blur Group: Solid Set Of Interims

blur Group has announced a solid set of interim results that are in-line with our expectations. The early-stage technology company that owns and operates a leading online exchange for buying and selling business services also added that current trading is meeting its growth expectations. We are encouraged by this announcement as it shows a business that is growing and maturing in all aspects and that the shift towards ecommerce for business services is continuing to take hold. Accordingly, we keep out forecasts unchanged and reiterate our “buy” stance and 117.96p target price.

Interims

For the 6 months ended 30th June 2014, revenues grew by 303% to $5.7m (H1 FY13: $1.41m), driven by the continued adoption of blur Group’s platform. Bookings, which are a forward looking indication of future revenue, grew by 206% to $16.04m (H1 FY13: $5.2m). The profile of projects being submitted and kicked-off shows the majority are now within the $10k and $100k range. Furthermore, projects were submitted from 70 different countries, and repeat usage was up 170% on a like-for-like basis. New Enterprise customers (>$500m turnover) included Amazon, Sabre, Incisive Media and Menard Inc. Gross profit grew by 263% to $1.52m (H1 FY13: $0.42m), leading to a gross margin of 27% (H1 FY13: 30%). SG&A increased to $6.36m (H1 FY13: $2.73m), as the group invested in top-line growth, leading to an EBITDA of ($4.00m) [H1 FY13: ($1.91m)]. The balance sheet showed cash of $24.43m (H1 FY13: $13.12m) as at half-year end, and the company believes that this will be sufficient to fund the business until breakeven, expected in FY16.

Current Trading

As at 8th September 2014, the total projects submitted increased by 128% to 6,096 on the comparable period a year earlier (19th September 2013: 2,675) and the combined value of projects submitted increased by 494% to $285m (19th September 2013: $48m). Furthermore, two new major high street brand names are using the exchange with projects to date worth a total of $100k.

Attractive Valuation

Using discounted free cash flow 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 46%. 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 an alternative valuation of $88.99m (£52.51m) or 111.50p.