In the right place at the right time

We think this ‘battle-hardened’, cash-rich (estimated April '21 net funds of £6.1m) & now profitable SaaS firm is ideally placed to benefit from strong secular demand for its cutting-edge & fully integrated Big Data, AI, spend analytics, SMDM (Supplier Master Data Management) & customs/duty handling applications.

The company has posted record revenues (FY20 £7.1m +2.1% LY) & profits, aided by the £49k acquisition of Langdon (+£0.9m) in Sept’19, partly offset by the elimination of low margin pass-through contracts (£0.6m). Encouragingly, EBITDA (pre SBPs) was positive for the 1^st time ever at £36k (-£432k LY), despite expensing all £1.3m (£0.9m LY) of its R&D costs (18% sales).

In terms of FY21, we understand YTD trading is in line with expectations (ED est +£309k EBITDA on turnover up +7.1% to £7.6m), even after experiencing some order delays related to the pandemic. Here we are modelling flat H1 organic sales growth, followed by mid-single digits in H2 & 10%+ from FY22 onwards.

At 5.5p, we think Rosslyn shares not only trade on a modest 1.6x CY EV/sales (vs peers >5x), but are also targeting double digit top line growth from FY22 onwards, generates 84.7% gross margins, 40%+ EBITDA drop through rates and 88% recurring revenues – with healthy visibility.

Putting all this together, we have bumped up our valuation from 9.5p to 10p/share, reflecting the improved gross margins.