Berenberg says concerns regarding Blue Prism ‘keep compounding’

Analysts at Berenberg reiterated their ‘hold’ rating on software firm Blue Prism on Friday but cautioned that concerns around the stock just kept compounding.
Berenberg stated that in its view, Blue Prism’s first-half results were “weak”, noting that while the headline figures were

already known and the company had shown progress on profitability, none of its concerns about sales trends, competition, costs and product had abated.

“In fact, they have increased,” said the analysts. “We reduce our FY21 revenue estimate and now forecast the company to be slightly below its current guidance.”

Bernberg said Blue Prism’s revised guidance pointed towards decelerating revenue growth, but with a clearer path towards cashflow breakeven and eventually profitability. The analysts admitted that a portion of this decelerating growth could be explained by Covid-19, but said it also raised questions about the RPA market, pricing, competition and Blue Prism’s commercial strategy.

The German bank, which kept its 1,100.0p target price on the stock in place, cautioned that while investors may be attracted by the company’s “relative valuation”, given the fundamentals, it believes they should look elsewhere.

“The market reacted positively to the company’s EBITDA loss performance, as EBITDA losses were only £8.0m during the half despite a significant increase in R&D spending. This implies significant headroom over the company’s guidance of £25.00m in EBITDA losses for the full year. However, we feel the cost savings are relatively low quality. Blue Prism has experienced a near-complete reduction in travel and entertainment costs, which represented as much a £17.0m in 2019. We believe a significant portion of these costs will return.”

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