Big data opportunities are increasingly emerging but it is arguable that the market is getting a little too carried away over Rosslyn Data Technologies (RDT:AIM) today. The company flags several strategic partnerships, new contracts and accounts, product development and a 'healthy and growing' sales pipeline alongside half year results to end October. Investors have spoken, in early trading the shares are up nearly 6% to 18.25p.
Yet its hard and fast financials look decidedly less impressive. Sales growth of 23% is hardly eye-popping stuff and seems to be the bare minimum expected for what is supposed to be a high-growth business. Overall revenues for the half add up to a fairly piddling £1.3 million, easily outstripped by escalating earnings before interest, tax, depreciation and amortisation (EBITDA) losses of £1.7 million. Rosslyn chewed through more than £2.5 million of net cash. Yes, it's investing for future growth, always a challenging phase for a young company, but that's roughly the same chunk of change spent by the business in the whole of last year to April 2014.
The cloud-based data analytics platform supplier joined AIM on 29 April last year and it's been a baptism of fire. Having raised roughly £10 million at 33p, the stock is substantially below that level even after today's run. In fairness, it still has more than £9 million of net cash as of October, which should settle any worries of a near-term future cash call.
'A current market cap of £13 million is far below the original expectations set by the board, but for us is more realistic given the company’s recent performance,' spells out Lee Prout, analyst at IT consultancy Megabuyte.
And Rosslyn has a lot of work ahead of it, both long-run strategic challenges amid an increasingly competitive market, and near-term, if it is to stand any chance of matching market expectations. Those are currently pitched at £3.1 million of revenue, which calls for £1.8 million by the end of April. That looks challenging given that the January to March quarter is typically the weakest for IT businesses in general. 'Keeping in line with growth expectations will also be vitally important in stemming the company’s current cash outflows,' concludes Megabuyte's Prout.