blur Group: Trading Update

blur Group has issued a trading update. While revenue will be below expectations, we note that revenue growth has been strong and that its exchange has attracted a number of major brands and repeat customers, thereby demonstrating the increasing popularity of buying and selling business services online as well as the value that blur’s platform can provide to businesses. After updating our forecasts, we still feel that the group has sufficient cash resources to sustain it through to profitability and to be cash flow positive. Accordingly, we reiterate our “buy” stance, with a target price of 122.74p.

Trading Update

blur has announced that business is currently in-line with its expectations in respect to new project bookings, ahead of plan for new and repeat Enterprise projects and ahead of its plan on costs due to the adoption of its platform by Enterprise customers. It added that it is continuing on its planned path of achieving EBITDA breakeven in Q4 2015 and positive cash flow from Q1 2016, and that it has cash resources of $20m to comfortably sustain it through to these milestones. Project bookings remain strong, especially from the Enterprise customers, with a total of 6,329 projects submitted to the exchange, as at 17th November 2014, representing a combined value of $310m and a fourfold increase on the comparable position a year earlier. Indeed, the majority of bookings in Q4 so far have come from major brands, the most recent notable additions being Amazon, Tesco and Argos. During this period, repeat customers accounted for around 1/3rd of all projects submitted, thereby demonstrating the quality of the offering. The headcount now stands at 67, which compares to 78 at the end of FY13, demonstrating that since the launch of blur 4.0 the operational leverage the company is achieving.

Forecasts

For FY14, we have downgraded our revenue forecast to $11.03m, but improved our gross margin to 27%, leading to a gross profit of $2.98m and EBITDA of ($8.48m). For FY15, we have downgraded our revenue forecast to $20.26m and maintained a similar gross margin on the year earlier, leading to a gross profit of $5.27m and EBITDA of ($6.19m). We are forecasting a higher focus on controlling costs, and estimate EBITDA breakeven in FY16.

Attractive Valuation

Updating our DCF model to account for the amended forecasts and much improved exchange rate, our target price improves to 122.74p, which suggests upside to the current share price of 95%. Excluding exchange rate movement, our target price would have fallen to 113.15p.