One the biggest sceptics of UK robotic process automation technology developer Blue Prism (PRSM:AIM) 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.’
SPOTTING AN OPPORTUNITY
This is a major change for the broker since the start of the year when Canaccord were firm sellers of the stock due to what the analysts saw as ‘disappointing’ 2021 guidance issued alongside full year 2020 results. At the time (14 January 2021) Blue Prism shares were trading at £14.50.
Since then the stock has fallen sharply, closing yesterday at 953p. ‘We were heartened by the recently reported order intake,’ Canaccord said of the half year results on 17 May, when the company reported a 35% jump in orders.
Canaccord still sees plenty to challenge the medium-term prospects of Blue Prism, not least the emergence of ‘low-cost alternatives from Microsoft and others’, but they believe that Blue Prism now has enough of a customer base to manage double-digit percentage sales compound average growth rates over the next few years.
BALANCING GROWTH AND COSTS
‘We also assume reasonable cost control to eliminate most of the losses and register near breakeven from full year 2023,’ on an adjusted earnings before interest, tax, depreciation and amortisation basis.
‘We think the rate of growth is a balancing act with the closeness to, and achievement of, profitability. We would prefer less top line growth and more profitable growth,’ the Canaccord analyst said.
The broker has Blue Prism shares rated as a ‘speculative buy’ with a price target of £12.50.
