Crimson Tide : Morning Comment

30 March 2017

MORNING COMMENT Buy Crimson Tide*#

Price 3.25p

Target price 5p (3.5p)

Reuters/BBG TIDE.L / TIDE LN Index FTSE AIM

Sector Software & Computer Services

Market Cap £15m

* WH Ireland act as NOMAD and Broker to this company

Fired up for growth

This morning's results are in line (rev £1.86m, PBT £0.4m) and mark another record year for the business. Of greater significance, TIDE is shifting its expansion efforts up a gear with substantial investment in new global markets: this will see sales channels established in the Netherlands, Australia, the US and Middle East. Whilst investment (primarily in headcount which has nearly doubled y-o-y) in the short term is expected to lead to a broadly flat profitability outcome in FY17, the benefits should be felt from FY18 onwards where we forecast a substantial ramp up in the revenue line. Although this increases the longer term forecast risk (but note the multi-year nature of contracts underpins a large part of the FY17 number), the TIDE model is coming of age and this should be reflected in the business' profitability and, ultimately, valuation. We retain a Buy recommendation and upgrade our T/P to 5p (was: 3.5p).

• Momentum building Today's results illustrate the substantial momentum that has been building at TIDE over the past year. mpro5 is now employed in over 100,000 individual locations in the UK alone across a plethora of industries - FM, retail, hospitality, logistics and healthcare to name but a few. This has driven revenue to a record £1.86m - just as importantly, TIDE's multi-year contracts mean that visibility is also improving hence the baseline of revenue moving into FY17 is solid. PBT at £0.4m was more than double the

  £0.2m in FY15 whilst EPS, after allowing for a modest £4k of corporation tax, was 0.08p (0.04p). Net cash at the year end totalled £0.1m comprising gross cash and cash equivalents of £0.9m offset by £0.8m of borrowings secured on the devices deployed under subscription.

• Fired up for growth TIDE's model is proven at relatively low levels of revenue but the key opportunity is to scale this up to build a much larger business. TIDE is grasping the nettle by making substantial investment ahead of the curve in people and new territories, a move we endorse. Whilst our FY17 revenue forecast is unchanged at £2.5m (we expect momentum to build in H2), the increase in overhead means that we expect a broadly flat outcome at the PBT and EPS levels (£0.4m and 0.08p respectively) before sales really start to motor in FY18. At £4.3m of revenue, and allowing for a full year run rate of increased overhead, we believe TIDE is capable of delivering a PBT of £1.0m (EPS 0.21p) in FY18. It is off this number that we choose to value TIDE vs a peer group of AIM quoted application software companies

• New target price of 5p, reiterate Buy Our new target price of 5p is based on applying an in-line Year-2 EV/EBITDA rating of 11x to TIDE's FY18 EBITDA forecast of £2.1m. Allowing for a small amount of net cash, this suggests fair value of £23m or 5p a share. This gives the shares, which have traded sideways for much of the past 12 months, 54% upside.

Y/E December	FY16A	FY17E	FY18E	FY19E
Revenue	1.9	2.5	4.3	6.8
WHI EBITDA	0.7	1.0	2.1	3.8
WHI PTP	0.4	0.4	1.0	2.3
WHI EPS (p)	0.08	0.08	0.21	0.43
P/E (x)	41.6	43.2	15.8	7.6
EV/EBITDA (x)	21.2	15.4	7.0	3.9
Source: WH Ireland estimates

Marketing Communication

This document has not been prepared in accordance with legal requirements designed to promote the

independence of investment research. Please refer to important disclosures towards the end of this document.

Analyst

Eric Burns

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WH Ireland 24 Martin Lane, London EC4R 0DR

WH Ireland is authorised and regulated by The Financial Conduct Authority and is a member of The London Stock Exchange. Important disclosures and certifications regarding companies that are the subject of this report can be found within the disclosures page at the end of this document.

Disclosures

WH Ireland Recommendation Definitions

Buy

Expected to outperform the FTSE All Share by 15% or more over the next 12 months.

Outperform

Expected to outperform the FTSE All Share by 5/15% over the next 12 months.

Market Perform

Expected to perform in line with the FTSE All Share over the next 12 months.

Underperform

Expected to underperform the FTSE All Share by 5/15% or more over the next 12 months.

Sell

Expected to underperform the FTSE All Share by 15% or more over the next 12 months.

Speculative Buy

The stock has considerable level of upside but there is a higher than average degree of risk.

Share Price Target

The share price target is the level the stock should currently trade at if the market were to accept the analyst's view of the stock and if the necessary catalysts were in place to effect this change in perception within the performance horizon.

Stock Rating Distribution

As at 28 February 2017 the distribution of all our published recommendations is as follows:

Disclaimer

This research recommendation is intended only for distribution to Professional Clients and Eligible Counterparties as defined under the rules of the Financial Conduct Authority and is not directed at Retail Clients. This note contains investment advice of both a general and specific nature. It has been prepared with all reasonable care and is not knowingly misleading in whole or in part. The information herein is obtained from sources which we consider to be reliable but its accuracy and completeness cannot be guaranteed. The opinions and conclusions given herein are those of WH Ireland Ltd and are subject to change without notice. The report is not an offer or solicitation to buy or sell any security. Clients are advised that WH Ireland Ltd and/or its directors and employees may have already acted upon the recommendations contained herein or made use of all information on which they are based. WH Ireland is or may be providing, or has or may have provided within the previous 12 months, significant advice or investment services in relation to some of the investments concerned or related investments. Traders and salespeople may express opinions on the company that do not align with the opinions stated in this report. Recommendations may or may not be suitable for individuals clients and some securities carry a greater risk than others. Clients are advised to contact their investment advisor as to the suitability of each recommendation for their own circumstances before taking any action. No responsibility is taken for any losses, including, without limitation, any consequential loss, which may be incurred by clients acting upon such recommendations. The value of the securities and the income from them may fluctuate. It should be remembered that past performance is not necessarily a guide to future performance. For our mutual protection, telephone calls may be recorded and such recordings may be used in the event of a dispute. No part of this document is to be copied or distributed without prior consent. By accepting this document, you agree to be bound by the disclaimers stated above. Please refer to www.whirelandplc.com for a summary of our conflicts of interest policy and procedures.

Recommendation	Total Stocks	Percentage %	Corporate
Buy	52	81.3	39
Speculative Buy	8	12.5	8
Outperform	3	4.7	1
Market Perform	0	0.0	0
Underperform	1	1.6	0
Sell	0	0.0	0
Total	64	100	48

This table demonstrates the distribution of WH Ireland recommendations. The first column illustrates the distribution in absolute terms with the second showing the percentages.

Conflicts of Interest Policy

This research is classified as being "non-independent" as defined by the FCA's Conduct of Business Rule

12.3. Please refer to www.whirelandplc.com for a summary of our conflict of interest policy.

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Marketing Communication

This document has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Please refer to important disclosures towards the end of this document.

Analyst Certification

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WH Ireland is a member of The London Stock Exchange and is authorised and regulated by The Financial Conduct Authority

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