The future's bright, the future's Blancco
Blancco is the world’s leading developer of ‘data erasure’ software, used to protect governments and corporates from ID/data theft, ransomware and cyber-crime, along with being a pioneer in mobile device diagnostics. The company is expanding rapidly, operates in a fabulous untapped niche, and generates almost all its revenues from repeat business, ongoing contracts and/or SaaS. In turn providing excellent forward visibility, positive cashflows and improving profit margins. The perfect triumvirate for long term investors.Today the firm posted what can only be described as a bumper set of H1’19 numbers. Turnover jumped 19% LFL to £14.6m (vs £12.3m LY), adjusted EBITDA soared 71% to £3.0m (£1.8m), EBITA margins climbed to 11.3% (4.5%) and underlying EPS came in at 1.6p (0.28p LY).
All 3 geographies and divisions delivered double digit LFL growth (constant currency), with standout performances from Data Centres / Enterprise (up +30% to £4.7m), ITAD (+20%, £4.9m), Europe (22%, £5.6m) & North America (+21%, £5.3m). Driven by macro data/cyber concerns, tightening regulation (eg EU GDPR & PCI DSS, 2018 California Consumer Privacy Act, etc), the re-provisioning of 100ms of smartphones/servers every year and the desire to reduce corporate IT costs without compromising security.
In parallel, 3rd party channel revenues leapt 48% to £2.4m (vs £1.6m LY), equivalent to 16.4% of the group and 50% of the Data Centre arm – thanks partly to distribution agreements signed with Arrow Electronics (EMEA) and Ingram Micro (US, Canada & Australia) in H2’18. Sure, future expansion in the ITAD division is set to moderate (ED estimate 6%-7% pa), however this should be more than offset by continued double digit growth in both Mobile (H1’19 +10%, £5.0m) and Data Centres / Enterprise (Est 20%+).
Regarding the balance sheet, net debt fell by £431k to £2.3m despite capitalising £1.3m of R&D (vs £1.3m amortisation) and forking out another £446k in deferred consideration (re Xcaliber). Operating cashflows came in at £2.5m (£0.9m LY) – representing 83% EBITDA - which enabled £1m of bank borrowings to be repaid (£9.5m drawn down from a £12m facility).
We prudently hold the ‘de-risked’ FY19 turnover and adjusted EBIT targets of £30m and £2.7m (margin 9.0%) respectively – rising to £34m & £4.0m (margin 11.8%) in FY20. Nonetheless, we have nudged up the valuation from 140p to 150p/share, mirroring the improved risk profile. Moreover the stock at 90p trades at an unwarranted discount the broader cyber-security sector in respect of EV/sales and most other benchmarks.
Blancco Technology Group provides data erasure software. Co.'s segments are: Erasure, which enables customers to erase and repurpose IT devices with certified software; and Diagnostics, which provides diagnostics of smartphones and tablets, as well as new diagnostics tools. The erasure division focuses on development and delivery of solutions, includes: Blancco, a provider of data erasure software; SafeIT, which involved in cloud and networked data erasure; and Tabernus, which provides software erasure products. The diagnostics division consists of the Mobile Diagnostics business, comprising Xcaliber Technologies, a smartphone diagnostics software business and its SmartChk solution.
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