After over 7 months without new contracts DataWalk informed that it signed three new agreements for a delivery of its analytical platform: (i) with Northern California Regional Intelligence Center, (ii) with selected units of Polish public administration, and (i) with Ally Financial (American bank) which is a contract extension actually. All 3 contracts will probably be settled in 2Q23, albeit this may not be enough to show a yoy improvement of revenues (2Q22 demanding base with 7 new contracts signed) and we forecast an 11% yoy decline of revenues in 2Q23.

On the other hand, during last conferences and in 1Q23 financial report the Company admitted that it managed to overcome most of the obstacles that hindered its growth last year. In particular, the Company’s engineers implemented the majority of drawn-out contracts signed in 2020 or 2021 which means that they will be able to handle the implementation of new pilot (pre-sales) and full (post-sales) projects. Additionally, the Company has already 4 fully trained system architects which should also expedite the implementations of the subsequent projects.

This coupled with the sales funnel growth should translate into increasing dynamics of new contracts acquisition and implementation starting already from 2H23. Thus, we keep our revenue growth forecasts for 2023/ 2024/ 2025 at c. 20%/ 50%/ 70% implying that 2H23 revenues should grow c. 60% at least which we deem attainable given the relatively low base.

It is worth noting that the market sentiment for the growth companies operating in the field of data analysis has improved considerably in recent months thanks to the investors’ positive approach to AI issues and lower inflation expectations (and lower cost of money).

Since May when we issued DataWalk our last report, the Company’s peers median of EV/Sales multiples for 2023-25 has grown by 70% on average, which with the financial forecasts kept intact affects our 12M EFV assessment that rises by 67% to PLN 122 (from PLN 73) per share implying a c. 90% upside.

We would like also to indicate that DataWalk’s share price has not been the beneficiary of the above mentioned sentiment improvement yet. Given positive news from the Company, including an increase of engineering capacity, dynamic sales funnel growth, and new contracts signed we expect to see rising volumes and value of contracts in the near future and return of the Company’s sales to strong growths starting from 3Q23. Besides, we also assume that along with the inflow of news about new contracts DataWalk will experience the beneficial impact of the investors’ sentiment improvement for growth companies and the valuation gap will recede. Thats why we upgrade our recommendations: LT fundamental to Buy (from Hold) and ST relative to Overweight (from Neutral).

Financial forecast

We keep our revenue growth forecasts for 2023/ 2024/ 2025 at c. 20%/ 50%/ 70% implying that 2H23 revenues should grow c. 60% at least which we deem attainable given the relatively low base. We also assume that DataWalk is able to deliver a revenue growth expected for 2024 with the current employment level, however in the subsequent years a dynamic increase in employment should follow to support further growth, therefore, we raise our costs estimates (and thus forecast higher ND) in 2023.

Dynamic growth of sales funnel value

In 1Q23 financial report the Company informed that as of the day it was issued (May 18, 2023) the total value of sales funnel stood at US$ 41 million (up 11%/ 60% qoq/ yoy), which is the record high. We would like to note that a high level of the sales funnel may be to some extent related to current low revenues (as the Company is not completing the contracts that would have left the sales funnel otherwise). However, such a high dynamic of a sales funnel growth cannot be explained solely by this negative factor. In our view, a sales funnel growth confirms high interest in DataWalk’s product and also brings hope for a revenue growth in 2H23 (at the moment we assume it at c. 60% yoy after a slight decline in 1H23).

Valuation and recommendation

Since May when we issued our last report, the Company’s peers median of EV/Sales multiples for 2023-25 has fallen by 70% on average, which with the financial forecasts kept intact affects our 12M EFV assessment that rises by 67% to PLN 122 (from PLN 73) per share implying a c. 90% upside. Given recent positive news from the Company, including an increase of engineering capacity, dynamic sales funnel growth, and new contracts signed we expect to see rising volumes and value of contracts in the near future and return of the Company’s sales to strong growths starting from 3Q23.

Besides, we also assume that along with the inflow of news about new contracts DataWalk will experience the beneficial impact of the investors’ sentiment improvement for growth companies and the valuation gap will recede. Thats why we upgrade our recommendations: LT fundamental to Buy (from Hold) and ST relative to Overweight (from Neutral).