Investing in pre-profitable growth stocks continues to be very much out of favour in these testing times, with once chunky valuations subsequently slumping to what can be deemed more realistic and down to earth levels.
Value stocks, with more reliable and predictable dividends are understandably flavour of the day right now, along with cash rich companies as opposed to those saddled with debt.
That said, there are still some attractive looking growth propositions out on the market, where the valuations now look more appetising, providing for future upside potential once macro headwinds moderate.
One such business, albeit in the more speculative mould that appears to be well placed to me and where I have bought shares is Windward (WNWD) that came to the AIM back in 2021, the shares quickly surpassing the £2.00 mark.
That lofty valuation didn’t last too long though and since then the shares have largely been in retreat, currently standing at 47.5p valuing the business at £40m.
As for its business, WNWD operates in the global maritime and shipping space where it provides an AI driven platform that delivers significant services and insights for customers, which also sees it as the only end-to-end AI driven solution on the market.
This includes monitoring, movement and the tracking of vessels at sea along with risk management services and compliance, taking in numerous end customers that operate in and across the space.
Prior to coming to the market, WNWD had already attracted significant investment such as a $16.5m funding round in 2018 that saw amongst others, billionaire Marc Benioff of Salesforce investing in the Cloud-based subscription model that aspires to deliver high gross margins,
Like other potential growth stocks however, being a SaaS focused business it is currently loss making as it continues to invest, expand and scale up, which as a result will obviously not appeal to many would-be investors.
The key concern for most will no doubt be the ability to manage the cash, until that all important inflexion point with breakeven and proven cash generation being achieved.
In WNWD’s case, management, who I chatted with a few days ago following the Interim Results are confident that they will achieve their goal, being comfortable with broker Canaccord’s 2023 forecasts and the cash runway, which sees the company on track to achieving break-even ahead of the timing laid out in its admission document.
This currently sees the broker anticipating revenues increasing from last year's $21.6m to $26m with the EBITDA loss reducing sharply from $12.1m to $7.9m which also sees net cash expected to close at $15m for the full year 2023.
In announcing its results for the six months ended 30th June 2023, revenue increased by an impressive18% to $12.8m demonstrating that the business continues to build momentum and appears on track to achieve that guidance.
During the period just reported, the company added a significant 48 new logo's (customers) which almost exceeded the 53 achieved throughout the whole of last year, which demonstrates the scale and potential of the business moving forward as it extends its reach.
Net cash currently stands at $17.9m and is viewed as being more than sufficient to meet the company’s needs until hitting that all important and expected break-even that has been pencilled in for full year 2025 and which management sound confident of achieving.
Alongside the growth that has been delivered, costs have also been controlled and reduced which is welcome and has played an integral part in reducing the level of cash burn that is moving positively in the right direction as margins also increase.
The broker views the stocks 1.1x 2023E EV/Sales multiple, as materially undervaluing the business, and it continues to see strong mid-to long-term upside to the share price, assuming Windward can deliver between 20-30% sales growth p.a.
Given the trend and positive drivers in play for the business, the numbers look achievable to me and potentially beatable.
Commenting on the more recent share price performance which as mentioned has been subdued, CEO and co-founder Ami Daniel says that they have no control on that, but rather, they do on the business itself which is their prime and continued centre of focus, where there is a firm belief on achieving further progress.
To that end, given the recent traction on contract and deal news flow, the company certainly looks well placed to continue scaling up in what is something of an underserved market that has been slow to adopt and embrace new technologies.
That sluggish sentiment has been changing however and a look at just some of the names signed up by the company makes for impressive reading and arguably positive evidence of its services and traction.
Big blue chips abound here, where Shell is just one of the many customers to have embraced the technology.
In its case, Shell adopted WNWD’s predictive intelligence systems to support compliance procedures which have become ever more important and stringent, particularly since the onset of the Ukraine conflict.
Other familiar names signed up include BP, HSBC, Danske Bank and more recently Billiton along with The London Stock Exchange (LSEG).
The latter name sees WNWD providing its AI technology solution to support shipping analytics in real time, thus tracking around 117k vessels out at sea, such as oil tankers and container vessels relaying vital and accurate information.
Aside from the aforementioned customers, the company also provides its solutions to various Government and Institutional bodies, including HM Treasury and the US Department of Defence and Homeland Security and this is a key aspect of the revenue stream.
Although the business is already demonstrating and delivering on strong growth with an increasing adoption, various global issues and ongoing concerns are providing an acceleration of that, including ever new and changing regulations.
Geo political disruptions, sanction breaking, drug and people smuggling, alongside the maritime industry having to adopt measures on climate change are all areas where the company's technology provides extensive insights and support, through complex data and analytics.
WNWD's systems provide a wide and ever increasing range of applications that includes cargo-related information and time sensitive data, where, as part of its offering its services see patented technology focused on vessel recognition.
This can include in-sights into the origin of a ship, where it is heading, which flag it is flying under and its intended route, that can detect any suggestion of a diversion.
Management see the opportunity across the space as truly massive and underpenetrated with some six million organisations operating in an addressable market of over $10bn, providing a significant growth path, particularly as it is proving something of a disruptor across the sector.
In the company’s early years, Governments across the world made up all of the revenue generated, which back in 2017 stood at a total figure of $7.2m.
Since then, it has extended its reach into the commercial market which has seen revenue growing impressively as demonstrated by the recent numbers and where an increasing number of doors appear to be opening.
From its standing start of a few years ago, commercial customers accounted for 29% of the first half of 2023 revenue, with governments making up the other 71%.
With what is described as a highly scalable subscription model, the company now has a total of 174 customers with agreements that primarily run firstly from one year into subsequent multiples and which is now proving very sticky.
Although the business was founded and is headquartered in Israel, the headcount of 150 is widely spread, across a total of four locations which includes London here in the UK along with a US presence.
One of the real positives from an investment perspective and which should drive further growth is the wide and diverse mix of end customers that includes the likes of Cargo Owners, to Freight Forwarders and Marine Insurers & Brokers.
But, it doesn’t end there, with Traders, Banks, Navies and Intelligence Groups adopting the technology, which is proving invaluable in a changing marine landscape.
A positive standout for me, as opposed to other would-be growth prospects is the already proven ability to break into its chosen market and the subsequent scaling up, which being delivered now, should also see further news coming through in the remainder of the current calendar year.
CEO Daniel says that they will have other things to release on the news front, which should no doubt provide further evidence of a continued confidence in hitting the full year numbers and beyond.
Blue sky or the jam tomorrow looks a real and increasing prospect here, as opposed to the mirage of some with limited growth potential and a never ending uphill struggle to achieve scale and the desired generation of cash.
Given where the share price currently sits though, one could be forgiven for thinking that WNWD is perhaps one of those to avoid, particularly as there appears to have been a seller around of late that has clearly impacted the share price and sentiment.
Indeed, the CEO informed me that they were aware of an early pre-float investor selling stock recently.
Such situations can prove to be a significant anchor, holding the shares back from reversing a downward trend, which in turn diminishes confidence from private investors considering climbing on board.
That said, sales by early investors in these situations are not unusual and cannot in my view be interpreted in any specific way and if such a sale has concluded or near to that, then subsequent positive news from the company can quickly help turn the tide.
Clearly, the stock remains speculative at this juncture and those sitting on the fence will no doubt be keeping an eye on the cash and the numbers before committing to an investment.
However, the trend on building revenue and increasing its customer base is clearly positive and the cash does look sufficient if organic growth is delivered as expected and as forecast by the broker, whilst the market cap is now way off that of when WNWD came to the market.
Canaccord is looking for revenues next year of $31.2m with a greatly reduced EBITDA loss of $3.5m with net cash expected to remain healthy enough at $11m. That should pave the way for the 2025 breakeven, which in turn should leave around $10m net cash remaining on the balance sheet.
With churn now running around 5% and in a decreasing mode, WNWD looks set to further deliver on the growth front, which if achieving those forecast numbers over the next two years, should arguably result in a notable reversal of the downward trend.