Key Investment Opportunities
 

1. Blue Prism Group Plc (LON: PRSM) is a provider of the digital workforce using RPA (Robotic Process Automation) for blue-chip companies.

2. The Group’s services and solutions are available in the cloud, on-premises, as a hybrid or integrated SaaS solution.

3. The products and services of PRSM are used by multiple industries including, Manufacturing, Telecoms, Financial Services, Insurance, Healthcare, Public Sector, Energy & Utilities and Transportation & logistics.

4. The Company has a strong customer base with over 1,650 customers from Fortune 500 companies and top brands such as Microsoft, Google, IHG, Accenture, KPMG, Du Pont, EY, Siemens and Waitrose, etc.

5.  PRSM product portfolio includes intelligent RPA platform, cloud, Saas Products, digital exchange, and process discovery tool, which help its clients to achieve operational excellence at a lower cost.

6. A Broad portfolio of distribution and technology partners makes them capable of capturing global demand in the domain of artificial intelligence and cognitive technology.

7. Blue Prism has strong revenue growth, with the well-positioned balance sheet as stood in the current period.

8. The Group is likely to experience demand for its RPA (Robotic Process Automation) capability from both new and existing customers. Moreover, the opportunity is global since the Company markets and sells its services in over 60 countries.

9. The attractive commercial business model reflects the capability to manage near term uncertainties since more than 96 per cent of the annual revenue comes from Licensing based services which is paid annually in advance.

10. PRSM is confident towards its business model and management team to tackle the uncertain times created due to coronavirus pandemic.

11. The share price is currently trading near its 52-week low, which makes an excellent opportunity to buy this growth stock.
 

Blue Prism Group PLC (LON: PRSM) has recently raised approximately £100 million to bolster its RPA suite.

Blue Prism Group PLC is a FTSE AIM-listed software company, engaged in RPA (Robotic Process Automation. The Company serves an extensive portfolio of customers worldwide to automate their business processes intelligently, to bring cost efficiency by automating repetitive tasks and freeing up hours of work. It serves around 1,677 enterprise customers in 70 sectors, with a workforce of around 1,001 people, 153 distribution partners and 50 technology partners. The Company caters about 478 customers which are in the Forbes Global 2000, reflecting its potential as a market leader. Its services are available through all delivery formats such as on-premise, as an integrated solution in a hybrid cloud environment and in the cloud. Since IPO in 2016, the Company’s market capitalization has grown from GBP 48 million to over GBP 1 billion in 2020. The Company was admitted to the London Stock Exchange on 18^th March 2016.

On 18^th June 2020, the Group will announce its half-year 2020 results.

Key Statistics




Segments at a Glance


(Source: Presentation 2020, Company Website)
 

1. The Company segments its operations in three geographical divisions, namely EMEA, the Americas and APAC Operations.

2. By Type, Company differentiates in revenue from three services - Licence and Support, Professional services and Sponsorship & Other. The Licence and Support services represented around 96 per cent of total revenue in 2019.
 

Key Performance Indicators to Measure Non-Financial Performance

1. Monthly run rate revenue increased significantly to GBP 10.6 million in 2019 as against GBP 6.2 million in 2018, reflecting a robust strength of recurring revenue.

2. The total number of customers increased substantially to 1,677 in 2019 from 992 in 2018, reflecting its potential for future growth and upsells.
 

 (Source: Annual Report, Company Website)

Significant Developments of 2020

1. 21^st April 2020: The Blue Prism Group PLC raised nearly £100 million by issuance of 9,090,910 Placing Shares at a price of 1,100 pence per share.

2. 20^th April 2020:Dr. Jason Kingdon will carry forward as Chairman and CEO since Alastair Bathgate stepped down from its position on 30^th April 2020.

3. 12^th March 2020: The Group opened a local office in Cape Town and thus embarked its presence into South Africa.

4. 4^th March 2020: The Company announced the collaboration with Red Hat to enhance RPA Adoption and build comprehensive automation strategy.
 

Top Shareholders

 

Response taken to tackle COVID-19 Pandemic (31st March 2020)

In response to the disruption caused by Coronavirus, the company is operating the majority of the operations remotely and conducting flagship events virtually. The group reported a cash balance of GBP 42 million as at 27th March 2020; however, they are unable to anticipate the impact of ongoing COVID-19 crisis over the Group’s growth plans. Nevertheless, the group is confident about delivering good growth in FY20. Despite the short-term uncertainties, the group expect positive prospects in the long run with their sales pipeline, historical retention rates and its licence based recurring revenue model.

Financial Highlights - Decent Top-line Performance in FY2019 (ended 31 October 2019)


(Source: Annual Presentation, Company Website)
 

1. For the fiscal year 2019, the company’s revenue was reported at GBP 101 million, an increase 83 per cent as compared to GBP 55.2 million reported last year, due to decent sales and upsell activities of the company.

2. The monthly exit run rate (MRR) is the amount of recurring revenue in the last month of the reporting period. The MRR recognised as at 31 October 2019 amounted to GBP 10.6 million, an increase of £4.4 million from the GBP 6.2 million reported in FY2018.

3. The adjusted EBITDA loss also increased to GBP 71.9 million against loss of GBP 21.6 million in FY2018. 

4. Net cash at the end of FY2019 was GBP 74.1 million versus GBP 50.5 million in FY2018.
 

 
Financial Ratios – Decent Gross Margin and Liquidity Profile versus Industry Median



The reported Gross Margin stood at 91.6 per cent for the financial year 2019 and stood higher than the industry median of 78.4 per cent. On the liquidity front, Blue Prism Group Plc’s current ratio stood at 1.16x and was same as the industry median. On leverage front, the assets-equity ratio of the Blue Prism Group Plc’s was 2.25x, which was higher as compared to the industry median.

Share Price Performance


Daily Chart as on 12^th May 2020, before the market close (Source: Refinitiv, Thomson Reuters)

On May 12, 2020, at the time of writing (before the market close, at 8:39 AM GMT+1), Blue Prism Group Plc shares were trading at GBX 1,295.00, down by 0.31 per cent against the previous day closing price. Stock's 52 weeks High and Low are GBX 1,983.00/GBX 774.25.

Bullish Technical Indicator

From the technical standpoint, its shares were trading well above its short-term support level of 20-day simple moving average price, which reflects an uptrend in the stock and carrying the potential to move up further.

Valuation Methodology

Method 1: Enterprise Value to Sales (NTM) Approach



To compare Blue Prism Group Plc with its peers, EV/Sales multiple has been used. The peers are Admicom Oyj (NTM EV/Sales was 13.89), WANdisco Plc(NTM EV/Sales was 10.68), Safeture AB (NTM EV/Sales was 8.30) and Check Point Software Technologies Ltd (NTM EV/Sales was 7.23). The Average of EV/Sales (NTM) of the company’s peers was 10.00x (approx.).

Method 2: Price to Book Value (NTM) Approach



To compare Blue Prism Group Plc with its peers, Price/Book Value multiple has been used. The peers are Admicom Oyj (NTM Price/Book Value was 44.20), AVEVA Group Plc (NTM Price/Book Value was 25.00) and Amadeus IT Group SA (NTM Price/Book Value was 30.46). The Average of Price/Book Value (NTM) of the company’s peers was 33.20x (approx.).

Blue Prism Plc Vs FTSE AIM 100 Index (2 years)


(Source: Refinitiv, Thomson Reuters)

In the last two years, Blue Prism Group Plc share price has delivered negative 14.48 per cent return as compared to negative -25.10 per cent return of FTSE-AIM 100 index, which shows that the stock has outperformed the index during the last two years.

Total Return for 5 Years


(Source: Refinitiv, Thomson Reuters)

Blue Prism Group Plc has generated a total return of 969.11 per cent in the last five years versus the total return of FTSE All share of 12.90 per cent for five years period.
 
Industry Outlook

The advent of RPA has transformed the businesses across sectors in terms of unlocking productivity gains, automation of processes and improvement in customer services. RPA is currently served by two main approaches - Attended, or desktop RPA and Unattended, or autonomous RPA. HFS estimate the market size of RPA market to reach around USD 10.2 billion by 2022. The RPA market is competitive with over 40 Companies globally, while Blue Prism, Automation Anywhere and UI Path are the market leaders. The Future landscape of industry will be influenced by artificial intelligence, machine learning and other cognitive technologies.

Growth Prospects and Risk Assessment

The Company keeps on launching new platforms and upgrade the old products and services related to RPA to become one of the market leaders in the Software & Computer Services Sector. The new business in the pipeline will help the company to expand its operations and to scale up its market share.The Company, through its wide-ranging scope, had accelerated growth organically and through acquisitions. The market opportunity is expected to remain large and for longer duration as more sectors and industries move towards cloud solutions.Being an IT company, the PRSM needs to invest heavily in innovation and system maintenance and, any failure to do so will impact the brand royalty and may affect the company’s financial performance. Furthermore, the United Kingdom is facing the most significant slowdown in productivity presently. Excessive dependence on channel partners, software reliability and performance, could affect the growth of the company.

Business Outlook Scenario

During the financial year 2019, the Company had delivered decent financial performance. The Group gained 685 net new customers, while maintaining a customer retention rate of 96 per cent. Market and technological changes could affect the business of the Company. However, the Company has surpassed the market expectations and delivered decent financial as well as operational performance. Its customer base has been growing at a decent pace, and it has an encouraging upselling performance. The Company is making acquisitions which will boost its business growth trajectory. The benefits of the 2019 investments would begin to come through during 2020, and the Company is able to capitalise on this opportunity to grow its business. PRSM prospects look good, and it could provide an opportunity to invest for the long term. The Company expect an outbreak of Covid-19 may have an impact on the performance as it results in projects delays. Despite the uncertainty, the group is confident towards its medium and longer-term prospects.


(Source: Presentation 2020, Company Website)

Blue Prism is working in the direction of connected-RPA to unburden the repetitive process, customize automation and filing the human-digital gap, which makes them competitive even in the future. During 2019, the Group introduced Decipher tool to match up with the benefits of attended RPA. The Company has built a portfolio of technology partners (such as Google, Microsoft and Amazon) to leverage cognitive technology. Moreover, the Group has raised around GBP 240 million since 2018 for funding its growth initiative.

Over the course of 3 years (FY16 - FY19), the Company’s revenue surged from GBP 9.6 million in FY16 to GBP 101 million in FY19. Compounded annual growth rate (CAGR) stood at 119.12 per cent.

Based on the decent growth prospects and support from the valuation as done using the above two methods, we have given a “Speculative Buy” recommendation at the current of GBX 1,285.00 (as on 12^th May 2020, before the market close at 8:10 AM GMT+1), with lower-double digit upside potential based on 10.00x NTM EV/Sales (approx.) on FY20E sales (approx.) and 33.20x Price/Book Value (approx.) on FY20E book value per share (approx.).
 
*All forecasted figures and Peer information have been taken from Refinitiv, Thomson Reuters.

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