Blue Prism is a UK based SaaS company that pioneered the robotic process automation (RPA) category. They were founded in 2001 and went public in 2016 in the UK on the London AIM exchange and currently have prior 12 months revenue of $129.1m with around 1000 employees. RPA promises huge time savings and ROI as it frees up humans from menial tasks. RPA has recently become much more useful with the advent of machine learning and simple AI which allows for many more use cases. Their customer list is impressive and includes many of the worlds largest companies including Microsoft, Google, Daimler-Benz, Siemens, Dupont, IBM, the big 4 accounting and consulting firms, and 1800+ more. Their customer base is as solid as they come and they seem like the type of company that is indispensable to their customers once they have landed and become an integral part of their processes and procedures..
RPA Industry
The RPA companies have created toolboxes, some UI based, some script based to allow companies to create their own digital workers that can perform the repetitive time consuming tasks. These digital workers can be used in any industry that uses computers, so the TAM is truly gigantic and the industry is just getting started. Growth estimates range from 40-63% a year for the foreseeable future, so there are potentially huge tailwinds The current market is around $5 billion and is expected to grow to $25 billion by 2025. Every estimate I have seen over the last couple years has been demolished. I.e. In 2018 RPA was expected to grow 40% but grew 60%.
The industry is dominated by three companies. Blue Prism, UiPath and Automation Anywhere. The 2018 market shares respectively were 8.4%, 14.6% and 12.8%. Since then, Blue Prism’s growth has maintained in the 70-100% range; UiPath has slowed down but is still growing >100%; and Automation Anywhere seems to be falling off with only 40-50% growth (estimates). UiPath is the US juggernaut that is well financed, well run, and should IPO in 2021. As they are private, information is limited but they appear to be growing ~100% a year and have around $400 million in revenue. I expect them to IPO at an EV/S in the 30-60 range (I know that is a big range). UiPath is definitely worth keeping on your radar for future consideration and might be my first choice to buy now if they were already public.
There are many small companies that have variable niches in the RPA industry and the necessary financing to step in and impact RPA and are already doing so. Microsoft has recently purchased an RPA company and is integrating them into their “Power Automate” platform. “NICE”, an Israel company that historically has specialized in telephone voice recording, data security, and surveillance, as well as systems that analyze recorded data, is pivoting to RPA. They are the #4 player, profitable, but due to many other offerings are only growing at ~10%. This week IBM announced they are acquiring an RPA startup based in Brazil. I expect the industry to be dramatically different in the next few years, but to be dominated by specialists and niche players, as we have seen in our other SaaS industries. Both UiPath and Blue Prism appear to have the momentum, but UiPath is the current leader. I expect there to be a number of winners, however, as I think the industry and market will be huge.
I have wanted to invest in the RPA industry for years but never found a good vehicle to do so. Enter “Blue Prism”.
Blue Prism
Why Blue Prism? EV/S of 7.3 with 70% growth and rapidly improving operational leverage. ~90% Gross Margins, ~97% recurring revenue.
The financials are a little different because they only report twice a year, and they are based in the UK. At the end of 2018 Blue Prism changed their accounting standards so the 2018 revenue isn’t directly comparable to 2019, although the difference was only around 4%. Below are un-adjusted numbers.
They book most of their business in the second half of the year so they expect H2 2020 to be higher than 70%. They estimate that H1 2020 was impacted 15-20% by Covid-19.
Blue Prism expects to be cash flow break even by the end of 2021. They continue to make progress on their cash flow and have 140 million pounds in cash and virtually no (zero) debt.
Almost 50% of their revenue comes from EMEA, 26.5% from the Americas, and 8.6% from APAC. COVID hit them harder and earlier than most of our other companies, but they appear well positioned going forward.
Last period, their net expansion ratio was 145%; however, in this most recent half (H1 2020) net expansion was cut down to 110%. They mentioned that most upsells that didn’t happen were simply pushed into the next half. Only a couple of deals were canceled altogether.
The promise of Blue Prism is HUGE ROI for their customers. National Grid achieved an 80% ROI their first year using it, the second year…1000% !!!. Telefonica is saving 100 million euros a year using Blue Prism. These kinds of projects are tailor made for a recession when every ounce of efficiency and cost savings is needed to survive, thrive and prosper.
Definitely check out their website for what their products can and already offer. Robotic Process Automation – RPA
As with many of the great companies in our portfolios and discussed on this board, Blue Prism is becoming a platform with a marketplace for people to develop tools, buy and sell them, and to further add functionality to the digital workforce (their term, not mine).
My Take
I believe RPA is a massive opportunity right now. The industry is tailor-made for the SaaS model, and I think the companies that end up being the leaders will be incredibly profitable, and highly sought after and valued. Blue Prism was an early leader in this industry who suffered a minor setback by falling behind on R&D; however, by everything I’ve read, they seem to have reinvigorated and rebounded in 2019 by coming out with more innovative and useful products. UiPath is their main competition and there is no doubt that UiPath has incredible momentum behind it, but UiPath is not yet public and there is absolutely room for two, and perhaps more, players in this industry. I believe Blue Prism is in an incredibly exciting place right now. UiPath will go public soon which will raise the general awareness of the RPA industry. Heck, just in the last few weeks IBM and Microsoft both bought RPA companies. Awareness is happening now. Blue Prism is very inexpensive for the growth they are already exhibiting, but even more so when you take into account where the industry is going. I’d expect their growth to accelerate or at least maintain from here. It is possible that when UiPath does their IPO, the valuation for the entire category will leap up; perhaps Blue Prism’s valuation (currently sub-10 EV/S) could double, triple or even quadruple putting it in line with our hyper growth SaaS companies.
We have seen a few of these under-recognized companies whose valuation and stock prices later explode to the upside. Livongo and Afterpay come to mind. Hopefully, Blue Prism can join that group. At an EV/S of only 7 their stock price could dramatically appreciate just through multiple expansion, but on top of that they are growing 70% a year and only have a billion pound market cap ($1.37 billion USD).
Blue Prism trades under the ticker symbol BPRMF in the US and PRSM.L on the London stock exchange (LSE). BPRMF typically does not have much volume (in the US), so I purchased my shares by calling my brokerage and buying them directly on the LSE. I bought a 3% position to start and would happily increase it depending on how the industry transition and business results of Blue Prism play out over time.
Thanks to Ethan123, GauchoChris and PoleekoCowboy (aka Victor) for the leg work, write up and thought process on this one.
