DataWalk (WSE:DAT) – Report - Warsaw Stock Exchange

2Q22 revenues reached PLN 14.0 million (up 32% yoy) and beat our tentative forecast by over PLN 1 million. DataWalk informed that 1H22 financials growth dynamic was impeded by insufficient training and size of teams handling the pre-sale and post-sale services, and concluded that only after these problems have been solved, the 70% target yoy growth dynamic can be reached.
In 1H22 DataWalk’s growth dynamic stood at 29% yoy vs our expectations of 72% for FY22, which, in the light of current problems with pre-sale and post-sale processes, may be a big challenge for the Company this year, we believe, as 2H22 revenues should increase over 100% yoy to achieve this 72% growth. Therefore, we lower our forecast of the Company’s revenues in FY22 by 13% to PLN 46.2 million (up 50% yoy). We assume as well that, after the bottleneck problems are solved, from 2023 onwards, the Company’s revenues will resume a growth dynamic at a c. 70% level.
Since June when we issued our last report, the Company informed about 8 contracts signed, including 5 which are the extensions/ expansions of existing contracts (Ally Financial, PKN Orlen, National Police Headquarters, the US Defense Department, the US Labor Department) and 3 new contracts (Total Energies, US Army Criminal Investigation Division, and Polaris Wireless). Until today, the Company informed about 14 new contracts acquired this year, which implies a 75% increase vs the analogical period of 2021 when it obtained 8 new contracts.
Since June when we issued our last report, the median of EV/Sales multiples for 2022-24 of the Company’s peers has fallen by 6% on average, which coupled with lowering of our revenue forecasts for 2022E-24E by 13-16% leads to a 21% decline of our DataWalk 12M EFV that currently yields PLN 158 per share (previously PLN 201 per share).
As we estimate the current upside for the Company’s share price at below 10%, we downgrade our LT fundamental recommendation to Hold (from Buy). At the same time our ST relative Neutral recommendation stays intact.
Since June when we issued our last report, the Company informed about 8 contracts acquired, including 5 which are the extensions/ expansions of existing contracts (Ally Financial, PKN Orlen, National Police Headquarters, the US Defense Department, the US Labor Department) and 3 new contracts (Total Energies, US Army Criminal Investigation Division, and Polaris Wireless). Until today, the Company informed about 14 new contracts signed this year, which implies a 75% increase vs the analogical period of 2021 when it acquired 8 new contracts.
DataWalk informed that as of September 14 a sales funnel value stood at c. PLN 25.1 million (including c. PLN 14.3 million in the US market and PLN 10.8 million in other markets) which implies a 12% growth of sales funnel value as compared to April. It seems that in spite of the above mentioned bottleneck problems of pre-sale services, a sales funnel value is back on a rising path after a year of flat performance.
In 1H22 the Company’s revenues reached PLN 18.2 million (up 29% yoy) which implies PLN 14.0 million for 2Q22 (up 32% yoy). On the other hand, 2Q22 operating loss stood at PLN 106.2 million; the result was burdened by a non-cash cost of the incentive program (at PLN 106.2 million). 2Q22 adj EBIT (excluding the impact of the incentive program cost) amounted to 0. Operating costs in 2Q22 (excluding costs of the incentive program) reached PLN 14.0 million (up 110% yoy; up 20% qoq). 2Q22 reported revenues beat our preliminary expectations by PLN 1 million (and c. 10%).
On September 15 the Company held a conference to discuss 1H22 financial results and address other matters. Below we present the key issues:
According to one DataWalk’s client, the Company’s software enables to reach a 93% accuracy in fraud detection as compared to standard 20-30%;
In 1H22 DataWalk’s growth dynamic stood at 29% yoy vs our expectations of 72% for FY22, which, in the light of current problems with pre- and post-sale processes, may be a big challenge for the Company, we believe, as 2H22 revenues should increase over 100% yoy to achieve this 72% growth. Therefore, we lower our FY22 forecast of the Company’s revenues by 13% to PLN 46.2 million (up 50% yoy). We assume as well that, after the bottleneck problems 4 DataWalk are solved, from 2023 onwards, the Company’s revenues will resume a growth dynamic at a c. 70% level.
We value DataWalk via the peer-relative valuation based on the EV/Sales multiples against the peer group encompassing American software companies with similar business model and growth profile. Since June when we issued our last report, the median of EV/Sales multiples for 2022-24 of the Company’s peers has fallen by 6% on average, which coupled with lowering of our revenue forecasts for 2022E-24E by 13-16% results in a 21% decline of our 12M EFV to PLN 158 per share (from PLN 201 per share).
Due to the fact that we estimate the current upside for the Company’s share price at c. 10%, we downgrade our LT fundamental recommendation to Hold (from Buy). At the same time our ST relative Neutral recommendation stays intact.
This report is prepared for the Warsaw Stock Exchange SA within the framework of the Analytical Coverage Support Program 3.0.
Analyst: Tomasz Rodak, CFA