Buy into WANdisco’s momentum

WANdisco’s bookings grew by 73 per cent year on year to $10.2m during the six months to 30 June 2017, largely driven by a whopping 173 per cent rise in data and cloud bookings, to $7m. The smaller source code management segment also contributed $3.2m in bookings – broadly flat against the previous year. Group revenues, in turn, have risen hugely from $5.6m to $9.7m. This growth helped to generate a maiden cash profit of $0.3m, before adjustments for capitalised development costs.

That all said, WANdisco still reports statutory losses. But these have contracted significantly over the past few years (see table) and – all being well – analysts forecast reported profits for the year to December 2020.

Cash burn had also been significantly reduced at the half-year stage from $5.3m to $0.6m, representing effective cost management. Expectations of positive free cash flow by the year-end mean investors may have seen an end to cash calls by the company following a placing earlier this week – the $10m placing at 550p was so oversubscribed the company ended up raising $22m, issuing shares equivalent to 7.8 per cent of existing share capital. At the same time as the placing, co-founders David Richards (currently chief executive and interim chairman) and Yeturu Aahlad respectively sold £2.75m- and £1.9m-worth of shares, equivalent to almost one-fifth and 12 per cent of their respective holdings. The cash from the placing will be allocated towards driving new strategic partnerships and revenue growth.  

At this stage in its development, WANdisco is fundamentally a momentum stock, its shares buoyed by newsflow and partnership updates. But this momentum is grounded in contracts with major international technology enterprises including Amazon Web Services, Cisco and Google Cloud, among others. Not to mention an original equipment manufacturer (OEM) agreement with IBM, which generates royalties and led to Fusion’s largest ever order in March – a $4.1m contract with a “major financial services multinational”. The group has also diversified its customer base, signing its first contracts in retail and healthcare this financial year. And while the scale of the market opportunity does mean an ever-present threat of competition, the quality of the client base, as well as patents, provide reassurance.

Broker Peel Hunt expects some other partners will also become OEMs, representing a “major positive” and bringing further royalty income. Indeed, in November, the group entered a high-profile, non-exclusive OEM sales agreement with Virtustream – a Dell business.