The very clear pointer was there in the 28th August statement from CyanConnode Holdings (LON:CYAN) that it had just been awarded a mega-contract, that could well be a real ‘company maker’ over the next few years.
The Cambridge-based group is a world leader in narrowband radio frequency mesh networks, with its advanced connectivity solutions able to support multi-application networks, used for communication with any device, including gas, water and electricity meters, as well as street lighting and traffic lights.
Mega-Order
The order from a global partner was for 6.5m Omnimesh Modules, together with Advanced Metering Infrastructure, Standards-Based Hardware, Omnimesh Head-End Software, Perpetual License, and a Support and Maintenance Contract.
Yes, it is yet another of my ARR-based businesses.
CyanConnode's award-winning Omnimesh Advanced Metering Infrastructure platform has gained considerable commercial traction, especially in India which is a key market for the company.
The contract relates to various smart metering projects in India, with supply of Omnimesh Modules expected to commence during between now and the end of March 2025.
The installations for each project will then be completed within 27 months and followed by a 93-month Support and Maintenance Contracts, which will commence upon completion of the installation phase.
Some 70% of the contract will be paid during the installation phase, with the remaining 30% of the contract to be paid for in equal monthly installments over the duration of the Support and Maintenance Contract period.
Chairman John Cronin stated that:
"I am delighted to announce CyanConnode's largest order to date from a global partner, with whom we have successfully collaborated on various projects over the years.
This order nearly doubles our order book for India, increasing it from 6.6 million units to 13.1 million units, and solidifies our position in India's nationwide smart metering rollout."
Placing And Subscription
On Monday of this week, the 9th, the group announced that it was looking to raise £5m by way of a Placing and a Subscription, with the net proceeds of the Fundraising to be used to provide ongoing working capital for growth, to further strengthen the company's balance sheet and to fund the set-up of a hardware product design lab in India, which will enable a ramp-up of operations.
On Tuesday morning, it was announced that the raising was oversubscribed, despite it being at 9p a share, which was at a 17.6% premium to last Friday’s closing price.
Premier Miton Group took some 5.55m of the shares, giving it more than 10% of the group’s enlarged equity.
In reaction to the Funding, John Cronin stated that:
"CyanConnode has recently secured a substantial new order for 6.5 million Omnimesh modules, bringing its total cumulative order book to 13.1 million modules.
Additionally, the Company is engaged in several R&D projects aimed at enhancing its product suite to strengthen its competitive edge.
I am pleased to have successfully completed this oversubscribed fundraising at a premium to the closing market price on the last business day before the launch announcement.
On behalf of the Board, I would like to extend a warm welcome to our new investors and express our appreciation to existing shareholders for their continued support in this fundraising."
Analyst Views
Bob Liao and Carl Smith, analysts at Zeus Capital, consider that the mega-order is expected to significantly increase the company’s scale and profitability.
They believe that the increased buying power and significant operating leverage will allow CyanConnode to reach profitability in FY25 and generate strong cash returns in FY26.
They introduced a discounted cash flow analysis valuation estimate of 26p a share.
For the current year to end-March 2025, they look for revenues of £34.5m (£18.7m) taking the company into £2.5m of adjusted pre-tax profits against the previous £2.9m loss, generating 0.5p per share in earnings (loss of 0.5p).
The analysts will be looking to publish fresh estimates after the Interims are announced in December.
Upon the new order but before the fundraising, analyst Harvey Robinson at Panmure Liberum, had the shares as a Buy, looking for 18.5p as his Price Objective.
He noted that the order doubled the cumulative orders in India and significantly increases the group’s backlog.
Commenting that CyanConnode has built a meaningful share in the Indian smart metering market with a strong, locally-led Indian team, where there is a significant 250m unit market opportunity.
He suggested that gross margins should improve as the mix moves from hardware (35%) to a higher percentage of software and services (90%) over time, creating a valuable recurring revenue stream.
In My View
It is fairly rare in these markets that companies can get away with big fundraisings at a premium to their market price – but CyanConnode did just that earlier this week.
Now is the time to Get Smart with Cyan Connode.
I feel that the group’s shares, which touched 29.5p three years ago, represent a very interesting SmallCap punt at the current 8.7p.
I now fix an easy Target Price of 11p on the shares.
(Profile 12.09.24 @ 8.7p set a Target Price of 11p)
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