Last Friday morning, 8th November, saw CyanConnode Holdings (LON:CYAN) announcing its Interim Results- they were very positive and clearly point the way for the technology group to break into profits in the current year.
In early September, the £40m capitalised group’s shares were trading at just 7.50p.
That was very different from the 29.85p level at which they peaked in November 2021.
Since the low point two months ago, they subsequently recovered to hit 12.85p by the end of last month.
That share price advance was reflecting investor hopes in the run-up towards last week’s results.
By the close of business on Friday evening, profit-taking saw them being clipped back to 10.50p – at which level they represent a very interesting investment opportunity.
The Business
Set up in 2002 and listed on AIM three years later, the group is a world leader in the design and development of Narrowband RF mesh networks that enable Omni Internet of Things (IoT) communications.
With its wealth of expertise and experience in smart technology, it provides its customers with long-range, low-power, end-to-end networking solutions and high-performance applications that help them enhance service delivery, improve business efficiency and save energy.
Its industry-leading solutions and apps enable governments, metropolitan authorities and businesses to monitor and manage services, such as smart meters for utilities and street lighting.
The group’s award-winning Omnimesh Advanced Metering Infrastructure platform has already gained considerable commercial traction, especially in India which is now a key market for the company.
Through a global partner eco-system, which is vendor agnostic, CyanConnode has several routes to market, positioning it to capitalise upon increasing global demand for smart metering solutions.
The Interim Results
The six months to end-September saw a 3% lower revenue at £5.63m (£5.78m), but with a 29% higher gross profit at £2.34m (£1.81m), despite 11% higher operating costs for the group, it saw a 17% improvement in its adjusted EBITDA at £1.60m loss (£1.92m loss).
At the period-end the group had £3.71m (£0.95m) cash in the bank, boosted by the oversubscribed £5.4m Placing in early September.
That Placing was required for ongoing working capital for growth, to further strengthen the balance sheet and to fund the setup of a hardware product design lab in India, which will enable a ramp-up of operations.
Management Comment
With last Friday’s Interims, Chairman John Cronin stated that:
"The Indian smart metering market continues to gain momentum, with sanctioned tenders exceeding 200 million smart meters.
Of this total, contracts for approximately 132 million smart meters have already been awarded to prime bidders, underscoring the Government of India's commitment to install 250 million smart prepayment meters under the Revamped Distribution Sector Scheme (RDSS).
CyanConnode's order book has demonstrated strong growth, more than doubling during this period from 6.3 million units at the start of the year to 13.1 million units.
Our current backlog stands at 9.7 million units yet to be deployed, having increased substantially from 3.5 million units at the end of March 2024, with a significant portion of this expected for delivery in the second half of FY 2025.
Historically, our revenue recognition is heavily weighted toward the final quarter of our financial year, as order completions and deployments often peak near year-end.
We expect this seasonal trend to continue, with a substantial proportion of this year's revenue materialising in Q4.
Given this pattern, we remain confident in meeting market expectations for FY 2025.
Our business outside of India is also progressing well.
Since the end of September 2024, we have secured a follow-on order for the Middle East and North Africa (MENA) region, valued at over $1 million.
This order is expected to be fulfilled within the current financial year, further supporting our revenue forecasts and expanding our international footprint."
Analyst Views
At Zeus Capital, analyst Bob Liao considers that meeting H2 FY25 revenue estimates would lead to record Adjusted EBITDA and a significantly positive FCF.
Zeus believes that would be a significant catalyst for the shares, which its 26p DCF valuation indicates are undervalued.
For the current year to end-March 2025 he estimates group sales rising to £34.5m (£18.7m) and swinging it into a £2.5m adjusted pre-tax profit against the previous £2.9m loss, which would generate 0.5p in earnings per share.
Analyst Harvey Robinson at Panmure Liberum rates the group’s shares as a Buy, looking for 18.5p as his Price Objective.
For this year he sees £33.0m sales, with £1.3m profit, worth 0.3p in earnings per share.
However, he has estimates out for 2026 showing £40.0m sales, £3.2m profits and 0.7p per share in earnings.
Furthermore, he notes that “CyanConnode is well placed to capture meaningful share of the Indian smart meter market with a win rate of 25% by volume.”
In My View
This group has a massive Order Book, which gives its management confidence as it strides forward.
The contract wins could well increase over the near future, helping the company to start to produce some respectable profitability.
That would, in turn, help to see its shares, now at 10.5p, breaking up above the 15p level, possibly within the next year.
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