WANdisco |
Set for a re-acceleration |
FY18 results |
Software and comp services |
24 April 2019 |
Share price performance
Business description
Next events
Analysts
WANdisco is a research client of Edison Investment Research Limited |
WANdisco made substantial strategic progress in FY18, deepening both its partnerships with major cloud providers and broadening its product base. With discussions over a strategic deal with a major cloud vendor still ongoing and FY19 off to a good start (Q1 revenue up 38% y-o-y), we leave our forecasts largely unchanged. In our view its exceptional growth prospects and potential strategic value justify a premium rating.
Year end |
Revenue ($m) |
EBITDA* |
EBIT* |
EPS |
EV/sales |
EV/EBITDA |
12/17 |
19.6 |
(0.6) |
(7.5) |
(19.4) |
16.1 |
N/A |
12/18 |
17.0 |
(9.4) |
(16.3) |
(37.5) |
18.6 |
N/A |
12/19e |
31.3 |
0.7 |
(6.3) |
(14.4) |
10.1 |
463.9 |
12/20e |
40.7 |
6.2 |
(0.8) |
(2.0) |
7.8 |
51.4 |
Note: *EBITDA, EBIT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
FY18: Substantial strategic progress
Lacklustre financials do not tell the full story of WANdisco’s FY18, with revenue down 13% y-o-y and adjusted EBITDA losses widening to $9.4m. In the last year it signed partnership deals with Alibaba Cloud and Microsoft Azure and has been designated an ATP at Amazon AWS. Its partnerships now cover five of the top six cloud-platform providers and over 60% of the market. It also extended its longstanding partnership with IBM to include structured data.
On track for an inflection in FY19
Strategic progress should lead to improving financials in FY19. The company indicates that negotiations for an expanded deal with a large cloud player are ongoing and traction with Google Cloud, the only platform yet to generate significant revenue for WANdisco, is improving. Sales in Q119 rose 38% y-o-y and a large part of this growth is now being driven by subscription revenue. Our FY19 forecasts (largely unchanged) imply 84% revenue growth (see Exhibit 1).
Setting out the medium-term opportunity
For the first time management has formally set out its financial ambitions. It believes WANdisco can generate $100m+ in annual recurring sales within three to four years (implying a 50%+ CAGR). Growth will initially be driven by the replication of data migrating to the cloud but will increasingly reflect the need to support hybrid and multi-cloud strategies. Our FY20 forecast implies 30% y-o-y growth.
Valuation: Growth and strategic value justify premium
The current share price implies a 7.8x FY20e EV/sales multiple, a DCF factoring in a 25% sales CAGR and an EBIT margin of 44% by FY30. Achieving this demands strong execution but is deliverable given market trends. The recent flurry of M&A activity also supports a premium rating. IBM’s bid for RedHat (9.7x LTM sales) shows that big players will pay for rapidly growing ‘cloud’ assets; the Attunity and CloudEndure deals highlight the specific strategic value placed on data replication technology.
Changes to forecasts
We make modest changes to our FY19 forecasts at this point. We believe the strategic progress achieved in FY18 should see revenue growth accelerate to 84% in FY19. Growth of 38% in Q1FY19 (up from 13% in H2FY18) suggests this reacceleration is on track and securing a strategic deal with a major cloud provider could deliver all the incremental revenue required to meet this forecast at a stroke. There is no certainty this deal can be closed however and with subscription revenue ramping but still at a relatively low level, visibility remains limited. Our forecasts imply modest positive adjusted EBITDA is achieved in FY19.
We introduce an FY20 forecast that implies 30% y-o-y growth, below the 50%+ CAGR implied by the ‘medium-term’ opportunity set out by the management, but in line with the growth of the broader cloud market.
Exhibit 1: Changes to forecasts
$m |
FY17 |
FY18 |
FY19e |
FY20e |
||||||
Actual |
Est. |
Actual |
Var. (%) |
Var. ($m) |
Old |
New |
Var. (%) |
Var. ($m) |
New |
|
Revenue |
||||||||||
- Big Data |
11.1 |
11.9 |
10.8 |
(9.5) |
(1.1) |
25.8 |
26.3 |
2.0 |
0.5 |
36.2 |
- Total |
19.6 |
18.7 |
17.0 |
(9.0) |
(1.7) |
31.8 |
31.3 |
(1.5) |
(0.5) |
40.7 |
Growth (%) |
72.6 |
(13.3) |
84.0 |
30.1 |
||||||
EBITDA* |
(0.6) |
(5.9) |
(9.4) |
59.3 |
(3.5) |
1.3 |
0.7 |
(47.5) |
(0.6) |
6.2 |
EPS* (c) |
(19.4) |
(30.2) |
(37.5) |
24.2 |
(7.3) |
(13.7) |
(14.4) |
5.2 |
(0.7) |
(2.0) |
Net cash |
23.1 |
10.7 |
6.7 |
(48.8) |
(6.3) |
25.4 |
24.4 |
(3.8) |
(1.0) |
23.3 |
Source: *EBITDA and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Exhibit 2: Financial summary
$m |
2016 |
2017 |
2018e |
2019e |
2020e |
||
Year end 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
|||||||
Revenue |
|
|
11.4 |
19.6 |
17.0 |
31.3 |
40.7 |
Cost of Sales |
(1.3) |
(2.0) |
(1.5) |
(3.1) |
(4.1) |
||
Gross Profit |
10.0 |
17.7 |
15.5 |
28.2 |
36.7 |
||
EBITDA |
|
|
(7.5) |
(0.6) |
(9.4) |
0.7 |
6.2 |
Operating Profit (before amort. and except.) |
|
|
(16.1) |
(7.5) |
(16.3) |
(6.3) |
(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) |
(11.8) |
(6.8) |
||
Net Interest |
(0.3) |
(0.3) |
(0.1) |
0.0 |
0.0 |
||
Profit Before Tax (norm) |
|
|
(16.4) |
(7.8) |
(16.3) |
(6.3) |
(0.8) |
Profit Before Tax (FRS 3) |
|
|
(10.0) |
(14.0) |
(19.4) |
(11.8) |
(6.8) |
Tax |
0.8 |
0.5 |
0.8 |
(0.2) |
(0.1) |
||
Profit After Tax (norm) |
(15.6) |
(7.3) |
(15.5) |
(6.5) |
(0.9) |
||
Profit After Tax (FRS 3) |
(9.3) |
(13.5) |
(18.6) |
(12.0) |
(6.9) |
||
Average Number of Shares Outstanding (m) |
33.3 |
37.8 |
41.4 |
45.2 |
47.7 |
||
EPS |
|
|
(46.9) |
(19.4) |
(37.5) |
(14.4) |
(2.0) |
EPS - normalised fully diluted (c) |
|
|
(46.9) |
(19.4) |
(37.5) |
(14.4) |
(2.0) |
EPS - (IFRS) (c) |
|
|
(27.9) |
(35.8) |
(44.9) |
(26.6) |
(14.5) |
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) |
2.2 |
15.1 |
||
Operating Margin (before GW and except.) (%) |
(141.5) |
(38.2) |
(95.5) |
(20.0) |
(2.0) |
||
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 |
28.5 |
27.3 |
Stocks |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Debtors |
3.9 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Cash |
7.6 |
27.4 |
10.8 |
28.5 |
27.3 |
||
Other |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Current Liabilities |
|
|
(9.5) |
(14.1) |
(11.9) |
(25.7) |
(31.4) |
Creditors & Deferred Income |
(9.4) |
(13.2) |
(7.9) |
(21.7) |
(27.4) |
||
Short term borrowings |
(0.1) |
(1.0) |
(4.0) |
(4.0) |
(4.0) |
||
Long Term Liabilities |
|
|
(7.0) |
(10.4) |
(1.4) |
(8.5) |
(8.5) |
Long term borrowings |
(0.3) |
(3.3) |
(0.1) |
(0.1) |
(0.1) |
||
Deferred Income |
(6.7) |
(7.1) |
(1.3) |
(8.4) |
(8.4) |
||
Net Assets |
|
|
1.5 |
11.4 |
6.4 |
3.8 |
(1.6) |
CASH FLOW |
|||||||
Operating Cash Flow |
|
|
(2.9) |
0.7 |
(11.0) |
8.6 |
7.6 |
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) |
17.8 |
(1.2) |
||
Opening net debt/(cash) |
|
|
(2.6) |
(7.2) |
(23.1) |
(6.7) |
(24.4) |
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) |
(24.4) |
(23.3) |
Source: Company data, Edison Investment Research
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