Cordel Group — Contract win momentum continues

Cordel Group (LSE: CRDL)

Last close As at 20/11/2024

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Research: TMT

Cordel Group — Contract win momentum continues

Cordel has announced two new customer wins, with Aurizon Holdings, Australia’s largest freight operator, and Southeastern, one of the UK’s biggest rail operators. The company’s customer base has more than doubled since the start of 2024 and these deals indicate that Cordel is now seeing some network benefits from this expansion. We believe that Cordel is well placed to sustain its 40%+ growth rate, as its customer base increases and the company expands its use cases and revenues from existing customers.

Written by

Dan Ridsdale

Head of Technology

TMT

Cordel Group

Contract win momentum continues

Software and comp services

QuickView

13 November 2024

Price

7.25p

Market cap

£14.5m

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Share details

Code

CRDL

Listing

AIM

Shares in issue

215m

Business description

Cordel Group is a UK-based technology company specialising in AI-powered rail infrastructure monitoring. The company provides a cloud-based platform for automated inspections and data management, enhancing railway safety, efficiency, and sustainability.

Bull

Strong product market fit.

Growing reference customer base across geographies and use case.

Meets a number of vertical AI success factors, including data, vertical domain expertise and cloud platform.

Bear

Limited resources to invest in growth opportunity.

Large deals can be prone to slippage.

Small in scale.

Analyst

Dan Ridsdale

+44 (0)20 3077 5700

Cordel has announced two new customer wins, with Aurizon Holdings, Australia’s largest freight operator, and Southeastern, one of the UK’s biggest rail operators. The company’s customer base has more than doubled since the start of 2024 and these deals indicate that Cordel is now seeing some network benefits from this expansion. We believe that Cordel is well placed to sustain its 40%+ growth rate, as its customer base increases and the company expands its use cases and revenues from existing customers.

Customer base more than doubled in CY24

The first contract, with Aurizon, Australia’s leading rail freight operator, involves the deployment of Cordel Connect and the Clearance module. It covers a segment of Aurizon’s 5,100km track network and is a bring-your-own-data (BYOD) engagement, whereby Cordel will analyse data it has already collected as part of its engagement with network operator ARTC. The upsell opportunity is to expand the implementation across Aurizon’s wider network or add new use case modules. The contract with Southeastern involves working with both Southeastern and Network Rail to generate measurement data through automated LIDAR data and AI processing to help optimise the accessibility of planned new trains. This new use case may create opportunities with new train designers or specifiers looking to optimise their designs for specific network environments. While both contracts are entry point deals, they have the potential to expand, and highlight how Cordel’s growing customer base (in these cases with network operators) opens opportunities with others.

Well placed to sustain 40% growth

Cordel reported FY24 revenue growth of 46% to £4.4m earlier this month and the company looks well placed to sustain a strong growth rate, as its customer base expands and it builds its footprint with existing customers. The company’s recent £1.0m placing provides additional resource to invest in enhanced 3D object recognition capability to support a US opportunity in Positive Train Control systems. Excluding investment in that product (c £400k), management expects close to break-even in FY25. Sustaining this growth rate into FY26 should scale the business into profitability.

Valuation: Modest given growth potential

Cordel’s valuation of 2.2x EV/sales is modest given the forecast growth rate and strategic opportunity. We also highlight that Cordel has many attributes that we believe will be key success factors for vertical AI companies, supporting both growth prospects and strategic value. These include access to unique data sets, a cloud platform and deep domain expertise in turning data into actionable insights.

Consensus estimates

Year
end

Revenue
(£m)

EBITDA
(£m)

PBT
(£m)

EPS
(p)

EV/sales
(x)

P/E
(x)

06/23

3.5

(0.5)

(0.5)

(0.30)

3.9

N/A

06/24

4.4

(1.1)

(1.2)

(0.65)

3.1

N/A

06/25e

6.2

(0.3)

(0.5)

(0.20)

2.2

N/A

Source: Company data, consensus estimates

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This report has been commissioned by Cordel Group and prepared and issued by Edison, in consideration of a fee payable by Cordel Group. Edison Investment Research standard fees are £60,000 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.

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London │ New York │ Frankfurt

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London │ New York │ Frankfurt

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London, WC1R 4PS

United Kingdom

General disclaimer and copyright

This report has been commissioned by Cordel Group and prepared and issued by Edison, in consideration of a fee payable by Cordel Group. Edison Investment Research standard fees are £60,000 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 2024 Edison Investment Research Limited (Edison).

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

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.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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