Strong H1, expect momentum to continue

WANdisco 25 July 2017 Update
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WANdisco

Strong H1, expect momentum to continue

Trading update

Software & comp services

25 July 2017

Price

627.50p

Market cap

£236m

$1.3/£

Estimated net cash ($m) at H117

7

Shares in issue

37.7m

Free float

85%

Code

WAND

Primary exchange

AIM

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

9.6

35.8

280.3

Rel (local)

10.2

34.0

242.8

52-week high/low

655.0p

128.5p

Business description

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

Next events

H1 results

6 September (estimate)

Analyst

Dan Ridsdale

+44 (0)20 3077 5729

Bridie Barrett

+44 (0)20 3077 5257

WANdisco is a research client of Edison Investment Research Limited

WANdisco’s trading update confirms the positive start to the year, with bookings ($10.2m, + 73% y-o-y) and cash burn ($0.6m) significantly better than the run rate implied by our FY estimates. We believe that positive momentum should continue into H2 both financially and from a strategic perspective, with the addition of other tier one strategic partners being a key milestone to look for.

Year end

Revenue ($m)

EBITDA
($m)

PBT*
($m)

EPS*
(c)

Net cash
($m)

EV/sales
(x)

12/15

11.0

(16.0)

(26.4)

(87.7)

2.6

27.3

12/16

11.4

(7.5)

(16.4)

(46.9)

7.6

25.9

12/17e

15.7

(4.2)

(13.4)

(34.0)

4.2

19.1

12/18e

21.6

(0.6)

(10.2)

(25.1)

8.4

13.9

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

73% bookings growth, cash burn minimal

H1 bookings of $10.2m are up 73% y-o-y, driven solely by the core Fusion business, where bookings were $7.0m, up 173% from $2.6m last year. Bookings for the Source Code Management business were essentially flat at $3.2m vs $3.3m in H1 last year. Cash burn in H1 was $600k, down from $5.3m in H1 last year reflecting the strong bookings progress, the company’s positive working capital profile and substantially reduced overheads. In this context both our FY bookings ($20.4m) and year end net cash ($4.2m – assuming $3.4m burn) look overly conservative. P&L estimates may turn out to be more so, given the likely faster revenue recognition cycle of bookings from IBM versus the company’s traditional subscription model. Nevertheless, we leave our estimates unchanged pending more granular information at the interims, expected in early September.

Good operational progress, further partnerships

We believe that the broad addressable market for the company’s technology is highlighted by the diverse spread of verticals for the company’s last three announced big data deals, which span retail ($2.0m), financial services ($4.1m in April) and automotive manufacture (c $650k in December). Retail and healthcare are both new verticals for the company. The launch of Fusion 2.10 extends Fusion’s capability to the mainstream file storage market and should significantly expand WANdisco’s addressable market while strengthening the value proposition through enabling enterprises to fully utilise, optimise and migrate the data stored across their entire network. Compliance with Oracle’s MAA architecture should be a catalyst for sales via Oracle to expand. We understand that WANdisco is advancing discussions with a number of major technology companies with regards to strategic channel relationships, similar to the OEM agreement with IBM.

Valuation: Momentum merits a premium valuation

WANdisco’s FY17 EV/sales rating of 19.1x sales dropping to 13.9x for FY18 factors in a more significant acceleration than we currently forecast and the momentum shown in H1 justifies this expectation. More mature, growing big data peers are trading in the 4-6x range. WANdisco’s strategic attractiveness should also factor in the valuation equation.

Financial summary

Exhibit 1: Financial summary

$000s

2014

2015

2016

2017e

2018e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

11,218

10,994

11,379

15,674

21,616

Cost of Sales

(2,165)

(749)

(1,349)

(1,784)

(2,349)

Gross Profit

9,053

10,245

10,030

13,891

19,267

EBITDA

 

 

(17,874)

(15,988)

(7,464)

(4,211)

(644)

Operating Profit (before amort and except)

 

 

(26,424)

(25,858)

(16,104)

(13,151)

(9,884)

Acquired Intangible Amortisation

0

0

0

0

0

Exceptionals

(1,586)

(614)

(32)

0

0

Share based payments

(11,907)

(4,057)

(1,787)

(1,787)

(1,787)

Operating Profit

(39,917)

(30,529)

(17,923)

(14,938)

(11,671)

Net Interest

557

(506)

(268)

(268)

(268)

Profit Before Tax (norm)

 

 

(25,867)

(26,364)

(16,372)

(13,419)

(10,152)

Profit Before Tax (FRS 3)

 

 

(39,360)

(31,035)

(10,047)

(15,206)

(11,939)

Tax

1,053

1,129

772

553

434

Profit After Tax (norm)

(24,814)

(25,235)

(15,600)

(12,866)

(9,718)

Profit After Tax (FRS 3)

(38,307)

(29,906)

(9,275)

(14,653)

(11,505)

Average Number of Shares Outstanding (m)

24.0

28.8

33.3

37.6

37.8

EPS - normalised (c)

 

 

(103.3)

(87.7)

(46.9)

(34.2)

(25.7)

EPS - normalised fully diluted (c)

 

 

(103.3)

(87.7)

(46.9)

(34.0)

(25.1)

EPS - (IFRS) (c)

 

 

(159.5)

(103.9)

(27.9)

(39.0)

(30.5)

Dividend per share (c)

0.0

0.0

0.0

0.0

0.0

Gross Margin (%)

80.7

93.2

88.1

88.6

89.1

EBITDA Margin (%)

N/A

N/A

N/A

N/A

N/A

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

N/A

N/A

N/A

N/A

N/A

BALANCE SHEET

Fixed Assets

 

 

10,224

8,813

6,253

4,110

2,121

Intangible Assets

9,814

8,583

5,977

3,708

1,593

Tangible Assets

410

230

276

402

528

Investments

0

0

0

0

0

Current Assets

 

 

16,933

9,283

13,703

12,467

18,766

Stocks

0

0

0

0

0

Debtors

14,452

6,728

6,145

8,311

10,377

Cash

2,481

2,555

7,558

4,156

8,389

Other

0

0

0

0

0

Current Liabilities

 

 

(8,474)

(6,439)

(9,409)

(10,347)

(12,165)

Creditors & Deferred Income

(8,474)

(6,439)

(9,409)

(10,347)

(12,165)

Short term borrowings

0

0

0

0

0

Long Term Liabilities

 

 

(6,067)

(6,060)

(6,980)

(11,643)

(14,804)

Long term borrowings

0

0

0

0

0

Deferred Income

(6,067)

(6,060)

(6,980)

(11,643)

(14,804)

Net Assets

 

 

12,616

5,597

3,567

(5,413)

(6,081)

CASH FLOW

Operating Cash Flow

 

 

(13,509)

(18,138)

(2,955)

3,110

11,318

Net Interest

58

59

(161)

(268)

(268)

Tax

(3)

552

690

553

434

Capex (inc capitalised R&D)

(9,515)

(8,464)

(5,924)

(6,797)

(7,252)

Acquisitions/disposals

0

0

0

0

0

Financing (net)

465

26,175

13,523

0

0

Dividends

0

0

0

0

0

Net Cash Flow

(22,504)

184

5,173

(3,402)

4,233

Opening net debt/(cash)

 

 

(25,673)

(2,481)

(2,555)

(7,558)

(4,156)

HP finance leases initiated

0

0

0

0

0

Other

(661)

(43)

(175)

0

0

Closing net debt/(cash)

 

 

(2,481)

(2,555)

(7,558)

(4,156)

(8,389)

Source: Company accounts, Edison Investment Research

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by WANdisco and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “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.

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 12, 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 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by WANdisco and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “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.

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 12, 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 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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