Cyan — Risks to consensus but solid fundamentals

Last close As at 21/11/2024

0.00 (0.00%)

Market capitalisation

Research: TMT

Cyan — Risks to consensus but solid fundamentals

Cyan’s share price has fallen c 30% since the beginning of 2020. Financials fell short of guidance in FY19 and COVID-19 is delaying some sales and technical integration in FY20. The near-term picture is uncertain, and we see further risks to consensus, but the long-term fundamentals remain healthy in our view. Demand for mobile cybersecurity is being fuelled by the rising use of phones for e-commerce and banking. The company is still targeting both ‘significant’ revenue growth and margins above 50% in the medium term. Applying a peer group multiple (11x FY21e EV/EBITDA) to updated consensus implies 17% upside to the share price.

Analyst avatar placeholder

Written by

TMT

Cyan

Risks to consensus but solid fundamentals

Technology

Scale research report - Update

13 May 2020

Price

€15

Market cap

€149m

Share price graph

Share details

Code

CYR

Listing

Deutsche Börse Scale

Shares in issue

9.8m

Net cash (€m) at end FY19

5.1

Business description

Cyan supplies cybersecurity systems for mobile data networks. Following the recent acquisition of I-New, its two major products are content management software sold as a white-label product to mobile network operators and a traffic management solution for MVNOs that enables them to reduce network traffic and corresponding costs.

Bull

Rapid growth in high-margin revenue expected.

Good visibility in general with a blue-chip customer base and healthy pipeline.

Opportunities to accelerate rapid growth through mobile banking initiatives.

Bear

Execution risk and capacity constraints.

FY20 consensus may not yet reflect current market uncertainty.

Additional revenues may be driven by one-off licence sales, offering less visibility.

Analyst

Dan Gardiner

+44 (0)20 3077 5700

Cyan’s share price has fallen c 30% since the beginning of 2020. Financials fell short of guidance in FY19 and COVID-19 is delaying some sales and technical integration in FY20. The near-term picture is uncertain, and we see further risks to consensus, but the long-term fundamentals remain healthy in our view. Demand for mobile cybersecurity is being fuelled by the rising use of phones for e-commerce and banking. The company is still targeting both ‘significant’ revenue growth and margins above 50% in the medium term. Applying a peer group multiple (11x FY21e EV/EBITDA) to updated consensus implies 17% upside to the share price.

H2 shortfall and COVID-19 impact

In Focused on delivery, we highlighted that Cyan had left itself a lot to do in H219 to meet operational and financial targets. Technical integration of its solution for Orange was completed successfully and I-New fully integrated. Bolstered by a €9.2m licence deal from ACN, it did see a significant uptick in reported revenues in Q4, but ultimately FY19 financials (revenue of €26.8m and EBITDA of €11.7m) fell short of guidance (revenue of €35m and EBITDA of €14m). The company has stated that COVID-19 is affecting FY20, but it is too early to assess the full effect. Technical integration at some sites has been delayed and the cancellation of Mobile World Congress impacted its ability to close existing deals and market its solution.

Fundamentals remain healthy

Cyan’s previous FY21 revenue target was €75m+. It now expects FY20e revenues to be at least at the level of FY19, with “significant” growth rates possible in FY21. We believe the fundamentals remain healthy. COVID-19 may have delayed progress, but the telecoms sector remains one of the least affected financially and demand for mobile cybersecurity is set to rise sharply. It has now launched its solution with AON and recently highlighted analysis forecasting its addressable market quadrupling from €1.4bn in 2018 to €5.7bn by 2023 (a 32% CAGR).

Valuation: Delivery should see upside

At €15, Cyan’s share price has fallen c 30% since the beginning of 2020. At current levels it implies an enterprise valuation of 16x FY20e consensus EBITDA, a multiple that falls to 9.6x by FY21e. Its nearest cybersecurity peers, which are neither growing as rapidly nor as profitable, trade at an average FY21e EV/EBITDA multiple of 11x. There is near-term forecast uncertainty but applying this peer group average multiple to Cyan suggests a value of €18 per share, 17% upside.

Consensus estimates and implied valuation multiples*

Year
end

Revenue
(€m)

Adj. EBITDA**
(€m)

Adj. EBIT** (€m)

Adj. EPS**
(€)

EV/Revenue
(x)

EV/EBITDA
(x)

12/19

26.8

11.7

5.5

0.5

5.4

12.3

12/20e

N/A

9.0

4.0

N/A

N/A

16.0

12/21e

38.0

15.0

10.0

0.7

3.8

9.6

12/22e

49.0

19.0

10.0

1.2

2.9

7.6

Source: Refinitiv. Note: *Consensus based on one estimate updated in May-20 (others have yet to be updated). FY20e revenue and adj. EPS not available. *Adjusted for exceptionals.

Edison Investment Research provides qualitative research coverage on companies in the Deutsche Börse Scale segment in accordance with section 36 subsection 3 of the General Terms and Conditions of Deutsche Börse AG for the Regulated Unofficial Market (Freiverkehr) on Frankfurter Wertpapierbörse (as of 1 March 2017). Two to three research reports will be produced per year. Research reports do not contain Edison analyst financial forecasts.

H2 shortfall and COVID-19 impact

The second half of 2019 saw Cyan complete a capital raising (€25m gross), finalise the integration of I-New and complete the first phase of technical integration at Orange France. In Q4 it signed a US$10.2m (€9.2m) new licence agreement with existing customer ACN, to provide embedded security features to Flash Mobile, its MVNO (Mobile Virtual Network Operator) brand in South America. It also received its first order from Wirecard (c €5m), a provider of financial commerce platforms, bringing total revenue in the quarter to €16.1m (60% of total revenue in FY19). Despite this strong Q4, revenues fell short of FY19 guidance (€26.8m vs €35m) and adjusted EBITDA reached €11.7m vs guidance of €14m. Cash flow from operating activities was -€5.8m as payments from ACN and Wirecard will be staged over several years.

The company has stated that FY20 will be affected by COVID-19 but admitted it is too early to assess the full effect. Overall, the telecoms sector has remained relatively unscathed so far, traffic volumes are up for most operators (c 30% in some cases) with cyber threats (particularly phishing emails) also rising. However, the cancellation of Mobile World Congress, Cyan’s main sales event, has affected its ability both to close existing deals and market the solution implemented with Orange to potential new customers. Technical integration at some sites has also been delayed.

Unsurprisingly in the current circumstances, Cyan did not reiterate its target to generate over €75m in sales in FY21 when the full year results were published on 29 April. Instead, it expects ‘revenues and EBITDA for 2020 to be at least at the level of the previous year. Significant growth rates should be possible again in 2021’. FY21 revenue consensus had fallen 17% since November 2019 but has not been updated in the last month (Exhibit 1). FY21 EBITDA consensus, based on the one estimate that has been updated, is now 48% below November’s estimate (Exhibit 3).

Exhibit 1: Consensus revenue forecasts for FY21 have fallen 17% since November*

Exhibit 2: Consensus EBITDA forecasts for FY21 have fallen 48% since November

Source: Cyan, Refintiv. Note: *Unlike EBITDA (see Exhibit 2), no revenue estimates have been updated following the publication of the annual report.

Source: Cyan, Refintiv. Note: *EBTIDA consensus in May based on one estimate. FY20 estimate of €9.0m below company guidance of EBITDA ‘at least at the level of last year [€11.7m]’.

Exhibit 1: Consensus revenue forecasts for FY21 have fallen 17% since November*

Source: Cyan, Refintiv. Note: *Unlike EBITDA (see Exhibit 2), no revenue estimates have been updated following the publication of the annual report.

Exhibit 2: Consensus EBITDA forecasts for FY21 have fallen 48% since November

Source: Cyan, Refintiv. Note: *EBTIDA consensus in May based on one estimate. FY20 estimate of €9.0m below company guidance of EBITDA ‘at least at the level of last year [€11.7m]’.

Fundamentals remain healthy

The near-term outlook may be cloudy, but Cyan’s fundamentals remain healthy in our view. While it is prudent to assume that the telecoms sector will not emerge completely unscathed from the current economic downturn, we expect the impact is likely to be relatively modest and that, as short term operational measures are lifted, Cyan’s customers will still have budgets available to spend. More significantly, demand for mobile cybersecurity solutions is set to grow rapidly. The proportion of mobile phone users opting to shop, bank or use mobile payment systems is steadily rising (see Exhibit 3). As the number of customers engaging in these activities rises, so does the risk of cyber threats. The company ultimately sees an addressable market of 2.6 billion customers willing to pay, either indirectly via their subscription or directly to prevent mobile cyber threats. In May, Cyan highlighted third-party analysis suggesting that its addressable market will quadruple from €1.4bn in 2018 to €5.7bn by 2023 (a 32% CAGR).

Exhibit 3: The rising use of applications that require cybersecurity on mobile phones

Source: Cyan

In addition to a healthy market backdrop, Cyan’s pipeline (as measured by the number of customers) appears to be still growing. Its contract with Orange could in due course generate annual recurring revenue of over €25m, doubling its FY19 revenue alone (see The future is bright, the future is… and Focused on delivery). Its “end-point” cybersecurity solution with leading global insurer Aon (a downloadable app on the mobile phone) is now being actively marketed in Austria and Switzerland and is available globally. The company believes this could be a significant growth driver in time. Its relationship with Wirecard (c €5m in Q4) is still only in its early stages. In May, the company signed an agreement to protect children on MobiFone’s network (30 million customers in Vietnam) from cyber threats and expects to expand this relationship over time.

Valuation

At €15, Cyan’s share price implies an enterprise valuation of 16x updated consensus FY20e EBITDA, a 22% premium to its nearest cybersecurity peers. This multiple falls to 9.6x by FY21e and just 7.6x by FY22. There are significant forecast risks – both positive (Orange) and negative (COVID-19). Nevertheless, as we highlighted in our notes, Focused on delivery and The future is bright, the future is…, Cyan does have a significant growth opportunity and, if it can meet lowered consensus forecasts. there should be upside to the current rating. Its nearest cybersecurity peers, which are neither growing as rapidly nor as profitable, trade at an average FY21e EV/EBITDA multiple of 11x. Applying this peer group average multiple to updated consensus for Cyan suggests a value of c €18 per share, 17% upside to the current value.

General disclaimer and copyright

Any Information, data, analysis and opinions contained in this report do not constitute investment advice by Deutsche Börse AG or the Frankfurter Wertpapierbörse. Any investment decision should be solely based on a securities offering document or another document containing all information required to make such an investment decision, including risk factors. This report has been commissioned by Deutsche Börse AG and prepared and issued by Edison for publication globally.

Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2020 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

.

More on

View All

Latest from the TMT sector

View All TMT content

Research: TMT

Expert System — More funding for international expansion

A recent fund-raise generated gross proceeds of €3m for Expert System and added two new investors to the shareholder register. The company intends to use the proceeds to support its international expansion plans, primarily in the US. It recently announced a partnership with SDL to increase multilingual support.

Continue Reading

Subscribe to Edison

Get access to the very latest content matched to your personal investment style.

Sign up for free