Trading Update

In a trading update, blur group announced that revenue for the full-year ended 31st December 2015 is expected to be in-line with market expectations and that EBITDA is expected to be slightly better than expectations. It also announced that, in Q4, cash burn, excluding unrealised foreign exchange movement ($0.2m), significantly reduced by 58% on Q3 and came in at an underlying $1.5m (Q3 2015: $3.6m). Our view is that the group has made positive progress in Q4, especially in regards to cost reduction - with cash at period-end better than our forecast by 13% - and in terms of enterprise customer uptake, providing us with further confidence in blur’s strategy. We have maintained our forecasts at this stage. With the shares offering investors exposure to the high growth services-commerce market, we continue to classify the shares as a growth stock.

Trading Update

Cash at period end was $7.1m (Q3: $8.8m), which is 13% better than our forecast of $6.30m. The main reason for the difference is, we suspect, due to better-than-expected cost controls. The conversion rate of pitched projects to completed projects improved by 3 percentage points to 75% (Q3: 72%). The focus remained on repeating, loyal customers in the fourth quarter, and enterprise projects represented 62% of all projects pitched for during the period, which compares with 49% a quarter prior. Interestingly, fewer enterprise projects completed (69%) than non-enterprise projects (87%); nevertheless, enterprise projects tend to be of a higher budget, and enterprise customers are more likely to be repeat users (repeat users made up 84% of enterprise kicked-off projects, which compares to 70% of non-enterprise projects). On another positive note, enterprise projects saw an improvement in the number of projects pitched on (12.3%), kicked off (36.2%) and completed (10%) in the fourth quarter versus the prior quarter. blur also added a multi-channel British menswear retailer as a customer. Seller Software as a Service (“SAAS”) subscriptions increased during the period.

Forecasts

For FY15, we are forecasting revenue of $2.74m, gross profit of $323k and LBITDA of $9.27m. For FY16, we are forecasting revenue of $4.79m, gross profit of $1.04m and LBITDA of $3.76m. We continue to expect a higher focus on reducing costs as efficiencies are realised in the business and the platform, and estimate EBITDA breakeven by the end of FY17.

Valuation

blur’s addressable market is significant and we estimate it reached $265bn in 2013 and will grow to $641bn in 2018. Assuming blur’s share of this market reaches only 0.05%, we estimate the company could be worth $51.02m (£32.65m).