Cerillion plc: “An exceptional high-quality business” says Harold Evans, Singer senior analyst

Cerillion plc (LON:CER) – DirectorsTalk caught up with Harold Evans, Senior Research Analyst, TMT at Singer Capital Markets for his views on Cerillion’s recent trading update for the financial year ended 30 September 2023.

Harold, how were Cerillion’s results?

Cerillion has delivered a very strong set of results, yet again. FYSept23 revenues of £39m (vs. £38mE, ~+19% y/y), while adj. PBT is expected to be meaningfully ahead – perhaps £15.3m (vs. £14.1mE ~+28% y/y). Cash is a little light at £24.7m (implied FCF £7.4m) which is likely due to revenue mix (more licence revenue and therefore accrued income).

What do you make of the fact that its share price is down from its June 2023 high of 1,500 GBp?

Its shares are off c.20%, in response to sector peers (LON:CLX, SPT, DOX and NOKIA) all warning or flagging caution. Cerillion has also not signed a new customer in FY23, such that its backlog will likely be down year-on-year. In our view, this period of temporary weakness is just a perception and nothing more. Cerillion seems unflustered by these events, having seen very strong demand from existing customers and – while conscious of not signing a new customer(s) this year – puts this down to timing, rather than demand. Cerillion’s large contracts can fall either side of the y/e and skew performance.

Cerillion remains an exceptional high-quality business. Existing customer’s buoyant demand “significantly grew”. Specifically, we estimate ‘existing customer bookings’ almost doubled y/y – in turn highlighting the company’s wealth of opportunities within its existing base. However, the company needs to convert some pipeline opportunities to drive/sustain >20% revenue growth.

If CSPs are spending more cautiously, why is CER trading so strongly?

Well, software (and specifically, Cerillion’s lower cost packaged software) is small beer relative to network infrastructure, so the argument “to monetise your existing infrastructure by upgrading your B/OSS” is more relevant than ever. Furthermore, one could also argue a tough market plays to Cerillion’s competitive pricing, as being a true ‘product’ vendor, its software can offer ‘more for less’.

Cerillion plc (LON:CER) is a leading provider of billing, charging and customer management systems with more than 20 years’ experience delivering its solutions across a broad range of industries including the telecommunications, finance, utilities and transportation sectors.

It has established a reputation within the global telecoms market for being a leading supplier of carrier-grade, enterprise billing and CRM software, supporting fixed wire, mobile, broadband and TV communications service providers.

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