Rosslyn Data Technologies
Rosslyn Data Technologies is a pioneering software company that dramatically shortens time to business insight from days to minutes. Their cloud platform intelligently extracts, aggregates and enriches data from multiple sources so that clients gain a single view of employees, customers and suppliers for complete and accurate self-service reporting and analysis.
In the right place at the right time
We think this ‘battle-hardened’, cash-rich (estimated April '21 net funds of £6.1m) & now profitable SaaS firm is ideally placed to benefit from strong secular demand for its cutting-edge & fully integrated Big Data, AI, spend analytics, SMDM (Supplier Master Data Management) & customs/duty handling applications.
The company has posted record revenues (FY20 £7.1m +2.1% LY) & profits, aided by the £49k acquisition of Langdon (+£0.9m) in Sept’19, partly offset by the elimination of low margin pass-through contracts (£0.6m). Encouragingly, EBITDA (pre SBPs) was positive for the 1st time ever at £36k (-£432k LY), despite expensing all £1.3m (£0.9m LY) of its R&D costs (18% sales).
In terms of FY21, we understand YTD trading is in line with expectations (ED est +£309k EBITDA on turnover up +7.1% to £7.6m), even after experiencing some order delays related to the pandemic. Here we are modelling flat H1 organic sales growth, followed by mid-single digits in H2 & 10%+ from FY22 onwards.
At 5.5p, we think Rosslyn shares not only trade on a modest 1.6x CY EV/sales (vs peers >5x), but are also targeting double digit top line growth from FY22 onwards, generates 84.7% gross margins, 40%+ EBITDA drop through rates and 88% recurring revenues – with healthy visibility.
Putting all this together, we have bumped up our valuation from 9.5p to 10p/share, reflecting the improved gross margins.Download Now Missing Out Get our research first
Roger Bullen, CEO of Rosslyn Data Technologies, discusses the positive outlook for the business, how they have helped their clients deal with COVID-19 and the strategic ambitions for the group.
3 contract renewals worth £0.9m in ARR
A key takeaway from COVID-19 is that the pandemic has accelerated ‘cloud’ adoption, and focused executive’s attention on cost savings, productivity & supply chain optimisation: all of these secular trends are right in the sweet spot of Rosslyn’s Big Data & Spend Analytics SaaS platform, RAPid.
The company today announced that it had extended 3 contracts, worth a combined £0.9m of ARR (annualised recurring revenues) and £1.5m in total value.
The extensions are with top quality clients: namely an international telecoms business, a world-renowned American university, and a UK government department to between Sept’21-Jun’23. Highlighting once again the criticality of the firm’s leading technology and services.
These 3 renewals add further visibility, support our £6.4m FY21 ARR estimate (£6.0m LY), and reinforce the modest 9.5p/share valuation.
Moreover, if the Board can achieve its strategic objective of tripling ARR by April’23 – then there should be no reason why the valuation could not justify at least a 3x-5x EV/sales multiple: equivalent to £54m-£90m, or 16p-26p/share.
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Turbo-charging growth prospects
In recent years Rosslyn has meticulously built a leading Big Data & spend analytics SaaS platform (RAPid), supporting an illustrious roster of 100+ clients (many global multi-nationals). Topped off with the synergistic acquisition of Langdon in Sept’19, & becoming EBITDA positive in FY’20 for the 1st time ever - thanks to increasing ARR (+12% to >£6m) & favourable operational leverage (81% gross margins).
Today shareholders approved the heavily oversubscribed £7.3m placing at 5p. How many businesses can claim to have raised >70% of their market cap at a 22% premium to the preceding 20 day average? Indicating strong institutional support for future prospects.
The company plans to invest the funds to further accelerate the top line, launch new products (eg Master Data Management), bolster the balance sheet & maybe even execute one or two more opportunistic bolt-ons. A proven formula, that aims to triple revenues over the next 3 years (including M&A), whilst maintaining tight cost control and lifting profit margins.
FY20 turnover came in at between £7.0m-£7.2m (vs £7.0m LY) despite some year-end disruption related to the pandemic, alongside the strategic decision to curtail low margin ‘pass-through’ revenues. The platform is highly scalable, because once a client’s upfront configuration has been completed the software is essentially identical from an operational/cost perspective, working off a ‘1-to-many’ model.
In light of RDT’s cutting edge technology and attractive expansion, we value the stock at 9.5p/share, equivalent to c. 3.4x FY21 EV/sales. As such, we believe the firm offers compelling value for patient risk-tolerant investors.
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