28.1)

FX

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Other non-cash movements

0.0

490.3

323.8

0.0

0.0

(0.1)

0.0

0.0

Closing net (cash)/debt

 

 

756.9

273.1

(273.5)

(3,572.8)

(1,023.8)

(2,494.9)

(28.1)

1,972.6

Source: Osirium, Edison Investment Research

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

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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.

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Australia

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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

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.

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