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In a brief trading update, NetDimensions has said that both revenue and invoiced sales for Q316 were slightly ahead of Q315. This is after the group reported a 1% decline in revenue in H1. We are maintaining our forecasts, which imply a 9% revenue growth in H2 and hence a strong performance in the traditionally busy Q4. In early October, NetDimensions said it has had an unsolicited approach that “may or may not lead to an offer being made for the entire issued share capital of the company”. We note the group has a healthy net cash positon ($11.2m as at 30 June or c 16.5p per share), attractive growth profile, a cash-generative business model and, despite the recent gains, the shares trade on an FY17e EV/sales rating at just 0.9x.
NetDimensions
H1 results came in slightly ahead of forecast, but were affected by contract rollout delays as previously flagged. Despite the contract delays, underlying demand for HCM software remains good, and NETD looks well positioned in this market given its global spread, focus on high-consequence sectors, and growing base of recurring revenues (70% of total revenues in H1, including 51% from SaaS). Valuation at 0.5x EV/sales is a substantial discount to larger peers. This points to strong long term upside potential as the group moves towards its $50m revenue target (end-FY18E) and into profitability.
While NetDimensions (AIM: NETD, OTCQX: NETDY) announced a modest reduction in H1 revenue due to a decline in services and support, this masked an 8% improvement in high-margin licence revenues to $6.8m. Costs fell dramatically, enabling a sharp reduction in the EBITDA loss. New business is increasingly lumpy as the group targets large enterprises in high-consequence industries and we have conservatively eased our numbers. Nevertheless, the quality of business continues to improve with the emphasis on recurring software rental revenue. Following the recent decline, the shares look attractive, given the $11.2m cash position (c 16.5p per share), an attractive growth profile, the cash-generative business model and an EV/sales rating at just 0.4x.
In a short trading update, NetDimensions (AIM: NETD, OTCQX: NETDY) has said that H1 revenues were lower than expected due to delays in deal rollouts. The delays are expected to continue into H2; hence we have cut our FY16 revenue forecast by $1.2m to $27.0m. Nevertheless, the adjusted EBITDA loss has significantly improved and we now forecast the group to trade at breakeven in FY16 (previously a $0.6m loss). We are maintaining our FY17 forecasts, but note that if the deal rollouts do materialise in the period, they could potentially result in FY17 upgrades. NETD’s larger US peers continue to trade at significant EV/sales premiums and therefore we continue to believe NETD shares could warrant a significant re-rating.
H1 news is positive on profit, but revenue growth was dented by large contract roll-outs. We think that the delay reflects a large order – indeed the largest that NetDimensions ever inked – rather than being symptomatic of any general pause in buying. While the H1 outturn dents our FY2016E revenue outlook, NetDimensions’ on-going focus on cost and business efficiency means that we increase our 2016E Adj EBITDA forecast and move from loss to profit. Our investment view is unchanged: There are strong secular drivers in favour of HCM software usage as modern companies; (i) appreciate the trade-off between a tighter economy giving fewer opportunities to ‘bankroll’ staff loyalty, (ii) want to engage and ‘discover’ their top performers, and generally keep staff satisfied and motivated, (iii) understand that this is the first time that companies have to cope with a four generation workforce and manage so many different employee expectations. We think that NetDimensions stands tall in this new world – the company has a differentiated product, ‘cloud’, segment leadership, expanding TAM, is ‘born global’ and recognised sales traction (ie it is not just TAM, but the ability to execute on TAM which is important). Our continued positive recommendation is underpinned by the share’s strong valuation support; note 2016E EV/Sales 1.1x. Buy.
We note from the trade press that Omega Performance, a TwentyEighty company, has implemented NetDimensions Analytics. News of this contract dovetails nicely with our ‘times they are a-changin’ viewpoint which argues that there are strong secular drivers in favour of HCM software usage as modern companies; (i) appreciate the trade-off between a tighter economy giving fewer opportunities to bankroll staff loyalty, (ii) want to engage and ‘discover’ their top performers, and generally keep staff satisfied and motivated, (iii) understand that this is the first time that companies have to cope with a fourgeneration workforce and businesses have to manage so many different expectations on the part of employees. We think that NetDimensions stands tall in this new world – the company has a differentiated product, ‘cloud’, segment leadership, expanding TAM, is ‘born global’ and recognised sales traction (ie it is not just TAM, but the ability to execute on TAM which is important). Our positive recommendation is underpinned by the share’s strong valuation support; note 2015A PEG 0.6x, EV/Sales 1.2x. Buy.
The latest contract win, 3,500 seats at Keepmoat, is proof positive of the strong competitive offer with a client right in the sweet spot - ie a high consequence industry. Also for LSE investors this is a UK client. As the contract value was not disclosed we have elected to leave our estimates unchanged. Note Keepmoat gives some detailed disclosure on the use case and NetDimensions’ competitive position. The shares enjoy strong valuation support, EV/Sales 1.0. We retain our Buy and 196p target price.
Q1 shows us that the momentum from FY results continues. We like the operational progress, the secular drivers and the keen valuation. Retain Buy.
In the wake of final results earlier this week NetDimensions signs a banner contract win (contract value was not disclosed) at the Medical University of South Carolina. This sees 18,000 learners in a high consequence setting. This was a competitive bake-off and brings in the content services team, illustrating nice upsell dynamics. The contract builds on NetDimensions strong brand in US healthcare – that segment was the fastest growth geography at final results. The share enjoys strong valuation support and is at a sharp discount to its key competitor set. We retain our Buy and 196p target price.
NetDimensions (AIM: NETD, OTCQX: NETDY) grew revenues by 12% in FY15 to $25.4m, vs January’s guidance of c $25.0m. The adjusted loss was better than we expected at $0.7m (we forecast a $2.5m loss), with gross margins and operating costs both better than expected. The industry outlook remains favourable and the group’s US peers have rebounded recently, in the wake of a two-year bear market. These peers continue to trade at significant EV/sales premiums and hence we still believe NETD shares could warrant a significant re-rating.
Final results are a massive beat to our profit estimates. NetDimensions Adj LBITDA was 85% better YOY in a set of results which were a further proof that its strategy of becoming a leading supplier of compliance and learning solutions to high consequence industries is coming together. Of the KPIs the 98% increase in average first year deal size for direct new clients shows the company successfully selling larger deals to larger clients. Our favourite part: in busy 2015A NetDimensions still found the opportunity to re-visit its structure, route to market in several geographies and the efficiency of its operating model (it was these changes which lead to the profit beat) as NetDimensions restructured sales & marketing and it re-cast its professional services. Also, we note pleasingly that R&D was +35% YOY (14% of revenue) so the company continues to future-proof the business – nice play, NetDimensions! We make minimal changes to our 2016E forecasts. The shares enjoys strong valuation support (PEG 0.6x, EV/Sales 1.2x - a sharp discount to its key competitor set – see table). We retain our Buy and 196p target price.
NetDimensions already announced (12 January) that it ended FY/2015E in line and beat our LBITDA forecasts. Very few companies regularly competitively beat global software companies like CornerstoneOnDemand, Saba and SAP/Successfactors at the customer pitch – NetDimensions does. We believe that the rush of positive news from NetDimensions over the past two years is likely due to its laser focus on high-consequence target customers, its strong product, engineering culture and an increasingly favourable adoption backdrop for SaaS-based HCM and Talent Management solutions. There is a huge valuation gap with nearest valuation peer, CornerstoneOnDemand, on its 1.0x EV/Sales. Investor interest on results day (18 April) is likely to concentrate on the current market (moving along fine, we think) and following the November placing progress with the use of funds. We retain our Buy.
As we continue to scan and monitor the on-going development of the wider HCM market and NetDimensions leadership position we note the industry research which dovetails with our thinking. NetDimensions announces that it has been positioned again as a “Core Leader” for Learning Management Systems. Once again we believe that the rush of positive news from NetDimensions over the past two years is likely due to its laser focus on high consequence target customers, its strong product, engineering culture and an increasingly favourable adoption backdrop for SaaS-based HCM and Talent Management solutions. We also highlight the very attractive NetDimensions valuation – on an FY1 EV/Sales basis its 1.0x compares to the competitive pack on 3.5x. We retain our Buy.
In our efforts to continually understand and monitor the HCM (Human Capital Management) market we met with Fairsail. Fairsail is a UK headquartered private company developing HR software for its target mid-sized clients (250-5,000 FTEs). Whilst not a competitor to NetDimensions we find both trading well and have some shared core values (ie the importance of cloud), the importance of ‘proper’ customer segmentation & targeting (ie NetDimensions focus on high consequence industries) and a strong competitive offer (ie NetDimensions regularly slamdunks CornerstoneonDemand etc). Earlier this week we flagged up research from industry analysts Bersin who commented on the importance of Performance Management as they identified the top HR trends. Here, with Fairsail we see a HCM company seeing equally strong cloud adoption, a positive macro tailwind and executing in a global market. Sail on.
In its review of the disruptive HR technology trends for 2016 industry analysts Bersin conclude that “performance management” is set to become the hottest and most disruptive area in HR. The analysts add that more than 60% of major companies have either redesigned or are redesigning their performance management process. There is a positive read across to NetDimensions and its new Performance Management module. Also the analysts opine that the traditional HR IT vendors “Oracle, Workday and SuccessFactors (SAP) are going to have to invest in R&D. All three have gaps that are being filled by start-ups.” Also Bersin advises CIOs that “this is the year to be innovative. The talent management market is moving faster than the big technology vendors, and it's okay to try new things.” We believe that the rush of positive news from NetDimensions over the past two years is likely due to its laser focus on high consequence target customers, its strong product, engineering culture and an increasingly favourable adoption backdrop for SaaS-based HCM and Talent Management solutions. We also highlight the very attractive NetDimensions valuation – on an FY1 EV/Sales basis its 1.4x compares to the competitive pack on 3.9x. We retain our Buy.
Whilst Cornerstone shares slipped 3% after hours as they printed a broadly in line set of Q4 results albeit with muted guidance we are more relaxed about NetDimensions. NetDimensions has an operational focus on high consequence and that is the key point of difference. Remember also that NetDimensions has a tiny valuation 1.0x EV/Sales (vs 5x sales at Cornerstone) and has already announced (12 January) that it ended the FY2015 in line and had beaten our LBITDA forecasts. We believe that the rush of positive news from NetDimensions over the past two years is likely due to its laser focus on high-consequence target customers, its strong product, engineering culture and an increasingly favourable adoption backdrop for SaaS-based HCM and Talent Management solutions. We retain our Buy.
In a brief trading update, NetDimensions (AIM: NETD, OTCQX: NETDY) has said that FY15 trading was in line with expectations. It also says that the operating cost base actually fell over the year and hence the adjusted EBITDA loss will be better than current market expectations. Despite a significant de-rating in the shares of its US-quoted human capital management software peers over the last two years, these companies continue to trade on punchy EV/sales ratios. Hence we continue to believe there is significant upside potential in NetDimensions' shares.
A positive close to the year sees NetDimensions end the FY in line, with a beat on LBITDA forecasts. Very few companies regularly competitively beat software globals like CornerstoneOnDemand, Saba and SAP/Successfactors at the customer pitch – NetDimensions does. We believe that the rush of positive news from NetDimensions over the past two years is likely due to its laser focus on high-consequence target customers, its strong product, engineering culture and an increasingly favourable adoption backdrop for SaaS-based HCM and Talent Management solutions. Understanding this explains why NetDimensions was able to conclude a placing on 5 November last as investors appreciated the progress with its internal realignment and the reignition of the company has been a success in its early stages and is visibly gathering pace. There is a huge valuation gap with nearest peer – CornerstoneOnDemand EV/Sales 5.5x vs NetDimensions 1.2x – we retain our Buy.
NetDimensions (AIM: NETD, OTCQX: NETDY) has raised £7.2m/$11.1m gross (c £6.8m/$10.5m net) in a placement of new ordinary shares. In contrast to the May 2013 placement, which was primarily about boosting the sales team, the latest fund-raising is largely about investing in R&D and support functions. It will also bolster the balance sheet, which will make the group’s products an easier sell to its increasingly blue-chip customer base, and will also provide funds for acquisitions. While there is dilution, the stronger capital base should help accelerate growth. We continue to believe there is significant upside in the shares as NetDimensions’ US-quoted SaaS peers trade on punchy EV/sales ratios.
We make minor adjustments to our NetDimensions forecasts in the wake of yesterday's placing. A mix of new and existing shareholders subscribed to the placing, which was geared to accelerating growth. A meeting with CFO Matthew Chaloner confirmed that NetDimensions is looking to better execute on the opportunities in the global market for enterprise talent management solutions, with the company emphasis on the High Consequence Industries. The immediate impact of the cash input is to increase operating costs, which we expect over 2016 and 2017. As we worked in the cash impact, we increase our target price to 196p (from 182p). Shares are very favourably priced and we highlight the EV/Sales 1.0x, PEG 0.4x. Buy.
NetDimensions' placing to new and existing shareholders is geared to accelerating growth so that it can better execute on the opportunities in global markets for enterprise talent management solutions, in particular across the High Consequence Industries identified. We think that shares are more likely to rally. As we work in the cash impact, we increase our target price to 196p (from 182p).
In a brief Q3 update, NetDimensions (AIM: NETD, OTCQX: NETDY) announced that revenue and invoiced sales for Q3 were ahead of Q314. Secure SaaS revenue grew by 24% to $2.6m (we are forecasting $5.2m revenues in H2), with invoiced SaaS sales ahead by 40% to $2.8m. SaaS is the business model of preference (NETD also offers annual licences and perpetual licences), and no data were disclosed on the other revenue types. However, deal size continued to grow, albeit at a slower rate than in recent quarters, with the average first-year contract value from direct new clients increasing by 5%. We are maintaining our forecasts, which imply 11% revenue growth in H2, including 19% SaaS revenue growth. This leaves the shares trading on 1.1x FY16 EV/sales – a big discount to its larger US multi-tenant SaaS brethren, which trade on c 5x FY16 EV/sales.
The Q3 trading update tells us that growth is accelerating sequentially into the critical Q4 trading period. NetDimensions Q3 features SaaS growth +40% YOY, Group revenue +24% YOY, from +31% and 16% sequentially. The sales engine is clearly firing on all cylinders. While our FY forecasts look conservative (predicated on YOY growth of 15%) as Saas is pro rata revenue Q4 sales make increasingly little impact on the current FY outlook – hence we have elected to leave FY estimates unchanged. NetDimensions shares have fallen, making this an ideal buying opportunity, particularly in the wake of the strong interim results. Shares are very attractively priced and trade on a PEG 0.4x and the EV/Sales at 1.4x. Our price target is 182p. Buy.
H1 results for NetDimensions (AIM: NETD, OTCQX: NETDY) were in line with the July trading update. Revenues grew 16% to $10.6m, as the group returns to more sustainable growth levels, following the 40% growth attained in FY14. We have eased our gross margin forecasts, due to the changing product mix, and our more conservative professional services assumptions, and we have eased our FY15 revenue forecast. This results in a higher FY15 loss, and we forecast the group will return comfortably to profit in FY17. Given that the company's US peers continue to trade at significant EV/sales premiums, we believe that NETD's shares could warrant a significant rerating.
News that Workday plans to enter the Learning Management Systems, LMS, market validates NetDimensions sector. That said, as this is Workday's third attempt at building an LMS, and with general availability years out it will take time for Workday to build out the compliance functionality in order to compete with NetDimensions. NetDimensions shares have fallen in the general stock market decline making this an ideal buying opportunity, particularly in the wake of interim results. Shares are very attractively priced and trade on a PEG 0.4x and the EV/Sales at 1.5x. Our price target is 182p. Buy.
Today's competitive win, 15,000 seats at CERN, proves NetDimensions prowess in the high consequence industry segment and its ‘go direct fewer/larger clients' strategy. As an engineering-led company much of the success is due to the feature set in certification management which was developed to meet the needs of organisations where compliance is critical. The value was not disclosed but given the seat count we guesstimate a range cUS$100 – 200k. Shares have fallen in the general stock market decline making this an ideal buying opportunity, following a robust set of interim results this week. Shares trade on a PEG 0.4x and the EV/Sales at 1.5x. Our price target is 182p. Buy.
NetDimensions issues a robust set of interim results illustrating good operational progress and continued growth that locked-in subscription SaaS revenue +31% YOY 2x Group revenue growth, 16%. NetDimensions continues to execute on its strategy of focusing on high consequence industries and, in our view, the results will further convince investors that NetDimensions is trending to deliver on its ‘US$50m in 5 years' ambition. Shares trade on a very attractive valuation PEG 0.5x and the EV/Sales at 1.8x. Compare that to the most pertinent read across competitor valuation – Cornerstone on 5.7x EV/Sales. Our price target remains unchanged at 182p. Buy.
NetDimensions (AIM: NETD, OTCQX: NETDY) has announced that H1 revenues grew by 16% to $10.6m, indicating that the group is on track to meeting our FY15 forecasts. The average new deal size more than doubled, reflecting the group’s focus on winning larger customers in its targeted high-consequence industries, along with the higher level of services associated with these larger deals. Given that the company's US peers continue to trade at significant EV/sales premiums, we continue to believe that NETD's shares could warrant a significant re-rating.
The H1 numbers, as outlined in this morning's update support our Full Year expectations. The positive surprise is the 125% YOY growth in the ASP – NetDimensions is trading up. The results are proof that NetDimensions is trending to deliver on its ‘US$50m in 5 years' ambition. The shares trade on a very attractive 1.8x EV/Sales and PEG 0.5x – the most pertinent comparison being CornerstoneOnDemand, valued on 5.5x. Great software, competitive edge, discrete target market in high consequence industries, demonstrably improving execution and macro tailwinds favouring HCM – all positive for NetDimensions. We retain our Buy and 182p target price.
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