Osirium saw strong order intake in H119, +70% y-o-y and +81% h-o-h. As H1 benefited from the renewal of a large three-year contract, management has guided bookings more cautiously for H219, expecting growth of at least 36% for FY19. We have revised our forecasts down accordingly, but highlight that the recently launched Opus solution could provide upside to our bookings, revenue and EBITDA estimates.
Osirium’s H119 trading update confirmed that it received bookings worth £1.03m in H1, 70% higher than a year ago. As this number included one large three-year renewal with a global asset manager (announced in May), the company has guided to a more conservative bookings intake in H2, expecting total bookings of £1.6m for the year (versus our £1.88m). H119 revenues of £0.52m were 13% higher y-o-y and deferred income at the end of H119 stood at £1.24m, of which £0.46m is expected to be recognised in H2. Net cash at the end of H119 stood at £0.89m; this excludes a £0.47m R&D tax credit due to be received this month. Management has previously suggested it is considering a fund-raise later this year to strengthen the balance sheet and accelerate sales growth.
We have revised our bookings forecasts down for FY19 and FY20 and now expect bookings growth of 36% in FY19 and 35% in FY20. We have revised down our revenue and EBITDA forecasts, partially offset by the higher than expected R&D tax credit. We note however, that Osirium’s new secure IT process automation solution, Opus, was only launched in May and is yet to have a material impact on bookings. This could provide upside to the conservative H2 bookings guidance and boost H2 revenue and cash. As a lead indicator for new customers, management reiterated that it is seeing an increasing conversion rate of proofs of concept (PoC) to sales, with more PoCs having taken place in H119 than in the whole of 2018.
Osirium is trading broadly in line with peers on an EV/Sales basis. We have performed a reverse DCF to analyse the assumptions factored into the current share price, using a WACC of 11% and a terminal growth rate of 3%. We estimate that the share price is discounting average annual bookings growth of 23% for FY21–28, break-even EBITDA in FY23, average EBITDA margins of 9.7% for FY21–28 and a terminal EBITDA margin of 35%. In our view, bookings growth will be the key driver of share price performance.