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Research: TMT
WANdisco’s (WAND’s) FY22 trading update confirms that both momentum and the pipeline remain exceptionally strong, with bookings of $127m (up by 967% y-o-y, Edison $116m) and revenues of at least $24m (+230% y-o-y, Edison $19.0m). We raise our FY23 bookings and revenue estimates by 8.3% and 7.1% respectively. The fact that WAND’s pipeline remains at record levels, even after the conversion of recent deals, indicates that deal flow momentum is likely to sustain the risk to estimates on the upside.
WANdisco |
Multiple IoT deployment wins lead to upgrade |
FY22 trading update |
Software and comp services |
12 January 2023 |
Share price performance
Business description
Next events
Analysts
WANdisco is a research client of Edison Investment Research Limited |
WANdisco’s (WAND’s) FY22 trading update confirms that both momentum and the pipeline remain exceptionally strong, with bookings of $127m (up by 967% y-o-y, Edison $116m) and revenues of at least $24m (+230% y-o-y, Edison $19.0m). We raise our FY23 bookings and revenue estimates by 8.3% and 7.1% respectively. The fact that WAND’s pipeline remains at record levels, even after the conversion of recent deals, indicates that deal flow momentum is likely to sustain the risk to estimates on the upside.
Year end |
Revenue |
Bookings |
Ending RPO* ($m) |
EBITDA |
EPS** |
EV/sales |
Net cash ($m) |
12/20 |
10.5 |
10.2 |
4.9 |
(22.2) |
(57.3) |
69.5 |
18.1 |
12/21 |
7.3 |
11.9 |
9.4 |
(29.5) |
(57.9) |
100.2 |
25.9 |
12/22e |
24.0 |
127.0 |
110.0 |
(13.7) |
(28.6) |
30.5 |
16.6 |
12/23e |
30.0 |
130.0 |
210.0 |
(10.3) |
(21.3) |
24.4 |
10.9 |
Note: *Ending RPO = beginning RPO + bookings – revenue. **EPS is normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Multiple large contract wins in IoT drive results
WAND’s results have been driven by multiple large contract wins for internet of things (IoT) deployment across the automotive and telecom industries, with recent one-off migration contracts for IoT data contributing to the upside. The deals provide scope for follow-on, commit-to-consume deals from these clients as they launch more IoT services and start generating significant data flows.
Record pipeline underpins forecast revision
We raise our FY22 and FY23 revenue estimates to $24m and $30m respectively. Estimates for the key lead indicators, bookings and year-end RPO, also move up by a mid- to high single-digit rate (detailed below). High operational gearing brings our adjusted EBITDA loss forecasts for FY22 and FY23 down to $13.7m and $10.3m respectively (previously $19.6m and $12.6m). We continue to see upside potential across all key performance indicators. In IoT, WAND has established itself as a go-to supplier in a very large, structural growth market. The pipeline remains at record levels, even after very strong deal conversion of late, and the company expects to report continued progress in converting the pipeline to deals. If bookings are simply sustained at current levels, revenues should catch up with the $127m booking level before long. With a broadening customer base and strong follow-on deal momentum, there are good grounds to be more optimistic here. Management expects to keep the company’s cost base relatively flat, so incremental revenue upside should drop strongly through to earnings.
Valuation: Premium, but stronger lead indicators
WAND needs to sustain momentum to continue delivering share price upside, and lead indicators increasingly support this scenario. On our current estimates, WAND is trading at 24.4x FY23e EV/sales, a significant premium to cloud software peers. However, bookings momentum shows no sign of slowing and potential revenue upside could be significant as data consumption ramps.
Upgrading FY22 and FY23 estimates
We continue to be encouraged by the increasing momentum in WAND’s multi-million-dollar contract wins, continued pipeline strength and growing number of IoT deals across the rapidly evolving automotive and telco sectors. Moreover, as discussed in our update note published on 22 September 2022, WAND is becoming a go-to supplier for large-scale IoT deployments as devices generate a recurring stream of data that must be gathered and sent to the cloud.
Accordingly, we are raising our FY22 and FY23 estimates (see Exhibit 1). We increase our revenue estimates to $24m in FY22 and $30m in FY23, up from the previous $19m and $28m, respectively. We boost our bookings forecasts to $127m in FY22 and $130m in FY23, rising from the previous $116m and $120m, respectively. Guidance for FY22 ending RPO of $110m in FY22 is ahead of $105m previously, while our estimate for FY23 moves up to $210m from $197m.
The trading update reported a gross cash position of $19m at end-FY22 versus our $26.9m estimate, but with $44m of trade receivables reflecting strong, late deal flow. With 50% of deal value typically received upfront, upside potential to estimates and an operationally geared model, the risk of carrying out a fund-raise to shore up the balance sheet has essentially been removed. The statement confirms that management expects current resources to see WAND through to profitability.
We expect operational gearing to remain strong, as WAND generates near-100% gross margins, while management expects costs to remain relatively flat. Consequently, much of the increase in revenues should drop through to earnings, and continued momentum should result in WAND becoming a highly profitable business.
Exhibit 1: Forecast revisions
FY22e |
FY23e |
|||||
$m |
Old |
New |
Change |
Old |
New |
Change |
Revenue |
19.0 |
24.0 |
26.3% |
28.0 |
30.0 |
7.1% |
% growth |
160.1% |
228.5% |
- |
47.4% |
25.0% |
- |
Bookings |
116.0 |
127.0 |
9.5% |
120.0 |
130.0 |
8.3% |
Ending RPO |
105.0 |
110.0 |
4.8% |
197.0 |
210.0 |
6.6% |
Gross cash balance |
26.9 |
19.0 |
(29.4)% |
18.5 |
13.9 |
(24.9)% |
Adjusted EBITDA |
(19.6) |
(13.7) |
30.1% |
(12.6) |
(10.3) |
18.3% |
% margin |
N/A |
N/A |
N/A |
N/A |
||
Normalised operating profit |
(25.8) |
(19.9) |
22.9% |
(18.8) |
(16.5) |
12.2% |
% margin |
N/A |
N/A |
N/A |
N/A |
||
Normalised profit before tax |
(25.1) |
(19.2) |
23.5% |
(18.1) |
(15.8) |
12.7% |
Reported profit before tax |
(28.2) |
(22.7) |
19.5% |
(22.1) |
(19.3) |
12.7% |
Normalised basic and diluted EPS (c) |
(38.3) |
(28.6) |
25.2% |
(24.9) |
(21.3) |
14.4% |
Reported EPS (c) |
(43.3) |
(34.3) |
20.8% |
(30.9) |
(26.6) |
14.0% |
Net debt/(cash) (including leases) |
(24.5) |
(16.6) |
32.3% |
(15.5) |
(10.9) |
29.8% |
Source: Edison Investment Research
Valuation: Premium, but stronger lead indicators
At 919p, WAND is trading at 24.4x FY23e EV/sales, a premium to cloud data software peers. However, there is strong potential for revenues to accelerate rapidly, ahead of our forecasts. If management can continue to generate $110m in bookings per year, revenues will follow as data are consumed.
WAND needs to sustain momentum to continue delivering share price upside, and lead indicators increasingly support this scenario.
Exhibit 2: EV/revenue multiples versus peers |
Source: Edison Investment Research, Refinitiv, as at 10 January 2023 |
Exhibit 3: WAND growth forecasts versus peers |
Source: Edison Investment Research, Refinitiv, as at 10 January 2023 |
Exhibit 4: Financial summary
$m |
2020 |
2021 |
2022e |
2023e |
||
Year end 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
|
|||||
Revenue |
|
|
10.5 |
7.3 |
24.0 |
30.0 |
Cost of Sales |
(1.1) |
(0.7) |
(2.4) |
(3.0) |
||
Gross Profit |
9.5 |
6.6 |
21.6 |
27.0 |
||
EBITDA |
|
|
(22.2) |
(29.5) |
(13.7) |
(10.3) |
Operating Profit (before amort. and except.) |
|
|
(28.5) |
(35.7) |
(19.9) |
(16.5) |
Acquired Intangible Amortisation |
0.0 |
0.0 |
0.0 |
0.0 |
||
Exceptionals |
0.0 |
(2.1) |
0.0 |
0.0 |
||
Share based payments |
(5.4) |
(2.0) |
(3.5) |
(3.5) |
||
Operating Profit |
(33.9) |
(39.8) |
(23.4) |
(20.0) |
||
Net Interest |
(1.9) |
1.0 |
0.7 |
0.7 |
||
Profit Before Tax (norm) |
|
|
(30.4) |
(34.7) |
(19.2) |
(15.8) |
Profit Before Tax (FRS 3) |
|
|
(35.8) |
(38.8) |
(22.7) |
(19.3) |
Tax |
1.5 |
1.2 |
1.4 |
1.5 |
||
Profit After Tax (norm) |
(28.9) |
(33.5) |
(17.8) |
(14.3) |
||
Profit After Tax (FRS 3) |
(34.3) |
(37.6) |
(21.3) |
(17.8) |
||
Average Number of Shares Outstanding (m) |
50.5 |
57.8 |
62.2 |
67.0 |
||
EPS - normalised basic (c) |
|
|
(57.3) |
(57.9) |
(28.6) |
(21.3) |
EPS - normalised fully diluted (c) |
|
|
(57.3) |
(57.9) |
(28.6) |
(21.3) |
EPS - (IFRS) (c) |
|
|
(68.0) |
(65.0) |
(34.3) |
(26.6) |
Dividend per share (c) |
0.0 |
0.0 |
0.0 |
0.0 |
||
Gross Margin (%) |
89.9 |
91.0 |
90.0 |
90.0 |
||
KEY PERFORMANCE INDICATORS |
||||||
Bookings |
10.2 |
11.9 |
127.0 |
130.0 |
||
Ending RPO |
4.9 |
9.4 |
110.0 |
210.0 |
||
BALANCE SHEET |
||||||
Fixed Assets |
|
|
10.1 |
8.7 |
8.5 |
8.6 |
Intangible Assets |
5.0 |
5.3 |
5.6 |
6.0 |
||
Tangible Assets |
2.9 |
2.2 |
1.7 |
1.4 |
||
Investments |
2.2 |
1.2 |
1.2 |
1.2 |
||
Current Assets |
|
|
31.2 |
33.5 |
63.0 |
51.9 |
Stocks |
0.0 |
0.0 |
0.0 |
0.0 |
||
Debtors |
10.1 |
5.7 |
44.0 |
38.0 |
||
Cash |
21.0 |
27.8 |
19.0 |
13.9 |
||
Other |
0.0 |
0.0 |
0.0 |
0.0 |
||
Current Liabilities |
|
|
(9.7) |
(6.2) |
(9.5) |
(11.6) |
Creditors & Deferred Income |
(8.6) |
(5.6) |
(8.9) |
(11.0) |
||
Short term borrowings |
(1.1) |
(0.6) |
(0.6) |
(0.6) |
||
Long Term Liabilities |
|
|
(2.4) |
(1.6) |
(27.0) |
(29.4) |
Long term borrowings |
(1.8) |
(1.2) |
(1.8) |
(2.4) |
||
Deferred Income |
(0.7) |
(0.3) |
(25.2) |
(27.0) |
||
Net Assets |
|
|
29.2 |
34.5 |
35.0 |
19.5 |
CASH FLOW |
||||||
Operating Cash Flow |
|
|
(19.1) |
(29.1) |
(23.8) |
(0.4) |
Net Interest |
(0.3) |
(0.2) |
0.7 |
0.7 |
||
Tax |
0.7 |
1.0 |
1.4 |
1.5 |
||
Capex (including capitalised R&D) |
(5.5) |
(5.8) |
(6.0) |
(6.3) |
||
Acquisitions/disposals |
0.0 |
0.0 |
0.0 |
0.0 |
||
Financing (net) |
24.1 |
41.9 |
19.5 |
0.0 |
||
Dividends |
0.0 |
0.0 |
0.0 |
0.0 |
||
Net Cash Flow |
(0.1) |
7.9 |
(8.2) |
(4.5) |
||
Opening net debt/(cash) |
|
|
(18.3) |
(18.1) |
(25.9) |
(16.6) |
HP finance leases initiated |
0.0 |
(0.1) |
(1.2) |
(1.2) |
||
Other |
0.0 |
0.0 |
0.0 |
0.0 |
||
Closing net debt/(cash) |
|
|
(18.1) |
(25.9) |
(16.6) |
(10.9) |
Source: WANdisco, Edison Investment Research
|
|
Research: TMT
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