3Q22 update: smart meter showtime in India

CyanConnode shipped 455,000 modules and 3,100 gateways in the first nine months, compared with 481,000 for the whole of FY21. 9M22 revenue came in at £6.8m, up 100% from a year earlier. £5.9m cash was received from customers, while inventory was increased to address component shortages, resulting in a £1.1m net cash position at end-December 2021 (a further £0.4m was received just after the period end). The Indian smart meter rollout is set to accelerate, with ongoing tenders for 37.4m meters due to be awarded this calendar year. This is a potentially enormous revenue opportunity, even assuming a modest contract win success rate for CyanConnode. Our DCF-implied fair equity value for CyanConnode is £89.9m.

• On track to meet FY22 forecasts: Management has reiterated that it is on track to meet its guidance for FY22 (to end-March), which requires the company to grow entirely organically YoY by 44%. Our estimate is for a tenfold increase in revenue between 2020 and 2024, with profitability in the coming year.
• Critical year ahead in India: After extensive delays in the Indian smart meter procurement, a step change has taken place, driven by government initiatives. Currently, tenders are out for some 37.4m smart meters, a figure expected to grow over the next six months, with decisions due by the end of calendar 2022.
• Significant developments: A January 2022 communication from the Indian Ministry of Power sets out the need for bidders to have proven end-to-end and fully interoperable solutions with 99.5% success rates. CyanConnode’s platform has met these criteria across its many existing deployments in India.
• Conservative guidance: Management indicates that it could secure up to 15% of tendered volumes across the 250m meters that comprise the Indian programme in total, equating to potential substantial total programme revenue to CyanConnode. The hardware element may be upfront, with software and maintenance deferred.
• Investment summary: Some major accomplishments by CyanConnode have remained in the background; for example, uninterrupted supply of modules at a time of significant global disruption from silicon shortages. The management team has been further strengthened, and the competitive position remains, in our view, particularly strong. Our DCF-implied fair equity value for CyanConnode is £89.9m (£0.41 per share), vs. the current market capitalisation of £44.0m.