Transition to enterprise model complete

blur Group has announced its financial results for the full-year ended 31st December 2015. The loss before interest, tax, depreciation and amortisation (LBITDA)* reduced by 1% to $8.90m as the company launched blur 5.0 and was able to gain increased automation and efficiencies. The company also updated on its metrics for the quarter ended 31st March 2016. The quarter saw a further reduction in operating costs (by 25% on the quarter prior) and an increase in the proportion of enterprise projects pitched on and kicked off (by 76% and 75%, respectively), providing for better quality revenues. We have updated our forecasts mainly to reflect a longer sales cycle and as blur’s sales focusses on targeting enterprises. Despite a decline in revenues, with the shares offering investors exposure to the high growth services-commerce market, we continue to classify the shares as a growth stock.

Full-Year Results

For the full-year, revenue decreased by 43% to $2.70m (FY14: $4.72m) as the sales focus moved to targeting larger enterprises (rather than both enterprises and small and medium sized businesses). Gross profit reduced by 82% to $0.29m (FY14: $1.65m) and margins reduced by 24 pp to 11% (FY14: 35%), mainly as a result of a reduction in revenues from cancellation fees (previously listing fees). The LBITDA reduction was primarily due to a decrease in administrative costs as blur’s 5.0 platform brought enterprise-grade functionality and drove more efficient processes. Including a finance income of $0.2m (FY14: $0.1m) and tax credit of $0.45m (FY14: $0.53m), the loss after tax reduced by 4% to $10.1m (FY14: $10.5m). Cash balance as at 31st March 2016 was $5.8m. Excluding exchange movements, blur’s cash burn has reduced significantly to an underlying $1.0m in Q1 2016.

Forecasts

For FY16, we are forecasting revenue of $2.36m (previously $4.79m), gross profit of $274k (previously $1.04m) and LBITDA of $3.92m (previously $3.76m). Excluding listing fees, the revenue figure suggests growth of 20% on the previous year. For FY17, we are forecasting revenue of $3.92m (previously $9.13m), gross profit of $848k (previously $3.16m) and LBITDA of $2.84m (previously $1.26m). We continue to expect a higher focus on reducing costs as efficiencies are realised in the business and the platform. The main risk to our forecasts is a lower than expected uptake in the blur platform.

Valuation

blur’s addressable market is significant and we estimate will grow to $641bn in 2018. Until the new model is proven, it’s difficult to attribute a meaningful value at this stage, but we have carried out a theoretical valuation based on a number of assumptions, which can be found on page 7 of this report.