Strategic progress but inflection pushed to FY19

WANdisco 23 January 2019 Update
Download PDF

WANdisco

Strategic progress but inflection pushed to FY19

Update

Software & comp services

 

23 January 2019

Price

496p

Market cap

£211m

US$1.30£

Net cash ($m) at 31 December 2018 (estimate)

13

Shares in issue

41.8m

Free float

92%

Code

WAND

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

18.1

5.8

(37.5)

Rel (local)

14.2

7.7

(30.3)

52-week high/low

1250.0p

340.0p

Business description

WANdisco is a distributed computing company. It has developed a suite of solutions based on proprietary replication technology, which solve critical data management challenges prevalent across cloud computing, big data and the ALM software markets.

Next events

Trading update

January

FY results

March

Analysts

Dan Ridsdale

+44 (0)20 3077 5729

Dan Gardiner

+44 (0)20 3077 5700

WANdisco is a research client of Edison Investment Research Limited

Newsflow thus far in January indicates that good strategic progress continues to be made. In signing its first multi-cloud deal and launching a joint engineered SQL product with IBM, WANdisco opens up two potentially significant opportunities, in cloud to cloud and relational database replication, respectively. We understand that a large strategic deal is still in the pipeline, but given that it was clearly not closed in FY18, we have reduced our FY18 estimates (detailed below). FY19 P&L estimates are unchanged, but have upside potential if the deal comes through.

Year end

Revenue ($m)

EBITDA* ($m)

PBT* ($m)

EPS* (c)

Net cash

($m)

EV/sales

(x)

12/16

11.4

(7.5)

(16.4)

(46.9)

7.2

23.5

12/17

19.6

(0.6)

(7.8)

(18.6)

23.1

12.8

12/18e

18.7

(5.9)

(13.4)

(30.2)

13.0

14.0

12/19e

31.8

1.3

(6.5)

(14.1)

15.9

8.1

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

SQL product launch with IBM

Following on from signing its first Multi-cloud deal, on 8 January WANdisco announced that it has launched a jointly engineered solution with IBM to replicate relational databases. This will enable companies to extend the live data benefits delivered by WANdisco Fusion across a much larger data set. Hence it should extend Fusion’s attractiveness and addressable market for the technology and provide a boost to WANdisco’s IBM channel (where the royalty percentage was increased to 50% from 30% in mid-2018). We believe that this capability could be extended to other key partners and note Microsoft’s strong market share in SQL.

FY18 estimates reduced, expect acceleration in FY19

We have previously highlighted that FY18’s financial outcome would be highly influenced by the timing of closure of a large strategic deal in the pipeline. We understand that negotiations remain very much live and that the scope of the engagement has potentially expanded. However, it is evident that this opportunity has not yet closed and consequently, we reduce our FY18 revenues by $6.0m to $18.7m and increase the EBITDA loss by $5.4m to $5.9m with year-end net cash reduced to $13m from $20m (cash neutral in H2). We leave our FY19 estimates unchanged. We continue to expect an acceleration in the rate of deal flow, and the closure of this large deal could drive upside to our forecasts.

Valuation: Strategic progress - platform for growth

We believe that WANdisco remains very well placed strategically in a cloud market that remains one of the largest and fastest growing domains of the global technology landscape. It is taking time to convert this progress into a sustainable inflection in growth, but WANdisco’s deepening relationships with key strategic partners give us confidence that this is not far away. Amazon’s acquisition of Israeli disaster recovery start-up CloudEndure for a reputed $175m highlights the strategic potential of companies offering solutions to the major cloud providers’ problems. Further news on progress with this major deal should affirm WANdisco’s strong strategic position as well as giving our FY19 estimates substantial support.

Estimate changes

Exhibit 1: Estimate changes

$000s

2016

2017

2018e

2018e

%

2019e

2019e

%

Actual

Actual

Old

New

change 

Old

New

change 

Bookings Big Data

7,100

15,700

24,300

17,500

-28%

33,900

33,900

0%

Bookings SCM

8,400

6,800

6,200

6,200

0%

5,800

5,800

0%

Total Bookings

15,500

22,500

30,500

23,700

-22%

39,700

39,700

0%

Revenue

11,379

19,637

24,680

18,686

-24%

31,760

31,760

0%

Cost of Sales

(1,349)

(1,972)

(2,654)

(2,062)

-22%

(3,454)

(3,454)

0%

Gross Profit

10,031

17,665

22,027

16,624

-25%

28,306

28,306

0%

Cash costs ex cap dev cost

(17,494)

(18,245)

(22,500)

(22,500)

0%

(27,000)

(27,000)

0%

EBITDA

(7,464)

(580)

(473)

(5,876)

1142%

1,306

1,306

0%

Capitalised development cost

(5,860)

(6,303)

(6,744)

(6,744)

 

(7,216)

(7,216)

 

EBITDAC (adjusted for capitalised development)

(13,324)

(6,883)

(7,217)

(12,620)

75%

(5,910)

(5,910)

0%

Operating profit (before amort. and except.)

(16,104)

(7,494)

(7,687)

(13,090)

70%

(6,208)

(6,208)

0%

Exceptionals

(32)

0

0

0

 

0

0

 

Share-based payments

(1,787)

(2,201)

(3,200)

(3,200)

 

(3,200)

(3,200)

 

Operating Profit

(17,923)

(9,695)

(10,887)

(16,290)

50%

(9,407)

(9,407)

0%

Net Interest

(268)

(315)

(315)

(315)

 

(315)

(315)

 

Profit Before Tax (norm)

(16,372)

(7,809)

(8,002)

(13,405)

68%

(6,522)

(6,522)

0%

EPS - (IFRS) (c)

(27.9)

(35.8)

(25.9)

(38.3)

48%

(22.0)

(22.0)

0%

Closing net debt/(cash)

(7,175)

(23,102)

(20,486)

(13,013)

-36%

(21,026)

(15,899)

-24%

Source: WANdisco accounts, Edison Investment Research

Exhibit 2: Financial summary

$000s

2016

2017

2018e

2019e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

11,379

19,637

18,686

31,760

Cost of Sales

(1,349)

(1,972)

(2,062)

(3,454)

Gross Profit

10,031

17,665

16,624

28,306

EBITDA

 

 

(7,464)

(580)

(5,876)

1,306

Operating Profit (before amort. and except.)

 

 

(16,104)

(7,494)

(13,090)

(6,208)

Acquired Intangible Amortisation

0

0

0

1

Exceptionals

(32)

0

0

0

Share based payments

(1,787)

(2,201)

(3,200)

(3,200)

Operating Profit

(17,923)

(9,695)

(16,290)

(9,407)

Net Interest

(268)

(315)

(315)

(315)

Profit Before Tax (norm)

 

 

(16,372)

(7,809)

(13,405)

(6,522)

Profit Before Tax (FRS 3)

 

 

(10,047)

(14,004)

(16,605)

(9,721)

Tax

772

489

604

354

Profit After Tax (norm)

(15,600)

(7,320)

(12,801)

(6,167)

Profit After Tax (FRS 3)

(9,275)

(13,515)

(16,001)

(9,367)

Average Number of Shares Outstanding (m)

33.3

37.8

41.7

42.6

EPS (c)

 

 

(46.9)

(19.4)

(30.7)

(14.5)

EPS - normalised fully diluted (c)

 

 

(46.9)

(18.6)

(30.2)

(14.1)

EPS - (IFRS) (c)

 

 

(27.9)

(35.8)

(38.3)

(22.0)

Dividend per share (c)

0.0

0.0

0.0

0.0

Gross Margin (%)

88.1

90.0

89.0

89.1

EBITDA Margin (%)

N/A

N/A

N/A

N/A

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

N/A

N/A

N/A

N/A

BALANCE SHEET

Fixed Assets

 

 

6,469

8,526

8,356

8,359

Intangible Assets

5,977

7,081

6,826

6,744

Tangible Assets

492

556

641

726

Investments

0

889

889

889

Current Assets

 

 

13,703

33,365

22,081

25,097

Stocks

0

0

0

1

Debtors

6,145

5,969

9,068

9,196

Cash

7,558

27,396

13,013

15,899

Other

0

0

0

1

Current Liabilities

 

 

(9,409)

(14,052)

(11,753)

(15,953)

Creditors & Deferred Income

(9,320)

(13,068)

(11,753)

(15,953)

Short term borrowings

(89)

(984)

0

0

Long Term Liabilities

 

 

(6,980)

(10,372)

(1,400)

(1,800)

Long term borrowings

(294)

(3,310)

0

0

Deferred Income

(6,686)

(7,062)

(1,400)

(1,800)

Net Assets

 

 

3,783

17,467

17,284

15,703

CASH FLOW

Operating Cash Flow

 

 

(2,944)

656

(3,334)

10,364

Net Interest

(161)

(257)

(315)

(315)

Tax

690

1,364

604

354

Capex (inc capitalised R&D)

(5,923)

(7,056)

(7,044)

(7,516)

Acquisitions/disposals

0

0

0

0

Financing (net)

13,523

21,188

0

0

Dividends

0

0

0

0

Net Cash Flow

5,186

15,895

(10,089)

2,886

Opening net debt/(cash)

 

 

(2,555)

(7,175)

(23,102)

(13,013)

HP finance leases initiated

(383)

0

0

0

Other

(175)

32

0

0

Closing net debt/(cash)

 

 

(7,175)

(23,102)

(13,013)

(15,899)

Source: WANdisco accounts, 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.

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

295 Madison Avenue, 18th Floor

10017, New York

US

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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Share this with friends and colleagues

You may be interested in