Wyld Networks: High business activity and a cash injection of cSEK16m
Research Update
2023-06-07
07:06
Redeye provides an update to Wyld Networks Q1 2023 report and the outcome of the T03 warrants subscription. The report did not reveal any major surprises, and we observed a quarter characterized by significant business activity. In Q1’23, Wyld doubled its order book compared to FY’22, indicating strong demand. Considering the lower-than-anticipated outcome of the T03 warrants and the Q1’23 report, we have revised our forecasts and fair value range. Our new Base case is SEK20 (SEK23) per share.
JG
HA
Jessica Grunewald
Henrik Alveskog
At the end of Q4’22, Wyld’s hardware order book stood at cSEK32m. Currently, it stands at cSEK77m. In our view, this is more important than looking at the sales figures for Q1’23, which, not surprisingly, were close to flat (SEK0.4m). However, larger volumes of the modules for the legacy solution will be ready for delivery in late H1 ’23. Hence, we believe sales expectations in H1’23 should be modest but more substantial at the end of ’23e and moving into ‘24e.
The TO3 warrants exercise resulted in SEK16.1m before issuance costs. The subscription rate was reported at 97.1%, indicating a c14% dilution for non-participating shareholders. Our initial estimation had projected a cash injection of cSEK25m from the T03 warrants. As such, Wyld will receive cSEK10m less from the T03 warrants than we expected. We estimate the current cash position to be cSEK30m.
Following the Q1’23 report, we have lowered our near-term growth forecasts and reduced the cost base, mainly affecting H2’23 and FY’24. In addition, we have updated the cash position in our DCF model on the back of the outcome from the T03 warrants. The new Base case is SEK20 (23), Bull case: SEK43 (47), Bear case: SEK4(5).
SEKm | 2022 | 2023e | 2024e | 2025e |
Revenues | 1.1 | 18.1 | 71.8 | 145.7 |
Revenue Growth | -54.9% | 1518% | 298% | 103% |
EBITDA | -37.6 | -27.2 | -8.2 | 10.7 |
EBIT | -37.9 | -28.4 | -8.9 | 9.9 |
EBIT Margin | -3399% | -157% | -12.4% | 6.8% |
Net Income | -39.1 | -28.4 | -4.9 | 12.0 |
EV/Revenue | 146 | 9.0 | 2.4 | 1.1 |
EV/EBIT | -4.3 | -5.7 | -18.9 | 16.0 |
The Q1’23 report from Wyld contained no significant surprises. Net sales of SEK0.4m are slightly below our expectations, but we note a well-contained cost base below our estimates. Further, we believe the fast ramp-up of the hardware order book, currently at cSEK77m, is encouraging.
Wyld launched commercially in December ’22, and therefore, we pay little attention to Wyld’s sales in Q1 ‘23. Net sales was SEK0.4m (SEK0m). In our view, the order book ramp-up and the size of the cost base are more critical to pay attention to. Below we highlight the order book, customers and order value for the hardware (modules and terminals). Worth noting is that Wyld, in Q1 ’23, doubled the order book from ‘22. The current order book value for the hardware equals c230,000 modules, indicating a price of cUSD30 per module.
Wyld often talks about their total order book, i.e. including software/data orders. As we have estimated that all deployed modules will be connected to Wyld Fusion, we focus less on these data/software orders and concentrate on the hardware orders.
Operating expenses (ex. D&A) amounted to SEK9.9m (SEK7.8). Given the commercial launch, we note that the cost base continues to be well-contained.
Cash flow from operating activities was -SEK10.5m: by the end of the quarter, cash and cash equivalents amounted to SEK9.9m. Wyld received approximately SEK16m before issuing costs through the exercise of the warrants of series TO3 in May ’23. In addition, Wyld has received cSEK4m from the UK Government for R&D activities in Q2’23. Hence, we estimate the current cash position to be cSEK30m. With the current burn rate of cSEK10m per quarter, the current cash position would take Wyld through the next three quarters without any sales. However, we estimate that sales will pick up in H2’23. Further, we believe that Wyld could finance operating cash flow via a bridge loan if the financial situation calls for it. In addition, if working capital comes under pressure, we see factoring as a potential short-term solution.
Lastly, we would not be surprised to see another directed share issue. Wyld carried out a directed share issue of cSEK7.3m in Q4’22. Given the low free float in the share and the significant ownership from the two prominent owners (c55%), a directed share issue would likely be the entry solution of a new potential principal owner.
The start of ‘23 has been eventful for Wyld, with high business activity. Below we highlight some of the events from the recent news flow, with links to our published research notes on every event.
Plan to expand into NB-IoT/5G
In March ’23, Wyld Networks announced its plan to add 5G NB-IoT to the existing satellite IoT service. Wyld’s addressable market will expand from USD670m to USD1.3bn by 2025 by adding satellite 5G NB-IoT to its current satellite LoRaWAN portfolio. We welcome the announcement since it improves Wyld’s position and creates opportunities for a new class of customers—the 5G mobile operators.
Large Wyld Connect Module Order
On the 12th of January, Wyld Networks received a large order for its satellite IoT Wyld Connect modules. The order value was SEK12.6m, which was the most significant order the company had received so far.
Outlook is overall positive, short-term we see a soft H2’23 due to ramp-up in Wyld´s supply chain. As Wyld intends to upgrade its current satellite IoT service to support 5G NB-IoT it expands its TAM significantly to USD1.3bn from USD679m in 2025. The 5G/NB-IoT expansion improves Wyld’s position and creates opportunities for a new class of customers—the 5G mobile operators. According to Wyld, it will be able to support more extensive hardware (modules) order volumes by November this year, i.e. be in the commercial phase with launched NB-IoT support to its satellite IoT services. However, we take a more modest approach and do not expect any revenue impact from the NB-IoT expansion this year.
Our forecast still implies that Wyld Networks will reach break-even in 2025. Following the Q1’23 report, we revise our near-term forecasts, indicating a lower cost base and more modest sales. We expect the first half of 2023e to be soft, with a stronger H2 to follow.
We maintain a positive outlook for strong growth by the end of ’23e, as we anticipate the shipment and deployment of hardware modules to our customers. However, we acknowledge the inherent uncertainty in our estimates due to the lack of historical data to base them upon. Moreover, it is important to note that there may be substantial fluctuations from quarter to quarter in ’23e and ’24e. Additionally, we anticipate a 3-5 months lag in data revenues following the deployment of the modules.
Below are the summarized forecast changes and forecasts:
Our new Base Case is SEK20 (23) per share, and our Bull and Bear Case are SEK43 (47) and SEK4 (5). We are considering ramp-up in the order book for hardware (modules and terminals) currently sitting at cSEK77m and converting the order book to actual sales as the most critical catalysts in the next 12 months.
Assumptions for long-term growth and profitability are outlined in the table below:
Case
Set for High Growth
Evidence
Order Book of cSEK77m Suggests Robust Demand
Challenge
Building the Market
Challenge
Materializing Orders to Ramp up Revenues
Valuation
Base Case of SEK20
People: 3
Wyld’s management team has extensive experience in the industry. CEO Alastair Williamson has more than 25 years of experience in the software telecommunication sector. We also appreciate that the two founders, Gene Myers and Steve Clarke, remain active in the company and are part of the management team. The board is well composed with a representative from the largest owner. However, we would appreciate a larger board with at least five members. Management insider ownership is relatively low (3.6% of the shares), leading Wyld to lose one point in the rating.
Business: 3
The company has an asset-light business model with high recurring revenues. Furthermore, Wyld has several strategic partners, and we believe the company offers a strong value proposition to its customers, and this adds positively to the score. We expect the Business score to rise as and when Wyld proves its successful expansion into new markets and segments, strengthens its competitive position, and expands its revenue base.
Financials: 1
Redeye’s financial rating model is determined using historical figures and requires consistent positive earnings. Wyld has yet to launch its products and has been unprofitable since listing, substantially affecting its financial rating. On the bright side, we are more than likely to revisit the rating and expect this score to increase as more historical data builds up and the company turns earnings into profits.
Disclosures and disclaimers