WANdisco: Solid Set of Interims

WANdisco has announced a solid set of interims. We are particularly encouraged by the announcement as it shows the delivery of strong bookings growth and the rapid progression towards the company’s strategic goal of becoming the de facto provider of continuous availability for Hadoop Big Data operations. We now expect operating costs in H2 to remain broadly stable compared with H1, and have updated our forecasts accordingly. We maintain our buy stance, with a target price of 1,260p.

Interims

For the six months ended 30th June 2014, subscription bookings, which is a forward looking indicator of activity in a subscriptions business, grew to $7.40m (H1 FY13: $6.1m), representing a 21% increase year-on-year. Revenues increased by 43% y-o-y to $5.0m (H1 FY13: $3.5m). Gross profits increased by 41% to $3.98m (H1 FY13: $2.83m), reflecting a gross margin of 79% (H1 FY13: 81%). Reflecting the investment being made in both its target markets, pre-exceptional operating expenses increased to $21.99m (H1 FY13: $9.13m), leading an adjusted EBITDA loss of $9.5m (H1 FY13: $3.3m), pre-exceptional operating loss of $18.01m (H1 FY13: $6.30m) and pre-exceptional loss before tax of $18.01m (H1 FY13: $6.23m). Net cash stood at $15.0m at half year end (30th June 2013: $5.5m).

Credit Facility Agreed

WANdisco secured a $10m revolving credit facility with HSBC Bank, available until 31st March 2017. The funds available will be used to finance continued expansion in the Big Data market, including product development and go-to-market activities. The interest rate on funds drawn under the facility will be 1.2% above the prevailing LIBOR interest rate.

Forecasts

We expect to see the bookings growth continue as the products achieve wider adoption throughout both the software development community and the Big Data Industry, a market which is forecast to grow to $50b by 2017 (source: Wikibon). To this end, we expect the company to increase its investment further in new product development, and are pencilling in an adjusted EBITDA of ($14.59m) on bookings of $21.00m for FY14.

Valuation

We maintain our DCF model, leading to a target price of 1,260p, and reiterate our stance of “buy”. We see the biggest risk to our forecasts coming from a delay in Big Data business wins.