Cerillion plc (LON:CER) is the topic of conversation when we caught up with Janardan Menon Equity Research Analyst at Liberum.
Q. Cerillion has issued a press release announcing a major upgrade contract with GO, Malta’s leading communications provider. What does this mean for the company?
A. GO has been Cerillion’s customer for 20 years and the contract shows that upgrade orders continue to come in. Revenues from existing customers account for over 80% of Cerillion’s annual revenues typically. Many telecom operators like GO are engaged in a company-wide digital transformation to make their processes efficient and enhance their services to clients. Upgrading their BSS systems from suppliers like Cerillion is a key part of this process. In recent years Cerillion has enhanced its product significantly while also adding additional modules and capabilities, thereby driving upgrade revenues from existing customers.
Q. What does the company’s revenue and earnings growth look like at the moment?
A. Revenues grew 11% in FY20 (Sept Y/E) and adjusted EBITDA grew 27.4%.
Q. What can you tell us about the sector?
Demand for BSS/OSS systems is accelerating as telecom operators upgrade their systems due to industry changes such as 5G, virtualisation, increased security concerns and greater digitalisation. There are many newer entrants such as MVNOs, cable operators, utility companies and media companies that are offering telecom and media services that require BSS systems. They have smaller budgets than big established operators and therefore cannot afford the products and services of the larger OSS/BSS suppliers like Amdocs, Oracle and Ericsson. The environment, therefore, supports the growth of smaller and more agile solution providers like Cerillion.
Q. How do you view the outlook for Cerillion?
A. As mentioned, the telecoms industry is transitioning which requires BSS/OSS systems to be upgraded, a trend which in many cases favours more agile companies like Cerillion. This may lead to Cerillion gradually increasing market share, as it has been doing in the past. There has been a significant amount of consolidation in the industry, which may continue.