blur Group: The World’s Leading Exchange For Business Services

blur Group is an early-stage technology company that owns and operates a leading online exchange for buying and selling business services. Used by some of the world’s biggest companies, the platform offers unparalleled benefits, including significantly shortening project cycles and lowering execution costs. We expect blur Group to see considerable growth, particularly given the significant size of its addressable market - driven by the expected ongoing global shift towards ecommerce - the lack of competition, the high barriers to entry and its ever growing market position. Accordingly, with the shares taking a recent hit, due to the change in its revenue recognition policy, and the group stepping up its marketing efforts, we feel now presents an attractive entry point and we initiate coverage with a recommendation of buy and target price of 117.96p.

The World’s Leading Business Services Exchange

The Global Services Exchange provides corporate buyers access to the largest pool of business services suppliers via an online platform that is simple and easy-to-use, transparent, accessible and secure. Essentially, it is to business services what Amazon and ebay are to consumer goods.

Significant Addressable Market

Using economic data and data from listed companies, we estimate that the global business services e-commerce market size was worth $150bn in 2011. Assuming that the global business services sector grows at a similar rate as world GDP growth and global business services e-commerce sales as a proportion of total sales grows by just 100 basis points a year, we extrapolate the 2011 addressable market figure and estimate blur’s addressable market reached $265bn by 2013, and will grow to $641bn by 2018.

First Mover Advantage

We believe that there is no other online exchange for buying and selling business services, allowing blur to benefit from first mover advantage. Furthermore, given the high number of buyers and suppliers required for an effective exchange, we believe the barriers to entry are high.

Attractive Valuation

Using the FCF as our preferred valuation method, we have derived a target value of $94.14m (£55.56m) or 117.96p per share, which suggests upside to the current share price of 84%. We feel that the assumptions used are conservative, particularly given that we have assumed that the ecommerce share of the market remains at just 3%, blur’s share of the market only reaches 1% and given that we have used a high discount rate of 20%. In addition, taking the average EV/Sales of similar, but mature, e-commerce companies of 2.2x, we have derived a valuation of $88.99m (£52.51m) or 111.50p.