Cerillion's cash generation is pleasing

Cerillion (CER) provides software to telecoms companies to help them with customer engagement, billing and other operational activities which help the business run smoothly. The theory management put forward is that as investment continues in 5G and fibre optic broadband will we “continue to see strong opportunity for Cerillion, derived from the need to monetise those new assets”.

This hypothesis is currently being proven by strong revenue and profit growth. In the first half of FY 2022, revenue rose 26 per cent while adjusted cash profit (Ebitda) was up 50 per cent to £7.2mn. There was also 31 per cent growth in the new customer pipeline to £172mn. None of these customers are guaranteed to be converted but the trend is certainly promising.  

Cash generated from operations jumped 144 per cent to £6.48mn. This improvement in cash conversion is thanks to a reduction in receivables relative to revenue. Last year, trade receivables were £7.5mn and this has now fallen to £1.7mn. There was some concern that Cerillion was struggling to get its customers to pay promptly but this looks to have just been a pandemic issue that is now resolving.

With strong top line growth, nice cash conversion and a healthy balance sheet, it is no surprise FactSet consensus indicates an expensive forward PE ratio of 25.9. However, it is expected that EPS will rise 30 per cent to 37.5p by 2023 which gives it a more affordable PE ratio of 19.6.

Some might argue that the company needs to be investing more heavily rather than conserving cash, although we are exiting a period of unprecedented commercial disruption. However, it could be interpreted as a a signal that management doesn’t see huge opportunities at the moment. We will find out. Hold.  

Last IC View: None