Wyld Networks: Expanding Production Capacity
Research Update
2023-08-22
07:25
Redeye provides an update to Wyld’s Q2 2023 report, in which our estimates align with the reported figures. The report did not reveal any significant unexpected outcomes. Meanwhile, we noted a quarter in which the order book expanded by cSEK26 million, accompanied by robust business activity and a focus on scaling manufacturing to meet demand. Our financial forecast has undergone minor adjustments, and our fair value range remains unchanged, with a base case of SEK20 per share.
JG
HA
Jessica Grunewald
Henrik Alveskog
Contents
Investment thesis
Q2 Review
Financials Q2 2023: Sales
Financials Q2 2023: Cost base and Cash position
News flow during the quarter
News flow after quarter
Outlook
Change in ownership and share performance
Estimates
Valuation
Quality Rating
Financials
Rating definitions
The team
Download article
At the end of Q2’23, Wyld’s hardware order book stood at cSEK92m of which SEK77m is for hardware (modules and terminals). In our view, this is more important than looking at the sales figures for Q2’23, which, not surprisingly, were close to flat (SEK0.3m). In Q2’23, the order book expanded by cSEK26m. The first shipment of orders is expected for Q3’23, and Wyld now focuses on scaling up the manufacturing. It is worth mentioning that the orders with the hardware order book are for 1-4 years. We estimate that c200,000 modules will be deployed by the end of ’24, where orders stem from the current order book and new orders during ’23-’24.
Wyld received cSEK6.3m from the UK Government for R&D activities in Q3’23 and repaid a loan of cSEK4.7m, implying that Wyld currently does not hold any outstanding loans. Hence, we estimate the present cash position to be cSEK20m. With the current burn rate of cSEK10m per quarter, the current cash position takes Wyld through Q3 and Q4, even without any sales. However, we estimate that sales will pick up in Q3’23, initially in small figures. Further, we believe that Wyld could finance operating cash flow via a bridge loan if the financial situation calls for it. 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.
Following the Q2’23 report, our financial forecast has undergone minor adjustments, and our fair value range remains unchanged. Our Base case is SEK20, Bull case: SEK43, Bear case: SEK4. Currently, Wyld is trading at an EV/SALES of 2.5x based on our 2024e and with an 82% upside potential to our base case.
SEKm | 2022 | 2023e | 2024e | 2025e |
Revenues | 1.1 | 15.5 | 71.8 | 145.7 |
Revenue Growth | -54.9% | 1285% | 364% | 103% |
EBITDA | -37.6 | -29.5 | -9.3 | 9.3 |
EBIT | -37.9 | -30.7 | -10.0 | 8.5 |
EBIT Margin | -3399% | -198% | -13.9% | 5.9% |
Net Income | -39.1 | -30.7 | -6.0 | 10.8 |
EV/Revenue | 146 | 11.2 | 2.5 | 1.2 |
EV/EBIT | -4.3 | -5.7 | -18.2 | 20.3 |
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
Overall, Wyld Networks Q2 2023 reported figures aligned with our estimates. The report did not unveil any significant unexpected outcomes. Meanwhile, we noted a quarter in which the order book expanded by approximately cSEK26 million, accompanied by robust business activity and a focus on scaling manufacturing to meet demand.
Wyld Networks: Actual vs Expectations | ||||
(SEKm) | Q1'23 | Q2'23 Actual | Q2'23e | |
Net sales | 0.4 | 0.3 | 0.4 | |
OPEX | 9.9 | 11.3 | 10.5 | |
EBIT | -9.1 | -10.5 | -10.3 | |
Source: Redeye Research |
Net sales was SEK0.3m (SEK0.1m). 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). The current order book value for the hardware equals c230,000 modules, indicating a price of cUSD30 per module. The first shipment of orders is expected for Q3’23, and Wyld now focuses on scaling up the manufacturing. It is worth mentioning that the orders in the hardware order book are for 1-4 years. We estimate that c200,000 modules will be deployed by the end of ’24, where orders stem both from the current order book and new orders during ’23-’24.
Wyld Networks: Hardware Orderbook | |||
Year of Order | Company | Sector | Order volume (SEKm) |
2022 | C.Towers | Energy | 0.3 |
2022 | Bayer Crop | Agriculture | 0.3 |
2022 | Not disclosed | Agriculture | 17.0 |
2022 | Nordic IoT company | Utilities | 0.8 |
2022 | DEWA/Eutelsat | Utilites | 1.0 |
2022 | IMAE | Utilites | 0.3 |
2022 | Treevia | Ecosystems | 11.3 |
2022 | Agrocognitive | Agriculture | 1.1 |
Total Orderbook 2022 | 32.1 | ||
2023 | Not disclosed | Agriculture | 12.6 |
2023 | Not disclosed | Utilites | 6.3 |
2023 | Not disclosed | Utilities | 13.0 |
2023 | Not disclosed | Utilities | 8.3 |
2023 | Not disclosed | Utilities | 4.8 |
2023 | |||
Total Current Orderbook | 77.1 | ||
Source: Redeye Research and Wyld Networks |
Wyld often talks about their total order book, i.e. including software/data orders, currently sitting at SEK92m. 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 SEK11.3m (SEK8.9), and the cost base continues to be well-contained in our view.
Cash flow from operating activities was -SEK7.9m: by the end of the quarter, cash and cash equivalents amounted to SEK19m. In addition, Wyld has received cSEK6m from the UK Government for R&D activities in Q3’23. Hence, we estimate the current cash position to be cSEK20-25m. Wyld received cSEK6.3m from the UK Government for R&D activities in Q3’23 and repaid a loan of cSEK4m, implying that Wyld is now debt free. With the current burn rate of cSEK10m per quarter, the current cash position would take Wyld through Q3 and Q4 without any sales. However, we estimate that sales will pick up in Q3’23, initially in small figures. Further, we believe that Wyld could finance operating cash flow via a bridge loan if the financial situation calls for it. In addition, we believe that customer prepayments could further improve the cash position as we advance. 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.
Below we highlight some of the events from the recent news flow, with links to our published research notes on every event:
The start of Q3‘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.
Outlook is overall positive from management, and there are a couple of reasons behind this:
Wyld is scaling up manufacturing to the high demand it sees and plans to deliver products starting in Q3 2023.
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 Q1’24, i.e. be in the commercial phase with launched NB-IoT support to its satellite IoT services. Wyld has partnered with satellite operator OQ Technology to accelerate the roll-out of 5G NB-IoT.
Wyld has been awarded a place on the UK-APAC tech growth programme initiative run by Intralink and the UK Government. Management states that the program will begin Wyld’s penetration into the APAC IoT ecosystem, and they expect this region to be a key part of growth over the coming months and years.
According to the CEO, Alastair Williamson, of Wyld Networks, Tern PLC has decreed its ownership during the last six months and is now down to 27% from c40% in terms of ownership in Wyld. The share price was under pressure from July until the beginning of August but has somewhat recovered since then. The news about the agreement with SpaceX on 4 August drove the share price up c28% intra-day, and since then, the share price has hovered around cSEK10-12.
Our forecast still implies that Wyld Networks will reach break-even in 2025. Following the Q2’23 report, we have only made minor adjustments to our near-term forecasts.
We maintain a positive outlook for strong growth by the end of ’23e, as we anticipate the shipment and deployment of hardware modules to customers. However, we acknowledge the inherent uncertainty in our estimates due to the dynamic and immature business environment. 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:
Wyld Networks: Estimate change (SEKm) | |||
2023e | 2024e | 2025e | |
Net sales | |||
Old | 18 | 72 | 146 |
New | 15 | 72 | 146 |
% change | -14% | 0% | 0% |
EBIT | |||
Old | -28 | -9 | 10 |
New | -31 | -10 | 9 |
% change | -8% | -12% | -14% |
EBIT margin (%) | |||
Old | -157% | -12% | 7% |
New | -198% | -14% | 6% |
Source: Redeye Research |
Wyld Networks: Estimate (MSEK) | |||||||||
2022 | 2023Q1 | 2023Q2 | 2023Q3e | 2023Q4e | 2023e | 2024e | 2025e | 2026e | |
Net Sales | 1 | 0 | 0 | 2 | 13 | 15 | 72 | 146 | 206 |
COGS | -1 | 0 | 0 | -1 | -5 | -6 | -30 | -67 | -96 |
Other costs | -21 | -5 | -6 | -4 | -5 | -24 | -24 | -31 | -37 |
Personnel costs | -20 | -6 | -6 | -7 | -7 | -24 | -32 | -38 | -49 |
OPEX | 42 | -10 | -11 | -11 | -11 | -49 | -56 | -70 | -87 |
EBITDA | -38 | -9 | -10 | -10 | -3 | -30 | -9 | 9 | 23 |
D&A | 0 | 0 | 0 | 0 | -1 | -1 | -1 | -1 | -2 |
EBIT | -38 | -9 | -11 | -10 | -4 | -31 | -10 | 9 | 21 |
Growth | |||||||||
y/y | 1285% | 364% | 103% | 41% | |||||
Margins | |||||||||
EBITDA-margin (%) | neg. | neg. | 6% | 11% | |||||
EBIT-margin (%) | neg. | neg. | 6% | 10% | |||||
Earnings multiples | |||||||||
EV/Sales | 10 | 3 | 1 | 1 | |||||
EV/EBITDA | neg. | neg. | 19 | 7 | |||||
EV/EBIT | neg. | neg. | 20 | 8 | |||||
Source: Redeye Research |
Our Base Case is SEK20 per share, and our Bull and Bear Case are SEK43 and SEK4. 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. Our fair value range remains quite broad: SEK4-43 per share. However, this is quite common for companies similar to Wyld Networks. That is high future growth expectations and a difficult-to-assess sustainable profitability level.
Our valuation is based on the financial forecasts in the table above (Base case) and long-term assumptions outlined in the table below.
Wyld Networks: DCF assumtions in Base case, SEKm | |||||
Assumtions: | 2023-27e | 2028-32e | Calculations: | ||
Sales CAGR | 195% | 16% | NPV of FCF | 136 | |
Average EBIT margin | n.a. | 16% | NPV of Terminal Value | 158 | |
Value of the firm | 293 | ||||
Terminal | |||||
Sales growth | 2% | Net Cash (+) | 20 | ||
EBIT margin | 16% | Equity value | 313 | ||
Fair value per share | 20 | ||||
WACC | 13% | Current share price | 11 | ||
Shares 2023e (m) | 16 | Potential | 82% | ||
Source: Redeye Research |
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.
Income statement | ||||
SEKm | 2022 | 2023e | 2024e | 2025e |
Revenues | 1.1 | 15.5 | 71.8 | 145.7 |
Cost of Revenue | -3.0 | 1.8 | 25.0 | 66.8 |
Operating Expenses | 41.7 | 43.2 | 56.1 | 69.6 |
EBITDA | -37.6 | -29.5 | -9.3 | 9.3 |
Depreciation | 0.11 | 0.00 | 0.00 | 0.07 |
Amortizations | 0.04 | 1.1 | 0.72 | 0.73 |
EBIT | -37.9 | -30.7 | -10.0 | 8.5 |
Shares in Associates | 0.00 | 0.00 | 0.00 | 0.00 |
Interest Expenses | 1.1 | 0.00 | 0.00 | 0.00 |
Net Financial Items | -1.1 | 0.00 | 0.00 | 0.00 |
EBT | -39.1 | -30.7 | -10.0 | 8.5 |
Income Tax Expenses | 0.00 | 0.00 | 0.00 | 1.7 |
Net Income | -39.1 | -30.7 | -6.0 | 10.8 |
Cash flow | ||||
SEKm | 2022 | 2023e | 2024e | 2025e |
Operating Cash Flow | -41.1 | -30.0 | -6.9 | 11.5 |
Investing Cash Flow | -0.63 | -0.77 | -1.4 | -2.9 |
Financing Cash Flow | 43.9 | 36.0 | 0.00 | 0.00 |
Disclosures and disclaimers
Contents
Investment thesis
Q2 Review
Financials Q2 2023: Sales
Financials Q2 2023: Cost base and Cash position
News flow during the quarter
News flow after quarter
Outlook
Change in ownership and share performance
Estimates
Valuation
Quality Rating
Financials
Rating definitions
The team
Download article