Rosslyn Data Technologies – extremely high annual recurring revenue and gross margin
This loss-making company is aiming to treble its turnover within the next three years.
The company’s losses are expected to continue for the next three trading years.
It was one of the very sensible companies that raised fresh funds during the ‘lockdown’, a total of £7.3m new money, representing some 70% of its prior market capitalisation.
That issue was at a premium to its then market price and its average price was some 22% lower for the twenty days prior to that issue – what is more it was oversubscribed.
As regular readers of my profiles will know by now – I just love companies with increasing annual recurring revenues.
Other companies recognise the strength of growing ARR and there is quite an active search on for such businesses to be acquired.
It is a premium marketplace, with predators prepared to pay the price to acquire such building blocks for their own businesses.
In the States the premiums range around ten times ARR, private equity players in the UK look to pay five times ARR, with the UK corporate average being some seven times ARR.
And whether those victims are loss-making or not is not important.
I do not know whether those companies stalking the ARR market have scanned Rosslyn Data Technologies (LON:RDT) – if not, well they should be looking closely at this company.
Rosslyn services its global list of clients from its headquarters in London, and it has a US presence in Chicago and New York.
From over fifty countries this company’s thousands of clients require the group to help their organisations to deliver accelerated business value through data insight. Its technology empowers companies to automate their critical business processes and analytics through simple, self-service tools.
Key areas of focus have previously been in the supply chain, especially in spend analytics. However, its clients are seeking more integrated solutions from Rosslyn bringing together compliance, operational workflows, contractual information and predictive insights.
Believe it or not, during the crisis the group has been doing very well out of aiding its retained customers to cut back on operating costs and concentrate on areas for the future development of their businesses.
Within two days of the ‘lockdown’ starting Rosslyn developed its Covid19 dashboard and rolled it out to all its multi-national clients. That helped its clients to chase down the location of each of their own suppliers to help them analyse whether their supplies would suffer from those particular geographical lockdowns.
That is only a small part of Rosslyn’s offering. The company provides its analytical services by combining four key technologies: bulk data extraction; cleansing; enrichment; and visualisation, through a single cloud platform enabling users with detailed data to make more informed decisions.
The group’s directors believe that it is seen as the most advanced player in its field due to its data extraction technologies and comprehensive robotic process automation driven real-time data refresh process, and that no other company in the market offers the depth of master data management, at scale, across major cloud platforms.
The group has 339m shares in issue. Its significant shareholders include Gresham House Asset Management (26.05%), Amati AIM VCT (10.40%), Canaccord Genuity Group (10.33%), Octopus Investments (4.21%), and Eiffel Investment Group (3.09%). Executive director and Chief Data Officer, Hugh Cox holds 11.2m shares (3.35%).
Its final results are due to be announced next month.
Research house Equity Development currently has projections for the group’s turnover to rise 7.5% this year to end April 2021 to £7.63m, upon which it sees an adjusted pre-tax loss of £1.3m.
Next year £8.73m of revenues will help losses to reduce to £0.9m.
For the 2023 year £9.98m revenue could slash those losses to a mere £48,000.
Further out ED is going for revenues to increase to £17.13m for the year to end April 2027, which could return a massive £3.66m of profits, worth 0.8p per share in earnings.
As for the important annual recurring revenues, the current year could be 84%, climbing to 86% by 2027. ED reckon that it operates on some 81% of gross margins.
Such high levels of ARR are impressive and are a supreme testament to Rosslyn’s product offer and service.
So too is its strong order book, as shown by the recent announcement that three of its larger blue-chip clients – an international telecoms business, a world-renowned American university and a UK government department – had contracted at dates up to 2023, worth £0.9m in ARR.
That fresh funds issue raised £6.8m net in early May, it leaves the group looking really quite strong. It has some £13m in tax losses, a current year ARR of over £6m, possibly around £5m cash in the bank and looking attractive to predators.
Rosslyn Data Technologies defines itself as ‘the organisation that is transforming the way that companies make critical decisions.’
In conclusion, my critical decision is that the shares, now 5.75p are undervalued and more than capable of doubling within years, if not sooner.
Even so, my very modest Target Price is 7.5p, that would be a 30% gain to go for short-term.