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Cheapest price in four years, it’s time to buy Blue Prism
Shares in robotic process automation technology company Blue Prism (PRSM:AIM) have fallen to their lowest level in four years, creating a great opportunity to buy this fascinating UK growth story.
UK investors are not blessed with lots of fast-growing technology businesses of scale and have often had to look to overseas markets such as the US.
But Shares strongly believes Warrington-based Blue Prism is very much a ‘built in Britain’ tech growth story with enormous potential.
Blue Prism is a virtual workforce disruptor which uses robotic process automation technology to automate manual back-office administration tasks.
This cuts costs for clients, frees the human workforce to do more value-added tasks, increases efficiency, improves customer service and speed, reduces the need for clients to invest in new IT systems and frequently beats customers’ own return on investment hopes, all from a compliance-friendly platform.
This is a nascent, fast moving digital industry whose scope to benefit organisations is capturing the imagination of top management teams everywhere and is also pulling in serious money from investors around the world.
Some serious customers trust Blue Prism to transform the future of how they run their businesses, with the likes of Ebay, Siemens, the NHS, Fidelity, the UK’s Financial Conduct Authority and Telefonica among more than 2,000 clients.
WHY HAS THE SHARE PRICE FALLEN?
It wasn’t so very long ago (2018) that the stock traded at over £25 for a market value greater than £2.5 billion. Unfortunately, lower than expected growth, execution issues and the fears of intensifying competition have dragged the shares to their current lows.
In April the company said that annual recurring revenue was approximately £168 million, versus £154 million at the end of October 2020. This means revenues are likely to be towards the lower end of the £170 million to £180 million range previously guided for the full year to 31 October 2021.
Guidance remained unchanged for losses, which are still expected to come in at around £25 million this year.
SO WHY BUY THE SHARES NOW?
Management sees improvements to its internal team leadership and improving upsell/cross-sell opportunities in the installed base as ways to put growth back on track.
At the half-year results in June, it said the net revenue retention rate was 115%, down on pre-pandemic levels of 143%. This measures the net growth in monthly recurring revenues from customers.
Analysts are starting to wonder if competition is beginning to hurt Blue Prism’s growth. Privately-owned Automation Anywhere and UiPath, which listed on Wall Street in April, are the big specialist peers in the market, but Microsoft and others are starting to move into the space, and you can see why given the enormous growth predicted by market researchers for robotic process automation.
The sector was estimated to be worth around $1.9 billion in 2019 but a report earlier this year by Global Market Insights predicted it to surge beyond $23 billion by 2026.
Combine that opportunity with Blue Prism’s installed base of recurring revenue customers and the huge valuation gap that has opened between the UK company and its main rivals, and you could see how a deep-pocketed potential new entrant might look to acquire Blue Prism to get a headstart in the sector.
‘Blue Prism is trading at circa 5.1-times forward looking enterprise value to sales, which compares to a 39.9 multiple for US peer UiPath,’ pointed out Megabuyte analyst Cameron Naylor in May.
A RIPE-LOOKING TAKEOVER TARGET
It’s interesting that one of Blue Prism’s biggest sceptics has changed tack and is now telling clients to buy the stock.
Analysts at broker Canaccord Genuity sent a note to clients on 27 May entitled ‘Time to buy?’ in which they noted that the stock’s year to 31 October 2021 4.5 times enterprise value to revenue multiple is now ‘substantially below the UK IT sector average’ of 5.5-times, while ‘forecast sales growth is materially above’.
This was a major change for the broker since the start of the year when Canaccord was a firm hater of the stock due to what the analysts saw as ‘disappointing’ 2021 guidance.
Canaccord’s U-turn now means that not one of the 10 analysts that cover the stock, according to Refinitiv data, now has a sell recommendation, with seven buyers versus a trio of fence-sitting holders. Their average 12-month target price for the shares is £15, implying that the stock has scope to nearly double.
Blue Prism should be considered as a higher risk investment given recent setbacks and growing competition. But any patient investor who understands those risks could do well from buying now while sentiment is weak towards the stock. After all, takeovers often happen when people least expect it.