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Research: TMT
Osirium reported revenue growth of 22.5% for FY20 and, as a result of cost-control measures taken to manage the business during the pandemic, reduced the EBITDA loss from £2.15m in FY19 to £1.36m in FY20. Bookings declined 14% y-o-y, although the company achieved record intake in Q120 and Q420 and has seen positive momentum so far this year, particularly in the healthcare sector. We have revised our forecasts to reflect lower operating costs and the recent fund raise.
Osirium Technologies |
Positive bookings trend |
FY20 results |
Software & comp services |
11 June 2021 |
Share price performance
Business description
Next events
Analyst
Osirium Technologies is a research client of Edison Investment Research Limited |
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Osirium reported revenue growth of 22.5% for FY20 and, as a result of cost-control measures taken to manage the business during the pandemic, reduced the EBITDA loss from £2.15m in FY19 to £1.36m in FY20. Bookings declined 14% y-o-y, although the company achieved record intake in Q120 and Q420 and has seen positive momentum so far this year, particularly in the healthcare sector. We have revised our forecasts to reflect lower operating costs and the recent fund raise.
Year end |
Revenue (£m) |
EBITDA* |
EPS* |
DPS |
P/E |
EV/sales |
12/19 |
1.17 |
(2.15) |
(19.5) |
0.0 |
N/A |
5.4 |
12/20 |
1.43 |
(1.36) |
(12.9) |
0.0 |
N/A |
4.4 |
12/21e |
1.68 |
(1.43) |
(11.2) |
0.0 |
N/A |
3.8 |
12/22e |
2.04 |
(1.21) |
(9.8) |
0.0 |
N/A |
3.1 |
Note: *EBITDA and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Pandemic hit in Q220/Q320, recovery by Q420
Osirium generated record bookings in Q120, before the pandemic hit and delayed customer decision making in Q2 and Q3. The company responded with remote working, digital marketing and temporary salary cuts, and then saw customer demand rebound in Q4 with a record quarter. Osirium had already made good progress with NHS and emergency services; at the end of 2020, NHS Digital created a fund to help NHS trusts put security in place to prevent ransomware attacks. Osirium adapted its offering to provide a relevant solution and this has resulted in the company signing up a substantial number of trusts in Q121. Despite the pandemic, the company signed up 16 new customers in FY20 and had a contract renewal rate of 99% with existing customers.
Improved cash position supports growth plans
We have revised our forecasts to reflect the lower-than-expected cost base in FY20 and the recent fund raise. We maintain our bookings and revenue forecasts for FY21 and reduce our EBITDA loss forecast from £1.8m to £1.4m. We forecast that the company will have a gross cash position of £0.8m by the end of FY21 and a net debt position of £1.9m (down from our previous £5.1m forecast).
Valuation: Bookings growth the key driver
Osirium is trading at a discount to peers on an EV/sales basis (the UK software sector is trading at 5.5x CY sales). As it is an early-stage company several years from profitability, we have performed a reverse DCF to analyse the assumptions factored into the current share price, using a WACC of 9% and a terminal growth rate of 3%. We estimate the current share price is discounting average bookings growth of 21% for FY23–30e, break-even EBITDA in FY25, average EBITDA margins of 11.1% for FY23–30e and a terminal EBITDA margin of 36.5%.
Review of FY20 results
Exhibit 1: FY20 results highlights
£000s |
FY20e |
FY20a |
Difference |
y-o-y |
Bookings |
1,507.1 |
1,567.0 |
4.0% |
-13.7% |
Revenues |
1,399.2 |
1,434.9 |
2.5% |
22.5% |
EBITDA |
(1,914.0) |
(1,363.5) |
(28.8%) |
(36.6%) |
Normalised operating profit |
(3,459.2) |
(2,872.4) |
(17.0%) |
(15.5%) |
Reported operating profit |
(3,459.2) |
(2,872.4) |
(17.0%) |
(15.5%) |
Normalised PBT |
(3,663.8) |
(3,094.7) |
(15.5%) |
(10.3%) |
Reported PBT |
(3,663.8) |
(3,094.7) |
(15.5%) |
(10.3%) |
Normalised net income |
(3,114.2) |
(2,504.5) |
(19.6%) |
(11.5%) |
Reported net income |
(3,114.2) |
(2,504.5) |
(19.6%) |
(11.5%) |
Normalised basic EPS (p) |
(15.97) |
(12.85) |
(19.6%) |
(34.0%) |
Normalised diluted EPS (p) |
(15.97) |
(12.85) |
(19.6%) |
(34.0%) |
Reported basic EPS (p) |
(15.97) |
(12.85) |
(19.6%) |
(34.0%) |
Gross cash |
650.7 |
1,482.4 |
127.8% |
|
Net debt/(cash) |
1,897.2 |
1,020.5 |
(46.2%) |
(167.6%) |
Source: Osirium Technologies, Edison Investment Research
Osirium reported FY20 revenue and bookings 2.5% and 4.0% ahead of our forecasts, respectively. The EBITDA loss of £1.36m was significantly lower than our £1.91m forecast, as operating costs (excluding depreciation and amortisation) dropped to £1.19m compared to £1.60m in H120. Costs were saved from travel and marketing events as well as staff taking an 80% pay cut for a large part of the year. The company did not furlough any staff nor make any staff redundant. Depreciation and amortisation totalled £1.51m, slightly below our £1.55m forecast. Osirium reported an R&D tax credit of £0.59m for the year, slightly better than our £0.55m forecast, resulting in a net loss of £2.50m for the year, compared to our £3.11m forecast.
Lower than expected operating costs resulted in net debt of £1.02m at year-end compared to our £1.90m forecast.
Bookings intake picked up from Q420
Bookings reached record levels in Q120, before COVID-19 restrictions resulted in delayed decision making from potential customers in Q2 and Q3. Q4 bookings intake rebounded to record levels on the back of a number of contracts won via direct sales and reseller partners. Overall, this resulted in a 14% decline in bookings year-on-year.
Contracts were across range of verticals in the UK including healthcare, telecoms, retail and the emergency services; several were competitive wins, with one displacing an incumbent supplier. The company saw a 28% increase in customer numbers over the year, with 16 new customers, and saw a 99% contract renewal rate from existing customers.
So far in 2021, Osirium has seen a record Q1 and continued strong trading in Q2. The company has benefited from further contract wins in the NHS, taking advantage of NHS Digital funding for privileged access management (PAM) projects (specifically back-up protection) in the wake of ransomware attacks. Osirium developed a special package for this purpose, combining software and services.
During the pandemic, the company switched marketing from industry tradeshows and events to digital. Digital marketing leads represented 65% of sales opportunities in 2020 compared to 25% in 2019.
Fund raise last month strengthens balance sheet
In April/May, the company raised gross funds of £2.17m from the issue of 9.86m shares at 22p per share. We forecast a gross cash position of £0.8m by the end of FY21 and a net debt position of £1.9m when the £2.7m of convertible bonds are taken into account.
Product update
Osirium saw its first revenues from its privileged endpoint management (PEM) product, used by an existing PAM customer in the healthcare sector.
During the year, the company worked on enhancements to its existing product suite. These included:
■
clustering across multiples servers, to improve availability and resilience as customers scale operations;
■
a new, intuitive, browser-based user experience;
■
a new ‘just-in-time’ approval facility to grant access for a limited period of time;
■
rebranding the Privileged Process Automation platform as Osirium Automation and introducing an API to allow tasks to be initiated by external systems;
■
launching a free tool for PEM to let prospects assess where local admin accounts have been created and their potential level of risk.
In November 2020, Osirium was granted a patent by the US Patent and Trade Mark office for its ‘shadow authentication’ technology.
Expanding partnerships
The company accelerated efforts to expand its reseller network, adding 13 new partners in H120 and additional partners in H220, with a current partner count of 30 across the UK, Benelux, the Nordics, Eastern Europe and the Middle East. During FY20, Osirium signed technology partnerships with AppViewX (cybersecurity and network management), RSA (cybersecurity and digital risk management) and My1Login (identity and access management).
Changes to forecasts
We have revised our FY21 forecasts to reflect the lower-than-expected cost base in FY20, some of which was due to a recruitment freeze. We assume salaries revert to their normal level from the start of FY21. We have also reflected the recent fund raise. Our FY21 EBITDA loss forecast reduces from £1.8m to £1.4m and our net debt forecast reduces from £5.1m to £1.9m. We estimate that Osirium will need to raise more money in FY22 and have modelled this as debt.
Exhibit 2: Changes to forecasts
£000s |
FY21e |
FY21e |
FY22e |
|||
Old |
New |
Change |
y-o-y |
New |
y-o-y |
|
Bookings |
2,034.6 |
2,034.6 |
(0.0%) |
29.8% |
2,543.2 |
25.0% |
Revenues |
1,676.2 |
1,677.5 |
0.1% |
16.9% |
2,043.4 |
21.8% |
EBITDA |
(1,824.3) |
(1,427.9) |
(21.7%) |
4.7% |
(1,205.7) |
(15.6%) |
EBITDA margin |
-108.8% |
-85.1% |
(21.8%) |
-59.0% |
||
Normalised operating profit |
(3,588.3) |
(3,221.7) |
(10.2%) |
12.2% |
(3,172.0) |
(1.5%) |
Reported operating profit |
(3,588.3) |
(3,221.7) |
(10.2%) |
12.2% |
(3,172.0) |
(1.5%) |
Normalised PBT |
(3,792.9) |
(3,432.2) |
(9.5%) |
10.9% |
(3,382.5) |
(1.4%) |
Reported PBT |
(3,792.9) |
(3,432.2) |
(9.5%) |
10.9% |
(3,382.5) |
(1.4%) |
Normalised net income |
(3,224.0) |
(2,917.3) |
(9.5%) |
16.5% |
(2,875.1) |
(1.4%) |
Reported net income |
(3,224.0) |
(2,917.3) |
(9.5%) |
16.5% |
(2,875.1) |
(1.4%) |
Normalised basic EPS (p) |
(16.54) |
(11.19) |
(32.3%) |
(12.9%) |
(9.79) |
(12.5%) |
Normalised diluted EPS (p) |
(16.54) |
(11.19) |
(32.3%) |
(12.9%) |
(9.79) |
(12.5%) |
Reported basic EPS (p) |
(16.54) |
(11.19) |
(32.3%) |
(12.9%) |
(9.79) |
(12.5%) |
Gross cash |
697.0 |
845.4 |
21.3% |
423.1 |
||
Net debt/(cash) |
5,053.5 |
1,860.0 |
(63.2%) |
82.3% |
4,484.8 |
141.1% |
Source: Edison Investment Research
Exhibit 3: Financial summary
£000s |
2016 |
2017 |
2018 |
2019 |
2020 |
2021e |
2022e |
||
Year end 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
INCOME STATEMENT |
|||||||||
Revenue |
|
|
477.6 |
647.6 |
957.5 |
1,171.6 |
1,434.9 |
1,677.5 |
2,043.4 |
EBITDA |
|
|
(1,136.7) |
(1,609.4) |
(1,767.3) |
(2,152.1) |
(1,363.5) |
(1,427.9) |
(1,205.7) |
Normalised operating profit |
|
|
(1,725.6) |
(2,296.8) |
(2,674.8) |
(3,399.7) |
(2,872.4) |
(3,221.7) |
(3,172.0) |
Amortisation of acquired intangibles |
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 |
||
Share-based payments |
(96.9) |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Reported operating profit |
(1,822.5) |
(2,296.8) |
(2,674.8) |
(3,399.7) |
(2,872.4) |
(3,221.7) |
(3,172.0) |
||
Net Interest |
9.7 |
4.2 |
(0.6) |
(52.2) |
(222.3) |
(210.5) |
(210.5) |
||
Joint ventures & associates (post tax) |
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 |
||
Profit Before Tax (norm) |
|
|
(1,715.9) |
(2,292.6) |
(2,675.4) |
(3,451.9) |
(3,094.7) |
(3,432.2) |
(3,382.5) |
Profit Before Tax (reported) |
|
|
(1,812.8) |
(2,292.6) |
(2,675.4) |
(3,451.9) |
(3,094.7) |
(3,432.2) |
(3,382.5) |
Reported tax |
453.3 |
409.4 |
407.6 |
622.5 |
590.2 |
514.8 |
507.4 |
||
Profit After Tax (norm) |
(1,286.9) |
(1,883.2) |
(2,267.8) |
(2,829.4) |
(2,504.5) |
(2,917.3) |
(2,875.1) |
||
Profit After Tax (reported) |
(1,359.6) |
(1,883.2) |
(2,267.8) |
(2,829.4) |
(2,504.5) |
(2,917.3) |
(2,875.1) |
||
Minority interests |
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 |
||
Net income (normalised) |
(1,286.9) |
(1,883.2) |
(2,267.8) |
(2,829.4) |
(2,504.5) |
(2,917.3) |
(2,875.1) |
||
Net income (reported) |
(1,359.6) |
(1,883.2) |
(2,267.8) |
(2,829.4) |
(2,504.5) |
(2,917.3) |
(2,875.1) |
||
Basic average number of shares outstanding (m) |
10 |
10 |
13 |
15 |
19 |
26 |
29 |
||
EPS - normalised (p) |
|
|
(12.38) |
(18.12) |
(18.14) |
(19.45) |
(12.85) |
(11.19) |
(9.79) |
EPS - normalised fully diluted (p) |
|
|
(12.38) |
(18.12) |
(18.14) |
(19.45) |
(12.85) |
(11.19) |
(9.79) |
EPS - basic reported (p) |
|
|
(13.08) |
(18.12) |
(18.14) |
(19.45) |
(12.85) |
(11.19) |
(9.79) |
Dividend (p) |
0.00 |
0.00 |
0.00 |
0.00 |
0.00 |
0.00 |
0.00 |
||
Revenue growth (%) |
64.6 |
35.6 |
47.9 |
22.4 |
22.5 |
16.9 |
21.8 |
||
EBITDA Margin (%) |
-238.0 |
-248.5 |
-184.6 |
-183.7 |
-95.0 |
-85.1 |
-59.0 |
||
Normalised Operating Margin |
-361.3 |
-354.7 |
-279.4 |
-290.2 |
-200.2 |
-192.0 |
-155.2 |
||
BALANCE SHEET |
|||||||||
Fixed Assets |
|
|
1,178.8 |
1,812.1 |
2,360.2 |
3,124.4 |
3,487.3 |
3,799.4 |
3,978.9 |
Intangible Assets |
1,134.5 |
1,731.9 |
2,307.2 |
2,936.5 |
3,335.5 |
3,640.2 |
3,832.4 |
||
Tangible Assets |
44.3 |
80.2 |
52.9 |
187.9 |
151.9 |
159.1 |
146.4 |
||
Investments & other |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Current Assets |
|
|
3,953.7 |
1,646.4 |
3,134.6 |
4,837.3 |
2,300.8 |
1,850.5 |
1,518.3 |
Stocks |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Debtors |
380.9 |
622.6 |
748.0 |
982.4 |
818.4 |
1,005.1 |
1,095.3 |
||
Cash & cash equivalents |
3,572.8 |
1,023.8 |
2,386.6 |
3,854.9 |
1,482.4 |
845.4 |
423.1 |
||
Other |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Current Liabilities |
|
|
(648.5) |
(857.7) |
(1,170.3) |
(1,923.0) |
(2,143.7) |
(2,540.2) |
(3,070.2) |
Creditors |
(648.5) |
(857.7) |
(1,170.3) |
(1,889.1) |
(2,088.7) |
(2,510.2) |
(3,040.2) |
||
Tax and social security |
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 |
||
Other |
0.0 |
0.0 |
0.0 |
(33.9) |
(55.0) |
(30.0) |
(30.0) |
||
Long Term Liabilities |
|
|
0.0 |
0.0 |
0.0 |
(2,422.4) |
(2,518.6) |
(2,731.1) |
(4,923.6) |
Long term borrowings |
0.0 |
0.0 |
0.0 |
(2,345.4) |
(2,502.9) |
(2,705.4) |
(4,907.9) |
||
Other long term liabilities |
0.0 |
0.0 |
0.0 |
(77.0) |
(15.8) |
(25.8) |
(15.8) |
||
Net Assets |
|
|
4,483.9 |
2,600.8 |
4,324.5 |
3,616.3 |
1,125.8 |
378.5 |
(2,496.6) |
Minority interests |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Shareholders' equity |
|
|
4,483.9 |
2,600.8 |
4,324.5 |
3,616.3 |
1,125.8 |
378.5 |
(2,496.6) |
CASH FLOW |
|||||||||
Op Cash Flow before WC and tax |
(1,136.7) |
(1,609.4) |
(1,767.3) |
(2,152.1) |
(1,363.5) |
(1,427.9) |
(1,205.7) |
||
Working capital |
226.8 |
85.5 |
187.2 |
633.7 |
396.5 |
234.9 |
439.8 |
||
Exceptional & other |
0.0 |
0.0 |
0.0 |
0.0 |
14.0 |
0.0 |
0.0 |
||
Tax |
120.4 |
291.4 |
407.6 |
473.3 |
557.3 |
514.8 |
507.4 |
||
Net operating cash flow |
|
|
(789.4) |
(1,232.5) |
(1,172.5) |
(1,045.1) |
(395.7) |
(678.1) |
(258.6) |
Capex |
(968.0) |
(1,320.6) |
(1,455.7) |
(1,852.8) |
(1,875.1) |
(2,065.9) |
(2,125.8) |
||
Acquisitions/disposals |
0.0 |
0.0 |
0.0 |
0.4 |
3.3 |
0.0 |
0.0 |
||
Net interest |
9.7 |
4.2 |
(0.6) |
0.0 |
(56.5) |
(8.0) |
(8.0) |
||
Equity financing |
5,047.1 |
0.0 |
3,991.5 |
1,726.4 |
0.0 |
2,170.0 |
0.0 |
||
Dividends |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other |
0.0 |
0.0 |
0.0 |
(60.6) |
(48.5) |
(55.0) |
(30.0) |
||
Net Cash Flow |
3,299.3 |
(2,549.0) |
1,362.8 |
(1,231.7) |
(2,372.5) |
(637.0) |
(2,422.3) |
||
Opening net (cash)/debt |
|
|
(273.5) |
(3,572.8) |
(1,023.8) |
(2,386.6) |
(1,509.5) |
1,020.5 |
1,860.0 |
FX |
0.0 |
0.0 |
0.0 |
(0.0) |
(0.0) |
0.0 |
0.0 |
||
Other non-cash movements |
0.0 |
0.0 |
(0.0) |
354.6 |
(157.4) |
(202.5) |
(202.5) |
||
Closing net (cash)/debt |
|
|
(3,572.8) |
(1,023.8) |
(2,386.6) |
(1,509.5) |
1,020.5 |
1,860.0 |
4,484.8 |
Source: Osirium Technologies accounts, Edison Investment Research
|
|
Research: Investment Companies
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