Cerillion PLC (LON: CER) – Record performance for new orders in H1 FY2021.

Cerillion Plc is an FTSE AIM All-Share index listed information technology company serving mainly the telecommunications market and also the utilities and financial services sectors. CER was founded in 1999 and is headquartered in London, the United Kingdom. It offers charging, billing and customer relationship management software solutions. Mainly, it develops and supplies telecommunication equipment and software solutions. It has four operating segments: Software, Services, Software-as-a-Service and Third Party. The Company’s offerings are used for various purposes, including digital transformation, critical communications, subscription management, General Data Protection, Regulation compliance, Internet of Things, total convergence, mobile virtual network enablers, CRM and billing, network asset management, cable services, and broadband and multi-play.

Recent trend of dividend payments

(Data Source: LSE Website, Research done by Kalkine Group)

The chart above demonstrates the consistent dividend payment done by CER from FY2018 to FY2020. In FY2021, CER paid an interim dividend of GBX 2.10 per share. It had an ex-dividend date of 27 May 2021, and the dividend was paid on 18 June 2021.

Technological trends and advancements

CER has experienced strong demand from its existing customer base in H1 FY2021, with significant new orders. The Company entered into a key three-year managed service contract with Scarlet. Scarlet is under Belgium's largest telecommunications company Proximus Group. Also, a new upgrade project for Go, the leading telecommunications provider in Malta, has been initiated by CER. Both Proximus Group and Go are the Company’s existing customers. However, the Company also won excellent contracts with new customers in H1 FY2021. In March 2021, it entered into a USD 18.4 million contract with Telesur, the leading telecommunications provider in Suriname. It is CER’s largest-ever contract and would offer a platform to support the customer experience, charging and billing for Telesur's fixed and mobile services. Furthermore, CER won a USD 5.0 million contract with a network operator in the Middle East. The Company’s BSS/OSS solutions remain a principal requirement for service providers and telecommunications operators. The remote interactions for businesses drove the importance of mobile and broadband infrastructure up significantly.

Growth Prospects

• Significant contract wins: CER won significant contracts in H1 FY2021 from both existing and new customers. Its new orders surged by a record 148% YoY. Hence, these could drive further growth in the Company’s operations in the near future.
• Solid pipeline of opportunities: The Company continues to look extensively for new business opportunities, and it resulted in its pipeline of new business opportunities surging 9% YoY in H1 FY2021.
• Strong demand from end markets: There is a trend of continued strong demand from telecommunications operators for CER’s BSS/OSS solutions as the remote interactions for businesses drove the importance of mobile and broadband infrastructure up significantly.
• Resilient business: CER’s business has been resilient during the pandemic. It has a solid balance sheet and strong cash-generative characteristics. In H1 FY2021, CER made its balance sheet debt-free.
• Sticky customer base: The Company has a sticky customer base, which generates high levels of predictable income. In H1 FY2021, CER has increased its recurring income significantly with its platform for future growth.

Key Risks 

• Risk to the end market: A slowdown in the growth of telecommunications could diminish the spending power of the players in the sector. As the telecommunications sector is the main end market for CER, it could affect the demand for the Company’s solutions.
• Failure to advance in technology: As the Company’s customers are increasingly embracing technology, any failure to advance in technology would lead to loss of customers for the Company.
• Potential economic downturn: The delta variant of Covid-19 could lead to further restrictions and a possible downturn in the markets, affecting the pipeline of the Company.
• Delay in delivery of projects: The Company is involved in large multi-year complex projects under significant contracts. Any delay in delivery could lead to cost overruns as well as reputational damage.
• Cybercrimes: The technology industry is susceptible to the increasing number of cyber-attacks, which pose serious threats to its operations and data security.
  

Now we will analyse some key fundamental and shareholders statistics of Cerillion PLC.

Financial and Operational Highlights (for six months ended 31 March 2021 as of 17 May 2021)

(Source: LSE Website)

• The Company won several major contracts in H1 FY2021, including a USD 18.4 million contract with Telesur in Suriname and a USD 11.2 million contract with a major UK provider of enterprise connectivity solutions. New orders were up 148% YoY, a record performance.
• Furthermore, the new business pipeline grew 9% YoY in H1 FY2021 to £130.8 million.
• Driven by the significant contract wins, revenue surged 26% YoY in H1 FY2021. Also, the annualised recurring revenue was up 43% YoY.
• It resulted in adjusted EBITDA surging 77% YoY and adjusted EPS up 105% YoY in H1 FY2021.
• The strong performance in the bottom line and the Company’s cash-accretive operations led to net cash rising 60% YoY in H1 FY2021.
• It encouraged the management to increase the interim dividend by 20% in H1 FY2021.

Share Price Performance Analysis

  (Source: Refinitiv, Research done by Kalkine Group)

On 23 July 2021, at 7:03 AM GMT, CER’s shares were trading at GBX 750.00, down by ~1.3% against the previous day closing price. Stock 52-week High and Low were GBX 920.00 and GBX 250.00, respectively.

On a daily chart, CER's price is sustaining above 200-day EMA of about GBX 563.00 and 200-day SMA of about GBX 512.00, indicating the possibility of an upward movement. The stock price is sustaining between the middle and lower Bollinger bands. Hence, there could be an uptick in the stock price in the near term.

In the last year, CER’s stock price has delivered an excellent positive return of ~195.72%. It has outperformed both the FTSE AIM All-Share Technology index with a return of around 26.91% and the FTSE AIM All-Share index with a return of around 38.14%.

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

Business Outlook Scenario

CER delivered an excellent performance in H1 FY2021, with adjusted EPS rising 105% YoY. It was achieved with a sales increase of 26% YoY. Its net cash also surged 60% YoY in H1 FY2021. The management remains focused on major implementation projects and building a stronger order book, which provides further confidence for FY2021 and beyond. The Company is benefitting from its significant contract wins, solid pipeline of opportunities, strong demand from its end markets, a resilient business model and its sticky customer base and recurring revenues going into H2 FY2021. The management strives to build the right platform and capabilities, helped by no debt in its balance sheet. The Board is confident that the expanded pipeline of new business would drive sustainable growth for the Company.

Considering the excellent performance in H1 FY2021, the strong pipeline of opportunities, increasing demand from end markets, the major contract wins, decent profitability and improved leverage position of the business,  and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on Cerillion Plc at the current price of GBX 750.00 (as on 23 July 2021 at 7:03 AM GMT), with lower-double digit upside potential based on 54.11x Price/NTM Earnings (approx.) on FY22E earnings per share (approx.).

*All forecasted figures and Peer information have been taken from Refinitiv.

*The dividend yield is subject to change as per the stock price movement.

*The reference data in this report has been partly sourced from Refinitiv.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

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