Placing, FY19 results and forecast update

WANdisco 15 June 2020 Update
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WANdisco

Placing, FY19 results and forecast update

FY19 results & capital raise

Software & comp services

15 June 2020

Price

664p

Market cap

£341m

US$:£1.26

Estimated net cash (US$m) at 30/06/2020 post capital raising

31.4

Shares in issue (reflecting capital raise)

51.3m

Free float

92%

Code

WAND

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

22.6

42.2

22.6

Rel (local)

19.5

23.8

45.9

52-week high/low

820p

338p

Business description

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

Next events

FY20 interims

September 2020

Analysts

Dan Gardiner

+44 (0) 3077 5700

Dan Ridsdale

+44 (0) 3077 5729

WANdisco is a research client of Edison Investment Research Limited

WANdisco has raised $25m (gross) through a placing of 3.1m shares at 650p. The proceeds will cover the investment needed to embed LiveData with other cloud vendors while sales from Microsoft Azure build. The accompanying publication of FY19 results enables us to update forecasts. COVID-19 related delays to the Azure revenue ramp lead us to lower FY20 revenues from $28m to $20m; EBITDA losses widen from $5m to $11m. As our recent update note highlighted, WANdisco still expects to sign more than 50 new customers on this platform over the next 12 months. We will introduce FY21 forecasts as visibility on the growth trajectory emerges.

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)

20.9

N/A

12/18

17.0

(9.4)

(16.3)

(37.5)

24.1

N/A

12/19

16.2

(11.7)

(18.5)

(37.5)

25.4

N/A

12/20e

20.0

(10.6)

(17.6)

(35.3)

20.5

N/A

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

$25m gross raised via placing of 3.1m shares at 650p

At the end of May, WANdisco had $12m of cash available (down from $23m at the end of December). Notes to the accounts show that modelling a zero-growth scenario to test for going concern, the auditors concluded that the company needed to raise $20m to give it sufficient capital for the next 12 months. Given that public preview status with Microsoft Azure signals the start of commercial services, this scenario is highly unlikely in our view. Nevertheless, this capital raise proactively addresses the issue and ensures WANdisco can continue to increase investment to support embedding LiveData with other tier one cloud providers in any eventuality.

Updating estimates for FY19 and COVID-19 delays

With headlines already disclosed, referring to a period that ended nearly six months ago and predated public preview with Microsoft Azure, there is arguably little new data relevant to WANdisco’s prospects in the FY19 figures. However, publication of the results does enable us to update forecasts. Due to COVID-19, the ramp-up in Microsoft Azure-related revenue is likely to start later than we envisaged in February. In addition a faster than expected shift from upfront (subscription) to metered (pay-as-you-go) billing will impact revenue recognition. We lower FY20 revenues from $28m to $20m, increase forecast EBITDA losses to $11m ($5m previously) and the share count rises to 51.3m. WANdisco still expects to sign more than 50 new customers on this platform over the next 12 months. We will introduce FY21 forecasts as visibility on the growth trajectory emerges.

Valuation: LiveData expected to sustain rapid growth

The prospects of a Microsoft-driven acceleration in growth have lifted WANdisco’s share price by 51% this year. The current 664p price requires a DCF that assumes revenues reach $361m by 2030, driven by long-term deals with tier one cloud vendors. WANdisco describes the deal with Microsoft as a $1bn opportunity and there could be upside if it can deliver and pricing holds up (see over). However, it will be easier to gauge the longer-term prospects as evidence of the rate of adoption of LiveData emerges during H2.

Changes to forecasts

Exhibit 1 highlights the changes we have made to the principal financial metrics. A full summary can is shown on the following page.

Exhibit 1: Changes to forecasts

US$m

FY19

FY20e

Estimates

Actuals

Old

New

% change

Revenue

16.0*

16.2

28.0

20.0

(28.6)

Adj EBITDA

(14.0)

(11.7)

(5.3)

(10.6)

N/A

Adj EPS ($c)

(45.7)

(37.5)

(25.0)

(35.3)

N/A

Gross cash*

23.3*

23.4

21.0

30.9

46.8

Source: Edison Investment Research. Note: *Headline revenue and gross cash figures were disclosed in February.

LiveData expected to sustain rapid growth

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. In Launches LiveData with Microsoft Azure, we updated this analysis to reflect additional data from Microsoft about the size of the market.

This analysis concluded that the Microsoft relationship alone could generate more than $80m in annual revenues by 2023 and highlighted that the data migration element alone could present a $1.4bn opportunity in total. To justify the market capitalisation at the time (£284m), we estimated that WANdisco would have to generate annual revenue of $260m by 2030 with a 44% EBIT margin. At the current market capitalisation (£341m), we estimate that annual sales of $361m and a 47% EBIT margin are required.

However, there are clearly large execution risks and 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 to look at customer numbers. WANdisco is aiming to sign more than 50 customers in the next 12 months. We will therefore reassess longer-term prospects as evidence of the rate of adoption of LiveData emerges during H2.

Exhibit 2: Financial summary

$m

2016

2017

2018

2019

2020e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

11.4

19.6

17.0

16.2

20.0

Cost of Sales

(1.3)

(2.0)

(1.5)

(1.2)

(1.6)

Gross Profit

10.0

17.7

15.5

15.0

18.4

EBITDA

 

 

(7.5)

(0.6)

(9.4)

(11.7)

(10.6)

Operating Profit (before amort. and except.)

 

 

(16.1)

(7.5)

(16.3)

(18.5)

(17.6)

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)

(8.7)

(6.0)

Operating Profit

(17.9)

(9.7)

(22.1)

(27.2)

(23.6)

Net Interest

(0.3)

(0.3)

(0.1)

0.1

0.0

Profit Before Tax (norm)

 

 

(16.4)

(7.8)

(16.3)

(18.4)

(17.6)

Profit Before Tax (FRS 3)

 

 

(10.0)

(14.0)

(19.4)

(29.1)

(23.6)

Tax

0.8

0.5

0.8

0.9

(0.6)

Profit After Tax (norm)

(15.6)

(7.3)

(15.5)

(17.5)

(18.1)

Profit After Tax (FRS 3)

(9.3)

(13.5)

(18.6)

(28.3)

(24.1)

Average Number of Shares Outstanding (m)

33.3

37.8

41.4

46.7

51.3

EPS (c)

 

 

(46.9)

(19.4)

(37.5)

(37.5)

(35.3)

EPS - normalised fully diluted (c)

 

 

(46.9)

(19.4)

(37.5)

(37.5)

(35.3)

EPS - (IFRS) (c)

 

 

(27.9)

(35.8)

(44.9)

(60.5)

(47.0)

Dividend per share (c)

0.0

0.0

0.0

0.0

0.0

Gross Margin (%)

88.1

90.0

90.9

92.7

92.0

EBITDA Margin (%)

(65.6)

(3.0)

(55.2)

(72.2)

(53.1)

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

(141.5)

(38.2)

(95.5)

(114.3)

(87.9)

BALANCE SHEET

Fixed Assets

 

 

6.5

8.5

8.9

11.6

11.2

Intangible Assets

6.0

7.1

5.5

4.9

3.3

Tangible Assets

0.5

0.6

0.8

3.7

4.9

Investments

0.0

0.9

2.6

3.0

3.0

Current Assets

 

 

11.5

27.4

10.8

31.9

40.9

Stocks

0.0

0.0

0.0

0.0

0.0

Debtors

3.9

0.0

0.0

8.5

10.0

Cash

7.6

27.4

10.8

23.4

30.9

Other

0.0

0.0

0.0

0.0

0.0

Current Liabilities

 

 

(9.5)

(14.1)

(11.9)

(9.2)

(28.4)

Creditors & Deferred Income

(9.4)

(13.2)

(7.9)

(7.0)

(26.1)

Short term borrowings

(0.1)

(1.0)

(4.0)

(2.2)

(2.2)

Long Term Liabilities

 

 

(7.0)

(10.4)

(1.4)

(4.1)

(17.5)

Long term borrowings

(0.3)

(3.3)

(0.1)

(2.9)

(2.9)

Deferred Income

(6.7)

(7.1)

(1.3)

(1.2)

(14.7)

Net Assets

 

 

1.5

11.4

6.4

30.2

6.1

CASH FLOW

8.6

7.6

Operating Cash Flow

 

 

(2.9)

0.7

(11.0)

(14.1)

14.3

Net Interest

(0.2)

(0.3)

(0.2)

(0.2)

(0.3)

Tax

0.7

1.4

0.1

0.8

0.0

Capex (inc capitalised R&D)

(5.9)

(7.1)

(5.6)

(5.9)

(6.5)

Acquisitions/disposals

0.0

0.0

0.0

0.0

0.0

Financing (net)

13.5

21.2

0.9

34.2

23.0

Dividends

0.0

0.0

0.0

0.0

0.0

Net Cash Flow

5.2

15.9

(15.8)

14.8

30.5

Opening net debt/(cash)

 

 

(2.6)

(7.2)

(23.1)

(6.7)

(18.3)

HP finance leases initiated

(0.6)

0.0

(0.6)

(3.2)

(23.0)

Other

0.0

0.0

0.0

0.0

0.0

Closing net debt/(cash)

 

 

(7.2)

(23.1)

(6.7)

(18.3)

(25.8)

Source: Company data, Edison Investment Research


General disclaimer and copyright

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

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the Edison analyst at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2020 Edison Investment Research Limited (Edison).

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

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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

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

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