Internet and software company Bigtincan Hodlings Limited seeks to raise $12m to list on the ASX in March in a $46 million deal. The Software as a Service industry is a high growth sector but peers have performed mixed: Wisetech Global (WTC.ASX) recently announced strong results and its stock price soared but shares of Aconex (ACX.ASX) were sold down. Bigtincan is focused on the North American market, but what else should investors consider before investing in the Bigtincan IPO?
Bigtincan Holdings Limited is an Australian Software as a Service Provider (‘SaaS’) focused on enterprise mobility. Bigtincan’s mobility software is designed to facilitate sales and service workflows in order to increase client engagement. As at the date of the prospectus the company had approximately 300 paying customers with 100,000 users on its single product platform. The company was founded in 2011 with historic share capital of $22 million.
Revenue is projected to rise by 38% during FY17 and transition to a cash flow positive status over the medium-term is a major catalyst, albeit contingent on further growth. Income visibility is high as Bigtincan has maintained an annual client retention rate of over 90% since FY15. We believe that recently established channel partnerships with Apple and Singtel Optus provide the opportunity to drive sales and extend the company’s reach. The company’s relationship with AT&T is very mature and already bringing in sales.
However, Bigtincan has historically been reliant on external capital whilst operating at a loss and there is no guarantee that a self-funding position will be achieved. Management predicts a $4.8 million loss for FY17, which would be less than the $5.2 million loss during FY16. There is a risk that user growth on the platform could slow down which would adversely impact financial performance and the company’s ability to achieve its prospectus guidance. In addition, internet and software services are relatively cheap to produce resulting in low entry barriers for the industry, hence Bigtincan may be subject to increasing competition.
Bigtincan offers speculative exposure to demand for enterprise mobility software in North America. In summary, we are attracted to existing channel partnerships, its high degree of recurring revenue and potential to reach a cash flow positive status. Risks revolve around funding demand, user growth and competition. In order to deliver sustainable shareholder value, the company needs to become cash flow breakeven, which requires ongoing growth in a cost efficient manner. The IPO is valued at a modest premium to historic invested capital, however as product investments are largely completed, management can now focus on expanding sales capabilities. The float is speculative in nature, but catalysts offer potential for upside.
ASX Code: BTH Shares on Offer: 46.2m Listing Price: $0.26 Market Capitalisation: $45.9m Listing Date: March 22
Simon is a financial analyst at independent research firm Wise-owl specialised in small-mid cap growth opportunities and ethical investment opportunities. Simon's aim is to disrupt the cliché approach to investment decision making as he believes that socially and environmentally responsible behaviour is a necessity to long-term wealth creation. Simon has a deep fundamental understanding of the global financial landscape and has compiled 300+ research reports, valuations and corporate appraisals. Simon is commonly featured in major media outlets and his research is published weekly in The Australian.
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