Thursday, February 17, 2011
Arbuthnot Securities initiates research on Artilium
Arbuthnot Securities, acting as Artilium’s broker and advisor, has published its annual research report on Artilium.
“Artilium’s key financial milestone is breaking even at the EBITDA level by the end of FY2011. The recent trading statement confirmed that this target is achievable and with Artilium’s telco-based customer base seeking to capture a greater share of the value chain, prospects for the group’s end markets to expand are strong. With an asset light, scalable business model and a growing recurring revenue base, increasing market adoption would prompt a step-change in the financial outlook for the group. We initiate coverage with a Buy rating and a DCF-derived target price of 16p.
Broad IP-based portfolio.
Artilium is focused on the development and commercialisation of software and solutions for telecommunications operators, managed service providers and systems integrators. Its platform enables its customer base to create, deliver and manage services and applications, respond to changing market demands and capture a greater share of the value chain. KPN and T-Mobile are strong reference clients and help validate its technology offering.
Strong industry investment case.
Analysys Mason forecasts the global market for service delivery platforms to rise from c.¤2.7bn in 2009 to ¤5.4bn by 2014, delivering a CAGR of c.15%. Key drivers include: the repositioning of telecom business models to capture a larger share of the data revenues on offer, the emergence of the mobile applications market and increasing smart phone penetration and emerging market mobile subscriber growth.
Management has repositioned the business...
Since 2009, the current management team has repositioned Artilium, leaving the group well placed to reap the benefits of its revised business model. We expect the change in revenue mix to lift gross margins to c.78% within three years from the 68% reported in FY2010. The combination of a lower fixed cost base, increasing market adoption and an emphasis on growing the group’s recurring revenue base is improving revenue and earnings visibility.
…putting it on track to meet its key financial milestone this year.
January’s trading update confirmed that the company is on track to break even at the EBITDA level towards the end of this financial year and we forecast EBITDA of ¤376k for FY2012. Evidence of greater than anticipated momentum in contract wins should prompt a step change in the financial outlook for this operationally-geared business model.
Valuation attraction starting to emerge.
We initiate coverage of Artilium with a Buy rating and a DCF-derived target price of 16p, representing potential upside of 14%. At this stage of the group’s development, a relative valuation approach fails to capture the medium-term value of the group, given the financial immaturity of the business.”
Read the full report here.