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Research: TMT
Osirium traded in line with management expectations in H218 and expects to report close to 50% growth in revenues for FY18. The company has signed up customers in new verticals during the year, highlighting the diversity of customer use cases. The growing number of proofs of concept and rate of conversion to sales provides support to our bookings and revenue forecasts.
Osirium Technologies |
FY18 growth confirmed |
Trading update |
Software & comp services |
14 January 2019 |
Share price performance
Business description
Next event
Analysts
Osirium Technologies is a research client of Edison Investment Research Limited |
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Osirium traded in line with management expectations in H218 and expects to report close to 50% growth in revenues for FY18. The company has signed up customers in new verticals during the year, highlighting the diversity of customer use cases. The growing number of proofs of concept and rate of conversion to sales provides support to our bookings and revenue forecasts.
Year end |
Revenue (£m) |
EBITDA* |
EPS* |
DPS |
P/E |
EV/Sales |
12/16** |
0.48 |
(1.14) |
(12.4) |
0.0 |
N/A |
32.6 |
12/17 |
0.65 |
(1.61) |
(18.1) |
0.0 |
N/A |
24.1 |
12/18e |
0.92 |
(2.00) |
(18.4) |
0.0 |
N/A |
16.9 |
12/19e |
1.41 |
(1.82) |
(17.4) |
0.0 |
N/A |
11.1 |
Note: *EBITDA and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. **14-month period ended 31 December 2016.
FY18 revenues in line with expectations
Osirium expects to report FY18 revenues of at least £0.95m, slightly ahead of our £0.92m forecast and equating to year-on-year growth of 47%. Booking are expected to be significantly ahead of the prior period (our forecast +50% y-o-y). Net cash at the end of FY18 was £2.3m, slightly below our £2.5m forecast. The company noted that the rate of conversion from proof of concept (POC) to sale has increased, and at the start of 2019, had more POCs scheduled for Q1 than occurred for the whole of 2018. We maintain our estimates pending FY18 results in March.
Recent contracts highlight diverse customer base
Osirium has recently announced two contract wins: one for an international financial services provider to secure 400 devices over 39 months and the other for a multinational oil and gas company to secure 400 devices over three years. The company has also signed up a new financial services customer in the Middle East and signed contracts with customers in new verticals including utilities and drinks manufacturing. In December, Gartner issued its first Magic Quadrant for privileged access management (PAM) software – Osirium was one of 14 providers included, and its task automation capabilities were highlighted as best in class.
Valuation: Bookings growth key to upside
As an early-stage company showing revenue growth ahead of its peer group, Osirium is trading at a premium to peers on an EV/sales basis. We have performed a reverse DCF to analyse the assumptions factored into the current share price, using a WACC of 11% and a terminal growth rate of 3%. We estimate that the share price is discounting average annual bookings growth of 24% for FY21–27, break-even EBITDA in FY23, average EBITDA margins of 12.8% for FY21–27 and a terminal EBITDA margin of 36.5%. In our view, bookings growth will be the key driver of share price performance.
Exhibit 1: Financial summary
£'k |
2013 |
2014 |
2015 |
2016 |
2017 |
2018e |
2019e |
2020e |
|||
31-December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
|||
INCOME STATEMENT |
|||||||||||
Revenue |
|
|
120.0 |
207.0 |
290.2 |
477.6 |
647.6 |
922.6 |
1,406.7 |
1,957.9 |
|
EBITDA |
|
|
(366.7) |
(327.1) |
(377.9) |
(1,136.7) |
(1,609.4) |
(1,995.5) |
(1,816.0) |
(1,432.6) |
|
Normalised operating profit |
|
|
(679.4) |
(714.3) |
(790.7) |
(1,725.6) |
(2,296.8) |
(2,759.0) |
(2,775.8) |
(2,581.6) |
|
Amortisation of acquired intangibles |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
|||
Exceptionals |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
|||
Share-based payments |
0.0 |
(184.3) |
(56.4) |
(96.9) |
0.0 |
0.0 |
0.0 |
0.0 |
|||
Reported operating profit |
(679.4) |
(898.5) |
(847.1) |
(1,822.5) |
(2,296.8) |
(2,759.0) |
(2,775.8) |
(2,581.6) |
|||
Net Interest |
(35.2) |
5.7 |
(9.9) |
9.7 |
4.2 |
2.0 |
1.0 |
0.0 |
|||
Joint ventures & associates (post tax) |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
|||
Exceptionals |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
|||
Profit Before Tax (norm) |
|
|
(714.6) |
(708.5) |
(800.7) |
(1,715.9) |
(2,292.6) |
(2,757.0) |
(2,774.8) |
(2,581.6) |
|
Profit Before Tax (reported) |
|
|
(714.6) |
(892.8) |
(857.1) |
(1,812.8) |
(2,292.6) |
(2,757.0) |
(2,774.8) |
(2,581.6) |
|
Reported tax |
137.7 |
134.1 |
121.0 |
453.3 |
409.4 |
413.6 |
416.2 |
387.2 |
|||
Profit After Tax (norm) |
(576.9) |
(602.1) |
(687.6) |
(1,286.9) |
(1,883.2) |
(2,343.5) |
(2,358.6) |
(2,194.3) |
|||
Profit After Tax (reported) |
(576.9) |
(758.7) |
(736.0) |
(1,359.6) |
(1,883.2) |
(2,343.5) |
(2,358.6) |
(2,194.3) |
|||
Minority interests |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
|||
Discontinued operations |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
|||
Net income (normalised) |
(576.9) |
(602.1) |
(687.6) |
(1,286.9) |
(1,883.2) |
(2,343.5) |
(2,358.6) |
(2,194.3) |
|||
Net income (reported) |
(576.9) |
(758.7) |
(736.0) |
(1,359.6) |
(1,883.2) |
(2,343.5) |
(2,358.6) |
(2,194.3) |
|||
Basic average number of shares outstanding (m) |
0 |
1 |
10 |
10 |
10 |
13 |
14 |
14 |
|||
EPS - normalised (p) |
|
|
N/A |
N/A |
(6.61) |
(12.38) |
(18.12) |
(18.38) |
(17.42) |
(16.21) |
|
EPS - normalised fully diluted (p) |
|
|
N/A |
N/A |
(6.61) |
(12.38) |
(18.12) |
(18.38) |
(17.42) |
(16.21) |
|
EPS - basic reported (p) |
|
|
(296.36) |
(144.92) |
(7.08) |
(13.08) |
(18.12) |
(18.38) |
(17.42) |
(16.21) |
|
Dividend (p) |
0.00 |
0.00 |
0.00 |
0.00 |
0.00 |
0.00 |
0.00 |
0.00 |
|||
Revenue growth (%) |
26.3 |
72.6 |
40.2 |
64.6 |
35.6 |
42.5 |
52.5 |
39.2 |
|||
EBITDA Margin (%) |
-305.7 |
-158.0 |
-130.2 |
-238.0 |
-248.5 |
-216.3 |
-129.1 |
-73.2 |
|||
Normalised Operating Margin |
-566.3 |
-345.0 |
-272.5 |
-361.3 |
-354.7 |
-299.1 |
-197.3 |
-131.8 |
|||
BALANCE SHEET |
|||||||||||
Fixed Assets |
|
|
815.7 |
805.2 |
799.7 |
1,178.8 |
1,812.1 |
2,464.9 |
2,921.4 |
3,188.8 |
|
Intangible Assets |
808.6 |
795.7 |
793.3 |
1,134.5 |
1,731.9 |
2,358.4 |
2,788.5 |
3,029.6 |
|||
Tangible Assets |
7.2 |
9.5 |
6.4 |
44.3 |
80.2 |
106.5 |
132.9 |
159.2 |
|||
Investments & other |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
|||
Current Assets |
|
|
109.3 |
269.2 |
428.1 |
3,953.7 |
1,646.4 |
3,161.3 |
829.8 |
(1,048.9) |
|
Stocks |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
|||
Debtors |
77.2 |
218.6 |
154.6 |
380.9 |
622.6 |
666.3 |
801.6 |
923.7 |
|||
Cash & cash equivalents |
32.2 |
50.6 |
273.5 |
3,572.8 |
1,023.8 |
2,494.9 |
28.1 |
(1,972.6) |
|||
Other |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
|||
Current Liabilities |
|
|
(235.2) |
(294.2) |
(365.0) |
(648.5) |
(857.7) |
(1,376.0) |
(1,859.6) |
(2,413.6) |
|
Creditors |
(235.2) |
(294.2) |
(365.0) |
(648.5) |
(857.7) |
(1,376.0) |
(1,859.6) |
(2,413.6) |
|||
Tax and social security |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
|||
Short term borrowings |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
|||
Other |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
|||
Long Term Liabilities |
|
|
(952.5) |
(487.6) |
(163.3) |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
|
Long term borrowings |
(789.0) |
(323.7) |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
|||
Other long term liabilities |
(163.4) |
(163.9) |
(163.3) |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
|||
Net Assets |
|
|
(262.6) |
292.6 |
699.5 |
4,483.9 |
2,600.8 |
4,250.2 |
1,891.6 |
(273.8) |
|
Minority interests |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
|||
Shareholders' equity |
|
|
(262.6) |
292.6 |
699.5 |
4,483.9 |
2,600.8 |
4,250.2 |
1,891.6 |
(273.8) |
|
CASH FLOW |
|||||||||||
Op Cash Flow before WC and tax |
(366.7) |
(327.1) |
(377.9) |
(1,136.7) |
(1,609.4) |
(1,995.5) |
(1,816.0) |
(1,432.6) |
|||
Working capital |
66.3 |
3.8 |
120.7 |
226.8 |
85.5 |
480.1 |
351.0 |
432.0 |
|||
Exceptional & other |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
|||
Tax |
109.8 |
48.4 |
134.6 |
120.4 |
291.4 |
409.4 |
413.6 |
416.2 |
|||
Net operating cash flow |
|
|
(190.6) |
(274.9) |
(122.6) |
(789.4) |
(1,232.5) |
(1,106.0) |
(1,051.5) |
(584.4) |
|
Capex |
(412.8) |
(376.7) |
(407.3) |
(968.0) |
(1,320.6) |
(1,416.3) |
(1,416.3) |
(1,416.3) |
|||
Acquisitions/disposals |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
|||
Net interest |
(35.2) |
5.7 |
(9.9) |
9.7 |
4.2 |
2.0 |
1.0 |
0.0 |
|||
Equity financing |
0.0 |
639.3 |
762.8 |
5,047.1 |
0.0 |
3,991.5 |
0.0 |
0.0 |
|||
Dividends |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
|||
Other |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
|||
Net Cash Flow |
(638.6) |
(6.5) |
222.9 |
3,299.3 |
(2,549.0) |
1,471.2 |
(2,466.8) |
(2,000.7) |
|||
Opening net (cash)/debt |
|
|
118.3 |
756.9 |
273.1 |
(273.5) |
(3,572.8) |
(1,023.8) |
(2,494.9) |
(28.1) |
|
FX |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
|||
Other non-cash movements |
0.0 |
490.3 |
323.8 |
0.0 |
0.0 |
(0.1) |
0.0 |
0.0 |
|||
Closing net (cash)/debt |
|
|
756.9 |
273.1 |
(273.5) |
(3,572.8) |
(1,023.8) |
(2,494.9) |
(28.1) |
1,972.6 |
|
Source: Osirium, Edison Investment Research
|
|
Research: TMT
As previously flagged, a drop in demand from XP’s semiconductor customers had a negative impact on Q4 revenues and orders. Conversely, demand from all other end-markets remained strong. With FY18 revenues likely to be 2% lower than we had expected, we have revised our forecasts to reflect this and expected weaker demand from the semiconductor sector in FY19. Despite the resulting 5% cut in EPS forecasts for FY19, the stock is trading at a discount to peers, with a superior dividend yield.