Scope for big upgrades at WANdisco WANdisco interims confirm positive trends

Having broadened the appeal of its core product and appointed key channel partners, WANdisco has scope for significant upgrades given large contract sizes.

 WANdisco interims confirm positive trends

Interims from WANdisco (AIM: WAND) confirmed the trends that were discussed in our recommendation in July’s Growth Company Investor. The key message is that the company has significantly broadened the appeal of its core software product and changed its sales strategy. It should now be able to help a wide range of enterprises solve their problems in managing very large datasets, as evidenced by the handful of large deals that have been signed this year.

Cost control

The company has moved to an indirect sales model using channel partners to cover both on-premise clients and cloud-based delivery. As well as providing access to a huge universe of potential customers, this outsourcing of sales also means management has been able to bring costs under control. This had been a historic problem, but during the first half cash operating costs declined 11 per cent and net cash outflow in the period was just $0.6 million.

Big Blue

The lead sales partner is IBM, who have branded the product ‘IBM Big Replicate’ and trained 5,000 sales reps to sell it. WANdisco has located two partner managers in IBM offices here and in the US to ensure things run as planned. It’s one thing to sign a partner deal, but another to make it effective and productive. There are also deals in place with other heavyweights in Dell, HP and Oracle; as well as Amazon, Alibaba and Google in cloud services. We should look out for other IBM-style ‘OEM’ branding deals.

Big tickets

It’s encouraging that WANdisco has sold its product into a variety of industries. The largest deal is to a bank, but there have been sales to very large automotive, retail and healthcare businesses. These deployments have six and seven figure price tags, with the largest purchase by a US bank representing a $3.5 million royalty to WANdisco. So it’s very possible, given these deal sizes, that we could see explosive growth if sales momentum builds.

Upgrade potential

However current forecasts are conservatively framed. While the company managed a maiden EBITDA profit at the half-year stage, broker Peel Hunt doesn’t look for a pre-tax profit until 2020. Importantly though, the company is expected to be cash generative from next year and there should be significant upgrade potential, as already mentioned. We tipped the stock at 568p in late June and it hit 800p soon afterwards. It has now settled back to 692p, where the market cap of £264 million leaves room for decent upside.      

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