Cerillion plc (LON:CER) annual results 2023, proposition competitiveness, growth story and long-term investment thesis are under the spotlight, as DirectorsTalk caught up with Harold Evans, Senior Research Analyst, TMT at Singer Capital Markets for his views.
Q1. Harold, how would you sum up another stellar year of financial growth for Cerillion?
A1. Cerillion has operated flawlessly for the last three years – achieving accelerated revenue growth, material margin expansion and also strategic progress with larger customers – this achieving record FY23 licence sales. Cerillion has also just signed a new customer, thereby demonstrating strong demand even when budgets are under pressure. I don’t believe the market has fully considered how the full potential of its customers could drive growth ahead of consensus.
Q2. What does Cerillion’s success say about its competitiveness given it’s come during a down-cycle?
A2. Fibre and 5G rollouts have long benefitted the company, as customers have frequently purchased Cerillion’s B/OSS software to monetise new network assets. It would appear this argument still holds true in (both expansionary and) a down-cycle, as despite capex programmes coming under pressure, Cerillion has continued to trade very strongly, as customers recognise how investing in modern B/OSS systems (the enterprise software layer that connects networks to end-customers) enables better monetisation and improved operational efficiency of existing network infrastructure. In addition, we believe Cerillion is well placed to outperform the competition, as – in a more cost-conscious environment – we expect customers to pay greater attention to the financial advantages of Cerillion’s ‘out-of-the box’ product offering.
Q3. What’s driving Cerillion’s growth?
A3. For a packaged software company, software licence sales have been relatively low, but in FY23 this very much changed, as Cerillion started to see the true benefit of its scalable product offering, driven by traction with larger customers. Licence sales grew +243% y/y to £8.1m and in addition, ARR grew +19% £14.8m, driven by 41% Managed Service ARR growth and also upselling of Cerillion’s Evergreen programme, which in turn was a key contributor to +85% growth in ‘existing customer bookings’ in FY23. If CER can continue selling to Tier-1’s, we see an enormous growth runway.
Q4. Does Cerillion remain a great long-term investment?
A4. Yes, there are many reasons to believe it will be a great long-term investment: its growth potential and its differentiated and ‘counter-cyclical’ value proposition. However, this is nothing without execution. We note that growth slowed to +13% in 2H23 but that was ultimately a consequence of flat order intake since FY21. CER needs to address this to return to >20% growth.
Encouragingly, following a very strong start to FY24 (a €12.4m/5yr win earlier this month), strong growth potential from the existing base and record year end pipeline, this all points to a strong year for orders and in turn, potentially outperformance versus consensus.
Cerillion plc is a leading provider of billing, charging and customer management systems with more than 20 years’ experience delivering solutions across a broad range of industries including the telecommunications, finance, utilities and transportation sectors.
