Blue Prism Group PLC

Blue Prism Group PLC (PRSM) is an AIM-listed Robotic Process Automation (RPA) provider, which enables a wide range of customers around the globe to intelligently automate their business processes, in order to cut costs by automating repetitive tasks and freeing up hours of work. The company’s operations are differentiated in three geographical segments: EMEA Operations, The Americas Operations and APAC Operations. It has two key sources of revenue: Licencing and Professional Services and training.

Recent Development
The company on 16 July 2019 announced that all conditions related to the completion of the acquisition of Thoughtonomy were satisfied and of 1,074,711 new ordinary shares were added to the share capital of the group. On 19 June 2019, the company has announced that it had entered into an agreement to acquire Thoughtonomy, which has built a cloud-based AI engine that delivers RPA-based solutions on a SaaS framework, for an aggregate consideration of up to £80m, in a combination of stock and cash. The acquisition would open the mid-tier of the market for the group as it will provide the company with a productive solution which is expected to simplify and broaden access to its connected-RPA platform.

Financial Highlights (H1 FY 2019, in £m)

(Source: Company Filings)

Recognised revenue for the period expanded by 76% to GBP 40.4 millionwhile group revenue, under the IAS 18 standard, grew by 82% to GBP 41.6 million. Driven by new sales and upsells with 911 deals in the period, the monthly exit run rate, which measures recurring revenue recognised at the last month of the reporting period, recognised as at 30 April 2019 was GBP 7.6 million, an increase of GBP 1.4 million on the FY2018 monthly exit run rate of GBP 6.2 million. Adjusted EBITDA losses increased to GBP 34.0 million from a loss of GBP 4.2 million, while loss from operations (including share-based payments) for the period was GBP 35.0 million, versus a loss of GBP 5.5 million in 1H18 and operating loss before share-based payments was £34.3 million (1H18: a loss of £4.3m). For the six months ended 30 April 2019, cash outflow from operating activities was GBP 18.9 million, while cash and cash equivalents at the period end were GBP 129.4 million (30 April 2018: GBP 54.6 million).

Valuation Methodology
Method:  EV/SalesApproach (NTM)

*Peers of the company are Constellation Software Inc, Avast PLC, AVEVA Group PLC, Intuit Inc and Craneware PLC

Share Price Commentary

Daily Chart as at 26-September-19, before the market closed (Source: Thomson Reuters)
 
On 26 September 2019, at the time of writing (before the market closed, GMT 8:44 am), PRSM shares were trading at GBX 955, up by 0.52 per cent against the previous day closing price. Stock's 52 weeks High and Low are GBX 2,390/GBX 856. The company's stock beta was 2.60, reflecting more volatility as compared to the benchmark index. Total outstanding market capitalisation was around £774.76 million.

Conclusion
As the company faces strong competition in a rapidly evolving market, the financial viability of the group can be impacted due to the dynamic nature of the industry which is characterised by the development of new artificial intelligence technology. However, the company is well positioned to capitalise on the new growth opportunities, and the Robotic Process Automation continues to develop into a significant software category. The group is targeting the mid-tier and aims to develop its enterprise cloud approach, and the acquisition of Thoughtonomy is an important step to achieve that.

Based on the healthy prospects and supported by valuation done using the above method, we have given a "SPECULATIVE BUY" recommendation at the closing price of GBX 950 (as on 25 September 2019), with single digit upside potential, based on 7.45x NTM EV/Sales (approx.) on FY19E Sales (approx.).
 

Circassia Pharmaceuticals PLC

Circassia Pharmaceuticals PLC (CIR) is an Oxford, United Kingdom-based speciality pharmaceutical company with a broad portfolio of respiratory products. The company directly contacts speciality physicians in several key markets to promote its innovative asthma management products. The company has differentiated its operations in two operating segments: NIOX and US AZ.

Recent Development
The company on 12 August 2019 announced that Jonathan Emms was appointed to the role of Chief Operating Officer (COO) and he would lead the business development, supply chain, medical affairs, regulatory and quality activities of the group. He joined the Board of the group as Executive Director on 2 September 2019.

Financial Highlights (H1 FY 2019, in £m)
 
(Source: Company Filings)

With revenues from NIOX® of £18.5 million (H1 2018 CER: £14.0 million) and Tudorza® revenues of £9.3 million (H1 2018 CER: £14.4 million), revenues of the group were £27.9 million (H1 2018: £28.4 million). Gross profit during the declined to £20.3 million from £24.2 million recorded in the prior year, mainly as the company now records both the sales and costs from Tudorza® following the exercise of the option which marked the end of the AstraZeneca collaboration agreement, while gross margin decreased from 85% to 73%. Due to lower headcount along with the capitalisation of qualifying device development spend, research and development costs decreased to £2.8 million (H1 2018: £5.7 million), while lower labour costs in the United States led to decline in sales and marketing costs to some extent during H1 2019 to £25.1 million (H1 2018: £26.7 million). However, underlying operating loss rose to £19.3 million from a loss of £14.4 million in H1 2018. While underlying loss before tax rose to £19.4 million from a loss of £14.3 million. Loss per share for continuing operations was 8p (H1 2018: a loss per share of 7p) and basic loss per share for the period was 8p (H1 2018: a loss per share of 7p). Net assets at 30 June 2019 were £103.2 million (31 December 2018: £125.9 million).

Valuation Methodology
Method:  EV/SalesApproach (NTM)
 


Share Price Commentary

Daily Chart as at 26-September-19, before the market closed (Source: Thomson Reuters)
 
On 26 September 2019, at the time of writing (before the market closed, GMT 11:09 am), CIR shares were trading at GBX 16.41, down by 8.06 per cent against the previous day closing price. Stock's 52 weeks High and Low are GBX 79.30/GBX 13.25. The company's stock beta was 0.25, reflecting less volatility as compared to the benchmark index. Total outstanding market capitalisation was around £63.55 million.

Conclusion
The group faces competition from existing firms as well as new companies that might compete more effectively in the targeted market or develop safer and more effective products. However, the company has moved forward towards its eventual transition into a commercially focused organisation. The group has made good financial progress; increasing its revenues, significantly reducing its net loss and cash outflow and delivering R&D cost savings, as part of its strategy to build high growth, profitable speciality pharmaceutical business. The company aims at achieving positive EBITDA on approximately £75 million net annual sales and full year 2019 revenue is expected to be £60 million - £65 million, with several factors expected to contribute to revenue, along with a focus on cost control.

Based on the prospects and supported by valuation done using the above method, we have given a "SPECULATIVE BUY" recommendation at the current price of GBX 16.41 (as on 26 September 2019), with lower double digit upside potential, based on 0.56x NTM EV/Sales (approx.) on FY19E Sales (approx.).
 
*Peers of the company are Heat Biologics Inc, Mologen AG, Allergy Therapeutics PLC AND Avacta Group PLC
*All forecasted figures and peers have been taken from Thomson Reuters.
*The Speculative Buy recommendation is also valid for the current price as on 26-Sep-2019.

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