Big Data expert primed for major ‘break-out’
Forget the $, € or ‎¥. Today, data is the world’s #1 currency and the lifeblood of any ambitious organisation wishing gain a competitive edge. Maximising its utility though is easier said than done - since many corporates operate numerous IT systems (incl. legacy), and are being attacked on all fronts by aggressive tech-enabled rivals (eg Amazon, Facebook, FinTech, etc).So what’s the answer? Well increasingly international businesses are turning to Big Data experts, like Rosslyn Data Tech (RDT) – who have combined cutting edge ‘data mining’, ‘analytics’ and ‘artificial intelligence’ into a fully integrated suite of cloud based, software applications (called RAPid). Enabling clients to not only cut costs, comply with regulations and improve cash-flows, but also enhance revenues, manage suppliers and create best-in-class supply chains.
This is proving to be a winning formula too. So much so that for the 6 months ending Oct’18, Rosslyn won a clutch of blue ribbon contracts with tier 1 clients, including a global defence organisation, a European logistics company, a UK based financial services firm and a speciality metals business. Driving H1’19 turnover up 11% (£3.53m), annualised recurring revenues (ARR) 12% higher (£5.05m) and cashflows towards breakeven.
Nonetheless this is just the tip. We think the Big Data boom is set to deliver double digit top line growth for decades ahead
The beauty being that – due to RDT’s 80%+ gross margins (Est FY19), 5% churn and rich EBITDA drop-through rates - a large chunk of this incremental revenue should fall straight to the bottom line. In fact, thanks to estimated LFL growth of 16.6% this year (H1 11% vs H2 est 22%) and 10% (prudently set) next, FY20 EBITDA & cashflows should move healthily into the ‘black’.
H1’19 gross margins climbed 3.5% to 78.4% (vs 74.9% LY), whilst the EBITDA loss narrowed to -£213k mirroring favourable operating leverage (on sales +11% £3.5m). For FY19, we anticipate turnover will jump 16.6% to £7,500k (vs £6,433k LY) with net debt closing Apr’19 flat at -£700k (vs -£757k Apr’18, -£451k Oct’18), reflecting tight cost control and working capital management.
In our view there should be no reason why the firm cannot achieve sustainable 10%-15% pa organic top line growth, 22% EBIT margins and >100% cash conversion – ie in sync with the broader software industry. However we accept that our sales projections are conservative, compared to IDC’s forecasts for the Big Data market of >20% pa (on average) between 2017-22.
With regards to valuation, employing a 15% discount rate, our DCF analysis calculates the stock to be worth 12.5p/share, offering >75% potential upside for risk-tolerant investors.
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