Why WANdisco shareholders are dancing again

We haven't covered WANdisco since March 2015, when the software company's share price plunged to 310p following worse-than-feared full-year losses and faster-than-expected cash burn. It had nudged £15.50 less than 18 months earlier, and City analysts had been optimistic. However, after bottoming out at 70p a year ago, and following a short-lived boardroom coup last autumn, might this latest rally signal better times?

Hearing that it had almost doubled bookings during the fourth quarter to a record $6.1 million (£5 million), and that full-year bookings would be up 72% to $15.5 million, investors decided it was time to pile in.

Within 10 minutes of the opening bell, WANdisco shares had surged over 20%, topping out at 278p, a 20-month high, for a 24% gain on the day.

Tie-ups with IBM, Oracle and Amazon are clearly significant for the £100 million firmCrucially, WANdisco, whose software lets customers analyse huge amounts of data, has no borrowings and $7.6 million of cash, more than half the net $14.3 million it raised from a share placing in June at 160p.

And cash burn fell to £200,000 in the final three months of 2016 versus $6.9 million a year earlier.

"Operating at nearly cash flow break-even during the quarter reflects the significant action taken to reduce our operational cost base, which coupled with our improved booking performance has dramatically reduced our cash burn rate, ending the year with no net debt," a relieved chief executive David Richards, who also set up the company in 2005, told shareholders Monday.

Tie-ups with IBM, Oracle and Amazon are clearly significant for the £100 million firm, making a huge difference to bookings. As we said in March 2015, any uptick in the share price would be linked to improving sales. And so it has been.

"We have begun 2017 with a strong new business pipeline and a significantly reduced cost base, which, together, will further our progress towards profitability," added Richards, who many might be surprised to see penning this January update.

Less than four months ago, Richards was ousted in a boardroom coup led by chairman Paul Walker. Then, in a remarkable change of events (and with the support of 12% shareholder Schroders and others), Walker left and Richards was reinstated.

News of further progress when full-year results are published in March would help underpin recent gainsWith some certainty restored, investors appear happy to price in better times. A dramatic reduction in the burn rate is certainly significant, as is operating at "nearly" cash flow break-even. That becomes more relevant if WANdisco begins operating at cash flow positive consistently, reducing the need to go cap in hand to shareholders.

We have no fresh forecasts - Stifel was only recently appointed joint broker and is yet to initiate coverage. However, this could work in WANdisco's favour, as research notes from new brokers are typically brimming with optimism and can stir up interest in the shares.

It'll be interesting to see what Stifel thinks, but Silicon Valley- and Sheffield-based WANdisco is widely believed to be many years away from turning a regular profit.

Timing of contracts also remains unpredictable. News of further progress here when full-year results are published in March would help underpin recent gains. Until then, WANdisco shares are likely to remain unpredictable and high-risk.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.