This business came to my attention from the Dowgate Wealth Onward Opportunities newsletter dated June 30 2024.
TL;DR
Windward Ltd (LSE:WNWD) are on the brink of reaching cashflow breakeven, driven by the strong demand for its solutions in an increasingly complex and risky trade environment, and inherent operational leverage in its capital light business model.
At an adjusted EV/S ratio of 3.2, Windward Ltd is undervalued relative to enterprise software peers.
About the Company
Maritime risks pose a major threat to many participants in the finance energy trade and security maritime eco-systems. In 1980 the Automatic Identification System (“AIS”) for vessels was mandated to address these risks.
Ami Daniel and Matan Peled, Windward’s founders, believed there was no integrated solution that fused the multiple data sources available to the maritime eco-system participants and provided analytical insights of that data. So, Ami Daniel and Matan Peled founded Windward in 2010 to solve the problem of data visibility in the maritime sector.
Windward developed AI and big data analytical tools to seek to provide explainable insights for every AIS transmitting vessel at sea developing its “Know Your Vessel” concept (“KYV”) an evolution of the well-known Know Your Customer best practice (“KYC”) for the maritime sector.
Windward’s technology initially served government and security clients for illegal fishing, homeland security, and intelligence applications and as it evolved, the potential applications of maritime data visibility expanded to other commercial applications including compliance.
Specifically, the use case’s for Windward’s predictive intelligence platform are as follows:
Security: Assess the risk and propensity of vessels to be involved in illicit activity.
Safety: Assess the risk and propensity of vessels to be involved in safety events.
Compliance: Recommendations for optimising operations and minimising regulatory risks.
Environment: Benchmark fuel consumption and carbon emissions and optimise charterers by modelling operational efficiency.
Windward listed on the London Stock Exchange on December 6 2021, at the height of a post COVID liquidity boom that was drawing to a close. Windward (WNWD) listed at a price of 155 pence, an earnings Valuation / Share (EV/S) of 8.5, on the back of annualised Annualised Contract Value (ACV) growth of 45% in H1 2021.
Windward's Business Opportunity
Windward management claim the Total Addressable Market is $10 Billion USD with more than 6 million potential customers.
In an era of increasing geopolitical risk, and an increasingly complex sanction regime, managing compliance risk is becoming increasingly complex. Windward Ltd offers a platform that reduces the administrative burden and enhances cargo transit visibility.
Windward Ltd’s primary offering is the Maritime AI, with the recent addition of AI Expert, which is capable of conducting risk assessments and vessel screening, significantly improving customer’s staff productivity and effectiveness.
Windward's Competitive Advantages
The key competitive advantages that Windward are as outlined below:
Access to Comprehensive Datasets
Windward’s Predictive Intelligence Platform collects, verifies, processes and integrates multiple data sources to enable users to utilise vessel information and identify threats. These various layers of information include global satellite and terrestrial AIS, vessel images, vessel characteristics and technical details, geolocation information, weather, ownership, port state control data, satellite imagery, container data, nautical charts, and oil cargo data. Importantly, each new customer provides additional data and feedback, creating a flywheel effect, allowing the AI platform to improve, and add value over time.
Not all this data is easily accessible, creating a barrier to entry.
Artificial Intelligence Expert Algorithms
Windward Ltd’s proprietary software and algorithms are capable of identifying and tracking vessels in real time, and maintain current vessel profiles irrespective of identify changes. This enables Windward to automatically detect cases of identity tampering or location manipulations.
Activities are continuously monitored for all commercial vessels worldwide, creating a highly valuable dataset for Governments, and commercial operators.
The software and expert algorithms are difficult to replicate, and creates a barrier to entry for competitors.
Comprehensive Platform
Windward Ltd has competition in particular segments, however, there are no competitors that provide a comprehensive risk management platform. Refer to the competition landscape below. We note, many of Windward Ltd competitors are part of multi-business conglomerates, that have changed ownership over their lifetimes.
Management Team & Ownership
Management
Co-founder Ami Daniel is Windward’s CEO. Prior to founding Windward Ami founded a community centre in Haifa and served in the Israeli Navy.
The CFO is Ofer Segev who has been with Windward since 2019. Previously Ofer was a partner at Ernst & Young where hi led the technology sector team and served as CFO for Ness Technologies.
Co-founder Matan Peled is the head of the United States Sales team. Prior to founding Windward Matan was an officer in the Israeli Navy where he met Ami.
CMO (Chief Marketing Officer) is Irit Singer who has been with Windward since October 2020. Prior roles also include executive positions at Microsoft Here Technologies Mobli and L’Oréal.
CEO bonuses are based on growing Annualised Contract Value (ACV) (80% weighting) and on EBITDA (20% weighting).
CFO bonuses are based on growing ACV (55% weighting) and on EBITDA (20% weighting) and cash collection (25% weighting).
It is unclear what the ACV targets are. One of the central goals is to reach an EBITDA breakeven run rate during the financial year 2024.
Investors
The management team currently holdings are as follows:
Name | No. ordinary shares | % of issued share capital |
Ami Daniel | 6 270 795 | 7.3% |
Matan Peled | 6 270 795 | 7.3% |
Other Management | 3 235 995 | 3.8% |
TOTAL |
| 18.4% |
Institutional investors include venture capital firms and fund management firms and are as follows:
Name | No. ordinary shares | % of issued share capital |
Aleph L.P. (VC Firm) | 13 941 461 | 15.7% |
Gresham House Asset Management | 8 256 452 | 9.3% |
Canaccord Genuity Wealth Management | 7 700 000 | 8.7% |
XL Innovate (VC Firm) | 6 180 129 | 7.0% |
Maritime Invest Scandinavia AB | 5 933 149 | 6.7% |
Financial Performance & Key Metrics
Ami reported in the FY2023 results presentation that he believes the market size and opportunity before Windward can sustain revenue growth at 30% per annum for the foreseeable future.
The half yearly financial performance is outlined in Figure 1 below. As can be seen, Revenue growth rate has been 27% annualised over the past 2 years, and operating cost growth has been 11% over the same period.
Figure 1
Financial Metric Summary
The key performance metrics are as follows:
KPI Metric |
|
ACV annualised growth rate %, since H1, 2022 | 29% |
HY Revenue Annualised Growth Rate %, since H1, 2022 | 27% |
Operating Costs Annualised Growth Rate %, since H1, 2022 | 11% |
Mean Churn Rate since H1, 2022 | 8.2% |
Gross Margin, % | 79.5% |
Cashflow margin as at December 31, 2023: | -14.9% |
Cash balance as at June 30, 2024 | $13 800 000 USD |
Cash burn rate per half as at 30 June 2024: | $3 500 000 USD |
Years of cash left at current burn rate: | 2 |
Share count inflation rate (per annum) | 3.9% |
Valuation
Earnings to Sales Valuation Method
Based on the following parameters, we determine the Adjusted Earnings Valuation / Sales ratio:
No. Shares | 88 168 000 |
Share Price (English Pounds): | 1.02 |
Market Capitalisation (English Pounds): | 89.9 M |
Net Cash Position (English Pounds):: | 10.2 M |
Earnings Valuation (English Pounds):: | 79.7 |
2024 Forecast Revenue (English Pounds): | 27.5 M |
Base EV/S ratio: | 2.9 |
Net Cashflow (%) | -15% |
CF Adj. EV/S ratio: | 3.4 |
Gross Margin (%): | 80 |
Adj. EV/S ratio*: | 3.2 |
Projected avg, annual Rev. growth rate: | 25% |
Projected average EV/S ratio | 5.0 |
|
|
Valuation: | 1.60 |
*Adjusted to take into account Gross Margins, and cash flow.
Discounted Future Earnings Method
Based on an annual revenue growth rate of 20-25% over the next 7 years, the 2031 revenue will be $155 M USD. Assuming a profit margin of 10%, we estimate the EPS to be 0.14 English pounds, and a share price of 3.43, based on a PER of 25 (assuming a 20% pa revenue growth rate in 2031).
Applying a discount rate of 12% to the 2031 estimated share price of 3.43, we come up with a valuation of 1.55.
Summary
Windward Ltd as a business has been steadily improving since its initial listing, namely:
Demonstrated consistent growth at approximately 30% pa in revenue and ACV on a year on year basis over the past three years.
Demonstrated operational leverage with operating costs growing at 6% pa since 2022.
Approaching cashflow and profit inflection points within the next 6-18 months.
Continual development and expansion of offerings and capabilities, expanding its market opportunity and customer lifetime value. The most recent enhancement is the introduction of MAI Expert, Windward’s first generative AI Export model.
Increasing diversification of customer base, which has grown form 72 customers at the end of 2021 to 201 at the end of 2023.
Positive share price momentum, with the share price up 172% over past the 12 months.
Risks and When We Would Sell
Our thesis is based upon Windward Ltd Expert AI platform continue to win customers, and grow contracted revenue, continued operational leverage.
Key Risks
Majority of customers are government bodies, who are subject to political and budgetary restraints, which can create significant churn events.
The biggest customer is the US government, representing 23% of revenue (across 16 different US govt entities).
Trade disruption. Trade disruption, such as what occurred in 2020, reduces customers need of the Windward platform, and can significantly impact revenue.
Failure of Windward platform to detect sanction / trade breach could damage the company reputation.
Key personnel may leave the business.
When we would consider selling:
CEO or CFO departs at short notice.
Two consecutive halves of churn above 10% would be unprecedented. We would consider this a sign the platform is not as sticky and essential to customers.
Half on half ACV growth rate below 10%, which would be unprecedented, and indicate our valuation thesis is broken.
Operating cost growth exceeds revenue growth.
Failure of Windward platform to detect sanction / trade breach could damage the company reputation.
Forward adjusted EV/S exceeds 10.
Luke’s Fund has held WNWD since July 2024.
Regards
Sean Rapley
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