H1 financials fell short of our expectations and we lower our FY19 forecasts accordingly. However, strengthened partnerships with key cloud players demonstrate that Wandisco Plc (LON:WAND) is making strategic progress. This progress, combined with new FY19 revenue guidance that implies strong growth in H219, 59% y-o-y, enables us to leave FY20 forecasts intact. We remain confident in the longer-term prospects and will update our analysis after the capital markets day presentation on 15 October.
Weak financial performance in H1…
Interim revenue of $6m, implying year-on-year growth of just 5% and Q2 sales of $2m, was below our expectations. The focus on securing a strategic deal with a major cloud player and new products (LiveMigrator and Live Analytics) resulted in a hiatus of new orders. Cash overheads were $15.5m and WANdisco reported an adjusted EBIT loss of $11.1m. As a result of the H1 shortfall, we lower our FY19 revenue forecast by 23%.
…but dramatic improvement expected in H2
WANdisco expects financial performance to dramatically improve in H2, however. New FY19 revenue guidance of $24m implies H2 revenues of $18m, up 59% y-o-y. This growth reflects a substantial strengthening of the order book over the last six months, driven by a pipeline of new deals plus the first sales from new products and its strategic deal. If delivered, it would return WANdisco to profitability, cash generation and a rapid growth trajectory.
Strategic progress key to longer-term outlook
Recent deals with Databricks, Neudesic and the unnamed ‘major enterprise cloud partner’ highlight the strategic value of WANdisco’s technology in the cloud ecosystem (see Accelerating the customer cloud journey). We will update our view here following the capital markets day, which should provide more details on these deals. The company now looks on the cusp of meeting its next challenge: demonstrating it can translate this value into an improving financial performance.
Valuation: Delivery in H2 a potential catalyst?
WANdisco’s valuation (475p share price implies a 6.2x FY20e EV/Sales multiple) reflects investors’ perception of both its long-term growth prospects and the strategic value of its data replication technology (M&A). If the company can deliver on its H2 guidance, confidence in both its strategic value and long-term execution should rise substantially.
Business description
WANdisco’s proprietary replication technology enables its customers to solve critical data management challenges created by the shift to cloud computing. It has established partner relationships with leading players in the cloud ecosystem including Amazon (NASDAQ:AMZN) and Microsoft (NASDAQ:MSFT).
