Set for a re-acceleration

WANdisco 24 April 2019 Update
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WANdisco

Set for a re-acceleration

FY18 results

Software and comp services

24 April 2019

Price

580p

Market cap

£262m

US$:£1.30

Net cash (US$m) at end FY19

24.4m

Shares in issue

45.2m

Free float

92%

Code

WAND

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(11.1)

18.1

(27.1)

Rel (local)

(13.8)

8.5

(29.0)

52-week high/low

1,250p

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 eco system including Amazon and Microsoft.

Next events

H1 trading statement

September 2019

Analysts

Dan Gardiner

+44 (0) 3077 5700

Dan Ridsdale

+44 (0) 3077 5729

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*
($m)

EBIT*
(US$m)

EPS
(c)

EV/sales
(x)

EV/EBITDA
(x)

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


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 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 Myonlineadvisers Pty Ltd who holds an Australian Financial Services Licence (Number: 427484). 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.

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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 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 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 Myonlineadvisers Pty Ltd who holds an Australian Financial Services Licence (Number: 427484). 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

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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