The shares have performed very strongly in the last 18 months (+157%) as the new business model has delivered revenue and profit growth. However, the expansion of the EBITDA multiple (chart below) still leaves the shares on only 9.1x, compared with 15-20x for some software companies with similar growth profiles. We believe that further positive re-rating could be driven by improving visibility via increases in recurring revenue.
Under the Software-as-a-Service business model, Crossrider will derive increasing revenue from ongoing subscriptions, as opposed to perpetual (one off) software sales. The transition to SaaS has been accelerated by the CyberGhost acquisition, and we expect to see positive progress across the portfolio in the March 13th results release. A closely watched metric is the Deferred Income measure (SaaS fees paid upfront as cash but not yet recognised in P&L). The January trading update revealed that this has risen gain (see chart top right). As this metric continues to rise, we believe the increased visibility will drive further re-rating of the shares in terms of EV/EBITDA (or P/E, or EV/Sales).Full report is available via Capital Network website