CyanConnode: Major new contracts in India and Africa

Hardman & Co

CyanConnode Holdings plc (LON:CYAN) has this week announced two major new orders, one in India, for 152,000 smart meter modules, and the other in Africa for 100,000 modules. Both are plus associated gateways, software licences and maintenance for full Advanced Metering Infrastructure (AMI). In India, the customer is a new one for the company, while the prime contractor is Schneider Electric (Schneider), one of the largest global manufacturers of infrastructure platforms. The details of the African contract remain confidential. 80%-90% of revenue for both contracts is expected to be recognised in the first two years, leading to upgrades to our FY’22 estimates.

  • Major AMI deployments: Delivery of the modules for each contract will commence in 3Q’21. While the contract values are not disclosed, AMI encompasses a large element of software across the head-end system (HES) and analytics software, both of which are high-margin elements and recognisable on delivery.
  • India: The end-customer utility is in Northern India, a new region for CYAN, whose strong relationships with the state-sponsored entities (EESL and Intellismart) and the main prime contractors bode well. We estimate that more than 80% of the planned rollout of 250m meters has yet to be placed under contract.
  • Schneider Electric: Schneider entered the Indian market segment through the acquisition of Larsen & Toubro’s electrical and automation business, which was completed in August 2020. Schneider should be comfortable selling large AMI platform deals, and the contract appears to be an example of this.
  • Africa: The details of the contract and customer are undisclosed for reasons of commercial confidentiality. The power distribution networks in many African countries are in desperate need of efficiency improvements and reduced leakage. The company’s highly resilient technologies are well suited to the region.
  • Investment summary: Our updated revenue estimate for FY’22 (to end-March) of £9.3m is based largely on existing contracts, including these latest major wins. CyanConnode remains in discussions for new contracts in several existing and new markets, and we anticipate additional new contracts that will contribute to FY’22 financials and beyond. Our DCF-implied equity fair value is £83.0m, compared with the current market capitalisation of £26.4m.

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