Cordel Group — On the right tracks

Cordel Group (LSE: CRDL)

Last close As at 27/01/2025

GBP0.08

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Market capitalisation

GBP17m

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Research: TMT

Cordel Group — On the right tracks

Cordel’s demonstrated solid H1 revenue growth to £2.3m (+16% y-o-y), with expanded gross margins and modest operating cost increases reducing losses. Recent contract momentum and a healthy pipeline position the company for a strong H2. Longer term, with expanding gross margins, a significantly enlarged international customer base and the Positive Train Control (PTC) development now well underway, we believe Cordel looks well-placed to deliver sustained, operationally geared revenue growth.

Written by

Dan Ridsdale

Head of Technology

Software and comp services

Interim results

Spotlight — update

27 January 2025

Price 7.50p
Market cap £16m
Price Performance
Share details
Code CRDL
Listing AIM

Shares in issue

216.9m

Net cash at 31 December 2024

£1.0m

Business description

Cordel Group offers a patented cloud-based platform for master data management and business analytics, together with specialist hardware and software for capturing, analysing and reporting on large datasets within the transport sector, employing sophisticated AI algorithms.

Bull points

  • Strong product/market fit.
  • Growing reference customer base across geographies and use cases.
  • Meets a number of vertical AI success factors, including data, vertical domain expertise and cloud platform.

Bear points

  • Limited resources to invest in growth opportunity.
  • Large deals prone to slippage.
  • Small in scale.

Analyst

Dan Ridsdale
+44 (0)20 3077 5700

Cordel Group is a research client of Edison Investment Research Limited

H125 revenues +16%, gross profit +54%

Cordel’s revenues grew by 16% in H1 to £2.3m (+16% y-o-y), driven by momentum in the US and Australia and partially offset by delays in the UK. Gross profit increased by 54% y-o-y to £1.6m, with gross margin rising to 70% from 53% a year ago. This improvement reflects lower third-party and hardware costs, which management believes can be sustained. With operating expenses growing by a modest 11%, the EBITDA loss reduced significantly y-o-y to £0.2m, from £0.6m. Net cash of £1.0m was flat from year-end 2024, with a £700k operating cash outflow offset by £1.0m raised from the October equity issue.

On track for a strong H2

Cordel has reported positive contract momentum, securing new contracts with Southeastern, Network Rail and Angel Trains in the UK and ARTC and Aurizon Holdings in Australia. The overall customer base has grown from eight to 11 clients over the six months to 31 December, further improving referenceability and the scope for follow-on sales. Consequently, Cordel looks well-positioned to deliver a faster growth rate in H2 and for the full year compared with H1, although prolonged decision cycles remain a factor and cloud visibility.

Investment into PTC opportunity underway

The PTC project, funded by the £1.0m raised on October 24, is underway. Cordel has hired AI engineers and has secured collaborations with three major US rail operators. It is targeting early FY26 for the initial product launch, unlocking opportunities in PTC solutions and expanding relationships with US rail operators.

Valuation remains modest given the opportunity

Cordel’s EV/sales ratio of 2.5x for FY25 and 1.9x for FY26 is modest given the forecast growth rate and strategic opportunity. We believe Cordel possesses key attributes for success in vertical AI markets, including access to unique datasets, a cloud platform and deep domain expertise in turning data into insights.

Source: Company data, consensus estimates.

Consensus estimates

Year end Revenue (£m) EBITDA (£m) PBT (£m) EPS (p) EV/sales (x)
6/23 3.0 (0.3) (0.4) (0.30) 5.1
6/24 4.4 (1.1) (1.2) (0.60) 3.5
6/25e 6.2 (0.3) (0.4) 0.00 2.5
6/26e 8.0 0.8 0.6 0.25 1.9

Investing in PTC

Incremental US opportunity

Cordel raised £1.0m in October, supported by Rathbones Investment Management, to invest in a solution for PTC. These are systems which continuously monitor train speed and location, automatically slowing or stopping trains based on detected factors (eg excess speed, movement, asset deviations etc) or mapped data (eg level crossings, speed signs, signals, switch points etc). PTC is mandated in the US for Class 1 railroads, with systems now operational over 58,000 miles of track. Canada also appears to be taking steps towards mandating the technology.

Cordel automates mapping, auditing and change detection

These systems rely on accurate track data and asset mapping, which currently requires manual auditing. Cordel’s solution will automate this process, using the company’s AI to detect assets within point cloud data and identify changes.

Encouraging technical and commercial progress

The initial product launch is targeted for early FY26 and the project is now well underway. Since October 2024, Cordel has expanded its AI team and enlisted industry expert Jeff Songer to its advisory board. The company is engaged with three of the seven Class 1 railroads, two of which have given Cordel access to their LIDAR point cloud data to support solution development. Cordel’s models are already accurate for four of eight asset classes and a change detection solution is in development.

Successful completion of this project should open up significant incremental opportunities for Cordel, including PTC solution sales and relationships with US rail operators.

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