Small Caps | Sep 18 2015
-Margin expansion with scale
-Services for customers in transition
-Acquisitions broaden customer base
By Eva Brocklehurst
Cloud hosting service Bulletproof Group ((BPF)) is hitting its targets. More and more of the company's customers are moving to cloud-based applications. Average revenue per unit in the AWS (Amazon Web Service) division is now estimated at around $5,000 a month and rising. Some customers are spending upwards of $20,000 a month.
Consulting engagements are also becoming more complex and driving the company's revenue growth. Bulletproof recently acquired Infoplex for $3.55m, a highly accretive addition which provides another 25 quality customers. This is a managed, private cloud-hosting business which was considered non-core to the owners with Bulletproof the best placed to service the existing client base.
Researcher Microequities expects the managed AWS division will continue to expand and account for 50% of FY16 recurring revenue and 56% in FY17. New customer additions may be slowing per month but recurring spending continues to grow. The company will also benefit in FY16 from a full-year contribution from owning Pantha Corp.
Strong organic growth of 49% over FY15 is testament to Bulletproof's business potential while substantial margin expansion is expected from FY16 onwards because of increased scale. Net profit in FY16 is now forecast to be $1.8m versus $500,000 in FY15 while net profit margin is expected to rise to 4.4% from 1.7%.
Over the long term the broker expects operating margins of 20% are still achievable. Forecasts for operating margins have increased to 16.1% in FY16, largely derived from the inclusion of Infoplex. Microequities has upgraded its rating to Buy with a target of 40c, a premium of 25% to the last traded price of 32c.
The mix of services may change. Dedicated hosting is considered a transitional path for some customers while they become comfortable with the idea of outsourcing applications. They may then move to a public cloud environment in the future. For others, the security of data and privacy restrictions will prevent the use of a public cloud.
Microequities expects a 6.0% decline in the managed VMware division, excluding Infoplex, as customers transition. The net result is a minor reduction in revenue forecasts to $15.5m in FY16 from $16m. This still represents growth of 61% from FY15.
Over time the broker expects more back office functions such as accounting, sales and customer relationship systems will also move to the cloud.Transition to the cloud is beyond the scope for man IT departments and, hence, Pantha Corp offers consulting services in addition to Bulletproof's own consulting business.
Consulting revenue inclusive of Pantha Corp was $6.7m in FY15 compared with $2.7m in FY14. Bulletproof will leverage Pantha Corp's capabilities to develop managed applications that allow more automated deployment of applications for the AWS platform.
Find out why FNArena subscribers like the service so much: "Your Feedback (Thank You)" – Warning this story contains unashamedly positive feedback on the service provided.
