Peel Hunt Is Measurably Superior to Its Competitors
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This report is prepared solely for the use of David Richards Marketing Communication # Buy WANdisco 9 August 2017 WAND Initiation of Coverage Data Price (close 7/8) 791p The silver bullet Target price 1,000p Data is the fuel of the future. With the growth of the Cloud, data Market cap £298m needs to be replicated across globally-distributed cloud venues, EV £294m Net cash £4m without disruption. Doing so while maintaining data consistency Interest cover (76)x and speed of access is non-trivial. This is the complex problem Index FTSE AIM All-Share that has been solved by WANdisco’s technology. In our view, Sector Software & Computer Services Next news 6 Sept 2017 - Interims this makes it a must-have technology for many evolving use- cases. Our research confirms the superiority of its solution UK sales 18% European sales 5% compared with competitors, and the recent booking trend proves North American sales 73% that customers also are drawing the same conclusion. We initiate Rest of World sales 5% coverage with a Buy rating and a 1000p target price, convinced Description of WANdisco’s product, target market, and execution. WANdisco provides technology to move large volumes of data that is in active use. WANdisco’s core-technology is a patented silver bullet that enables “active Performance data replication”, the process by which large volumes of data are moved between Source: Bloomberg datacentres/clouds, whilst the data is changing due to active use. One problem 800 solved by WANdisco’s technology is ensuring data consistency whilst it is being 700 moved over an unreliable wide area network (eg across continents). The 600 500 company has built one of the best (source: public benchmarks) active data 400 replication engines using an algorithm known as Paxos, which computer science 300 200 literature points to being the best in its class. 100 Our research is differentiated by a deep dive analysis of the emergent problems 0 Aug Nov Feb May Aug Nov Feb May Aug Nov Feb May Aug that create the very need for WANdisco’s technology. We also explain the Price Relative computer science foundation that makes the technology edge defensible. AnalystS Leveraging these fundamentals, WANdisco has developed a product that has Damindu Jayaweera broad support for diverse data technology environments. +44 (0) 20 3597 8657 [email protected] This positivity is underpinned by the view that: (1) WANdisco’s intellectual James Lockyer property is a “silver bullet” that has a defensible edge; (2) there is now a +44 (0)20 7418 8940 confluence of the right product (broader applicability vs narrower Hadoop [email protected] focus), the right go-to-market strategy (eg IBM OEM deal) and the right team; Ashu Sony (3) the adoption of the data-rich internet of things (IoT), the popularity of +44 20 7418 8951 [email protected] machine learning, and tools such as Spark, is fuelling the second coming of data analytics; the killer-app for active data replication; and (4) WANdisco’s solution #Corporate client of Peel Hunt is measurably superior to its competitors. Our valuation of WANdisco is DCF-derived. The upside provided by the resulting target price of 1000p is also supported by WANdisco’s normative FCF yield, which we calculate to be 5% vs the UK software peers on 3%. Stats Source: Company accounts, Peel Hunt estimates Y/E Dec Sales EBITDA Op Margin Adj PBT Adj EPS EPS growth PER DPS Div yield FCF yield EV/EBITDA ($m) ($m) (%) ($m) (c) (%) (x) (c) (%) (%) (x) 2016A 11.4 (7.5) (157.5) (16.4) (46.9) n/a n/a 0.0 n/a (2.4) n/a 2017E 15.5 (3.5) (88.2) (11.9) (29.4) n/a n/a 0.0 n/a (0.5) n/a 2018E 19.0 (0.9) (50.7) (7.7) (18.3) n/a n/a 0.0 n/a 0.2 n/a 2019E 23.7 2.0 (29.3) (4.7) (10.4) n/a n/a 0.0 n/a 1.0 189.9 This document must be treated as a marketing communication for the purposes of Directive 2004/39/EC as it has not been prepared in accordance with legal requirements designed to promote the independence of research; and it is not subject to any prohibition on dealing ahead of the dissemination of investment research. This report is prepared solely for the use of David Richards Peel Hunt WANdisco# 9 August 2017 Long-term analysis Long-run NTM EV/Sales FY2016/25 financial drivers WANdisco’s Addressable Market Source: Reuters Source: Peel Hunt Source: Cisco 50x Revenue CAGR 26% $2500m 40x Adj EBITDA CAGR 71% $2000m 30x Adj EBITDA margin CAGR 44% $1500m 20x Cash overhead CAGR 9% 10x $1000m FCF CAGR 50% 0x $500m Market Share Gain 2% $0m 2015A 2016A 2017E 2018E 2019E 2020E Peer group Growth Adjusted CY18 EV/Sales Sales CAGR vs Growth Adj EV/Sales FCF to Enterprise Value Source: Reuters, Peel Hunt Source: Reuters Source: Peel Hunt (using normalised WAND FCF) 0.7x 50% 7.0% 0.6x WANdisco 6.0% 0.5x 40% 5.0% 0.4x Talend 4.0% 0.3x 30% Splunk 3.0% 0.2x New Relic 2.0% 0.1x Cloudera 0.0x 1.0% 20% Hortonworks 0.0% Attunity Tableau SDL 10% MicroStrategy Talend AVEVA Splunk Sophos Fidessa Attunity Tableau Cloudera Craneware New RelicNew WANdisco 0% WANdisco Micro Focus (Normalised) Hortonworks MicroStrategy 0.00x 0.20x 0.40x 0.60x 0.80x First Derivatives Bull, bear and base – target price 1000p Source: Peel Hunt 1734p 1000p 453p Mitigating cost cuts Long-term revenue outlook Market share doubles Cost to support rapid halves growth & changing WCR Catalysts Company description • Early Sept 2017: Half-year results Founded in 2005, WANdisco is dual headquartered in Silicon Valley and Sheffield and is listed on the London Alternative Investment Market (LSE: WAND). WANdisco’s patented core-technology • Early Oct 2017: Capital Markets Day enables “active data replication”, the process by which large volumes of data are moved between datacentres/clouds, whilst the data is changing due to active use. One problem solved by WANdisco’s • Large deal flow technology is the issue of ensuring data consistency whilst it is being moved over an unreliable wide area network (eg across continents). Use-cases for its technology ranges from live backup, cloud migration to hybrid-cloud analytics. In a world where data growth is relentless, ensuring performance and integrity of that data when used across large distances creates the need for WANdisco’s core product, Fusion. This emergent market is expected to be north of $2bn by 2020. 2 This report is prepared solely for the use of David Richards Peel Hunt WANdisco# 9 August 2017 Contents Investment Case 4 #1 DConE is a “silver bullet” that has sustainable technology edge 6 #2 The right product, people and the go-to-market strategy 8 #3 Killer-App: From “data-at-rest” to “data-in-motion” analytics 11 #4 WANdisco’s solution beats the competition in benchmarks 13 #5 Supportive valuation given the growth prospects 14 Risks 16 WANdisco Overview 17 History 17 Product portfolio 20 Sales model 21 Key People 22 Financial Overview 23 Recent financial trends 23 Peel Hunt’s WANdisco forecasts 24 Financial statements 28 Appendix A: The “Why” of Data Replication 31 Defining the underlying problem 31 Understanding the solution 32 It all boils down to data replication done right! 36 Appendix B: Theoretical Foundation 37 The best consensus algorithm – Paxos 39 Understanding Paxos 42 Appendix C: Productising the Theory 43 3 This report is prepared solely for the use of David Richards Peel Hunt WANdisco# 9 August 2017 Investment Case We believe WANdisco has truly unique IP that will underpin the tech infrastructure of a globalised world that is fuelled by data. The company’s name stands for Wide Area Network distributed computing. It provides technology to tackle the problems associated with “active data replication”; the process of moving large volumes of data between datacentres (including public cloud), while the data is in active use and therefore constantly changing. The best enterprise grade solution to As discussed in detail in this note, we believe WANdisco has created the best the problems associated with active enterprise grade solution to counter the problem of ensuring data consistency data replication whilst moving it over an unreliable wide area network (eg across continents). The uniqueness of the solution is not only reflected in WANdisco’s registered patents (numbering seven, with a further 25 pending), but also in the fact that even Google struggled (detailed in its “Paxos made live” paper) to create a similar solution for its internal use. The stop gap solutions in use (eg DistCP) do not solve the problem to a degree that is acceptable to enterprises that are under stricter compliance and performance regimes. The symbiotic relationship between Big Data and Cloud, and the resulting rapid growth of both, is fuelling the need for a better solution, which in turn is creating demand for WANdisco. Chart 1: Primary demand driver – Big Data and Cloud/Datacentre adoption Source: Cisco Global Cloud Index, Peel Hunt estimates 1000 Data Stored in Data Centers 800 of which Big Data 600 400 Exabytes 200 0 2015 2016 2017 2018 2019 2020 Rapidly expanding use-cases for Use-Cases: Why does active data replication matter to enterprises? active data replication is driving • Implementing a backup-and-recovery solution for scenarios that deal with demand large quantities of constantly changing data (eg Playtika’s use of Amazon Cloud as a back-up destination).