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№ 069 35 filings · 2021-05-17 → 2026-06-01

CERILLION PLC

CER
Technology Market cap £399m Overall fit 615 /1000

Strong fit on operating leverage (high) and downside protection (fortress balance sheet, recurring revenue), reasonable valuation discipline (~22% upside on central case, not 'priced for perfection'). AI-receiver alignment is only moderate — Cerillion embeds AI agents into a vertical SaaS but is not a picks-and-shovels primary beneficiary. The combination earns a high-end of the 'strong buy with reservations' band.

Fair value range 1,450p–1,900p Mid case · £495m
Absolute upside +24.1% vs current market cap
Conviction 4/5 confidence in undervalued call
Supports the call
  • Record £82.1m back-order book + signed £42.5m Omantel contract de-risks FY26-FY27 numbers
  • Consistent multi-year track record of beating consensus with clean disclosure
  • High fixed-cost SaaS model with observable margin expansion from 42% to 51% EBITDA over 3 years
Limits the call
  • FY26 is H2-weighted; any licence-recognition slippage misses consensus
  • AI displacement narrative is unresolved and could compress multiple even if fundamentals hold
Methodology

Forward P/E on FY27e adjusted EPS, cross-checked with EV/EBITDA

In one line · bull case

High-margin vertical SaaS at a fair price, with a record back-order book and the Omantel step-change setting up material FY27 operating leverage.

In one line · biggest risk

FY26 is heavily H2-weighted on licence recognition — any slippage in Omantel or term renewals will miss consensus and re-rate the shares lower.

Drivers
AI beneficiary 55 /100
Vertical SaaS embedding AI agents (A2A, MCP server) — moderate value capture, not a direct AI infrastructure beneficiary.
Operating leverage 82 /100
76-82% gross margin, fixed delivery/R&D base; H1 26 mechanics show incremental licence revenue drops at very high margin.
Earnings vs expectations 78 /100
Consistent beats vs management-set consensus across FY23, FY24, FY25 trading updates; no missed years on record.
Growth momentum 60 /100
Revenue decelerated from +25% (FY22, FY23) to +4% (FY25); back-order book and Omantel re-accelerate the FY27 outlook.
Moat 65 /100
Product-centric (vs services-heavy peers), 26-year track record, mission-critical switching costs, TM Forum certifications.
Earnings quality 78 /100
Strong cash conversion historically; unqualified audits; some contract-asset judgement on percent-complete revenue recognition.
Management quality 78 /100
Founder-CEO Louis Hall since 1999 MBO; 17% dividend growth, disciplined capital allocation, candid disclosure.
Cyclicality 35 /100
Mission-critical telco BSS/OSS with 5-year contracts and rising ARR — limited cyclicality but exposed to telco capex cycle.
Leverage 8 /100
£32.5m net cash, no material debt — fortress balance sheet.

Cerillion PLC (AIM: CER) — Investment Research Note

Executive summary

Cerillion is a UK-listed vertical SaaS vendor selling a product-centric BSS/OSS suite (billing, charging, CRM) to ~70 telecom customers in ~45 countries, with c. 50% adjusted EBITDA margins and a 25-year track record. Across FY21-FY25 revenue compounded from £26.1m to £45.4m and adjusted PBT from £8.5m to £21.8m, with EBITDA margins expanding from 40% to 51%; H1 FY26 saw a deliberate licence-revenue phasing into H2 (revenue -14%, PBT -41%) while the £42.5m Omantel win in January 2026 took the back-order book to a record £82.1m. The single most important valuation point is whether the H2-weighted FY26 lands consensus and whether the Omantel contract de-risks FY27 — at £404.7m mcap the shares price in continued execution rather than the upside scenario.

Fair value estimate

  • Methodology: Forward earnings multiple on FY27e adjusted EPS, cross-checked against EV/EBITDA.
  • Key assumptions:
    • FY25 adj EPS 56.5p; FY26 consensus implies broadly flat-to-modest growth (management: "well-positioned to deliver consensus market expectations") → ~58p 2026-06 H1 interim.
    • FY27 benefits from Omantel licence recognition (c. 39% of £72.6m contracted-but-not-yet-recognised expected within 12 months from 31 March 2026) plus pipeline conversion → ~72-78p.
    • Peer software multiples on vertical SaaS with 50% EBITDA margins, net cash, and a sticky telco customer base support 20-26x forward.
  • Fair value range: 1,450p – 1,900p per share → mcap range £428m – £561m.
  • Mid-point: ~1,675p, ~£495m mcap (≈ 23x FY27e adj EPS of ~73p, EV/FY27 EBITDA ~16x on £30m).
  • Latest disclosed mcap £404.7m (~1,371p). Upside to mid: ~22%, downside to low ~+6%, upside to high ~+39%.

Sector context

  • ICB Technology / Software — accurate.
  • Quality (margin, balance sheet, recurring revenue ratio) is above typical AIM software peers; growth was very strong (FY22-FY23) and has decelerated as the base has grown.
  • Listed peers: Amdocs (NASDAQ: DOX) and CSG Systems (NASDAQ: CSGS) at the large end; Comviva, Optiva (TSX: OPT) at the mid-end; Beeks Financial Cloud and Sopheon as UK micro-cap vertical-SaaS comparators in disclosure style.

Investment thesis

  1. Record back-order book and step-change in deal scale. The £42.5m, 5-year Omantel contract signed January 2026 is c. 70% bigger than the previous record (£25.3m European deal). Back-order book up 64% YoY to £82.1m, pipeline up 4% to a fresh high of £271m after closing Omantel — multi-year revenue visibility is the best in the company's history 2026-06 H1 interim.
  2. High operating leverage at scale. FY25 gross margin 81.5% and adjusted EBITDA margin 50.9% (up from 47.4% FY24, 46.2% FY23, 42.0% FY22) demonstrate the fixed-cost dynamics: incremental software-licence revenue drops to PBT at near-90% incremental margin. The H1 FY26 mechanics make the leverage explicit — a £2.9m revenue drop produced a £3.8m PBT drop 2025-11 FY25 results; 2026-06 H1 interim.
  3. Fortress balance sheet plus growing recurring base. £32.5m net cash, no meaningful debt, £19.1m ARR (+5% YoY), and dividend cover supported by ~50% of FCF — provides downside protection while the management team executes on long-cycle wins. CEO Louis Hall has run the business since the 1999 MBO from Logica 2026-06 H1 interim.

Key risks

  1. Customer concentration. FY25 saw single customer No. 1 contribute £13.1m (29% of revenue, up from £9.3m FY24); FY23 had three >10% customers. Loss of a single anchor customer would materially affect margins given the high incremental-margin model 2025-11 FY25 results.
  2. Licence-revenue lumpiness creates forecast risk. H1 FY26 revenue -14%, PBT -41%, with "vast majority of FY26 software licence revenue" pushed to H2. Full-year delivery is therefore concentrated into roughly four months — any slippage in Omantel or term renewals will miss consensus 2026-06 H1 interim.
  3. AI substitution debate. Management explicitly addresses the risk that telcos "in-source" BSS/OSS via AI, arguing deterministic billing is unsuited to probabilistic AI generation. This is a defensible view but not a settled question — the multiple compresses if the market reframes vertical SaaS as exposed to AI displacement 2026-06 H1 interim.

Operating leverage

Cerillion is a high-fixed-cost software business with c. 76-82% gross margins and operating expenses of £16.7m in FY25 against £45.4m revenue. Personnel costs (£10.2m) and capitalised R&D (£1.8m additions) are the dominant fixed components, with delivery teams concentrated in lower-cost India and Bulgaria. The natural test of leverage is the H1 FY26 print: revenue down £2.9m, gross margin down 480bp (from less licence mix), but operating expenses up £0.7m (continued investment in headcount) — net effect was a £3.8m PBT decline on a £2.9m revenue decline, implying incremental-revenue drop-through above 100% in the reverse direction. Symmetrically, on an upside revenue surprise of 15-20% above plan (say +£8m), with the cost base broadly fixed and licence-heavy mix, operating profit could plausibly grow 50-70% versus base case. The 350bp annual margin expansion through FY23-FY25 demonstrates this in practice. Note the back-order book of £82.1m versus £45.4m FY25 revenue is unusually large relative to cost base, so the FY27 Omantel licence recognition is the closest thing to an observable inflection.

Value-trap signals

None identified. Net cash rising, no dividend cuts (up 17% to 15.4p FY25), unqualified audits, no related-party flags, end-market spending broadly supportive. The H1 FY26 weakness is timing not structural.

Earnings vs. expectations

The Oct 2024 trading update flagged FY24 PBT "comfortably ahead" of the £17.9m consensus (delivered £19.8m, +11% beat). Oct 2025 update flagged FY25 PBT "slightly ahead" of £20.5m consensus (delivered £21.8m, +6% beat). Oct 2023 update flagged FY23 PBT "meaningfully ahead" of £14.3m consensus (delivered £16.8m, +17% beat). The Apr 2024, Apr 2025 and Apr 2026 H1 trading updates each matched the H1 print within the published ranges. Pattern: consistent material beats vs. management-set consensus, no missed years across the period covered.

Conviction

Conviction: 4 (high). Anchors: (a) 5-year track record of clean, consistent disclosure with consensus beats; (b) the £82.1m back-order book and signed Omantel contract make the FY26/FY27 fair-value bridge concrete rather than speculative; (c) the business model (subscription/licence vertical SaaS, fortress balance sheet, founder-CEO) is unambiguous and easy to model. Limits: (a) FY26 outcome depends on H2 licence-revenue timing, which has slipped historically; (b) AI displacement risk is real even if management's logic holds — multiple could compress if sentiment shifts.

Filings consulted · 40

Every document the LLM read for this note. Click any row to open the source.

  1. 2026-06-01Interim Results2026-06-01_9593199_interim-results.md0.90
  2. 2026-05-19Interim Results Investor Presentation2026-05-19_9574289_interim-results-investor-presentation.md0.90
  3. 2026-04-22H1 Trading Update2026-04-22_9531469_h1-trading-update.md0.85
  4. 2026-04-14Cfo Joining Date And Date OF Trading Update2026-04-14_9517990_cfo-joining-date-and-date-of-trading-update.md0.85
  5. 2026-02-19Result OF Agm2026-02-19_9438973_result-of-agm.md0.30
  6. 2026-01-12Posting OF Report And Accounts Amp Notice OF Agm2026-01-12_9347374_posting-of-report-and-accounts-amp-notice-of-agm.md0.30
  7. 2025-11-24Final Results2025-11-24_9251848_final-results.md0.85
  8. 2025-11-03Notice OF Final Results2025-11-03_9207502_notice-of-final-results.md0.85
  9. 2025-10-23Full Year Trading Update2025-10-23_9188402_full-year-trading-update.md0.72
  10. 2025-06-11Proposed Secondary Placing2025-06-11_8925016_proposed-secondary-placing.md0.59
  11. 2025-05-19Interim Results2025-05-19_8883715_interim-results.md0.58
  12. 2025-05-12Notice OF Results And Investor Presentation2025-05-12_8871613_notice-of-results-and-investor-presentation.md0.46
  13. 2025-04-14Half Year Trading Update2025-04-14_8828218_half-year-trading-update.md0.58
  14. 2025-02-13Result OF Agm2025-02-13_8736232_result-of-agm.md0.20
  15. 2024-12-13Posting OF Annual Report And Notice OF Agm2024-12-13_8610694_posting-of-annual-report-and-notice-of-agm.md0.62
  16. 2024-11-18Final Results2024-11-18_8555131_final-results.md0.65
  17. 2024-11-14Date OF Final Results And Online Presentation2024-11-14_8548962_date-of-final-results-and-online-presentation.md0.65
  18. 2024-10-21Trading Update2024-10-21_8497306_trading-update.md0.55
  19. 2024-05-13Investor Presentation2024-05-13_8190878_investor-presentation.md0.32
  20. 2024-05-13Interim Results2024-05-13_8190790_interim-results.md0.41
  21. 2024-04-22Trading Update2024-04-22_8148147_trading-update.md0.38
  22. 2024-02-01Result OF Agm2024-02-01_8018329_result-of-agm.md0.14
  23. 2023-12-15Posting OF Annual Report And Notice OF Agm2023-12-15_7945714_posting-of-annual-report-and-notice-of-agm.md0.43
  24. 2023-11-20Final Results2023-11-20_7890458_final-results.md0.45
  25. 2023-10-16Trading Update2023-10-16_7817592_trading-update.md0.38
  26. 2023-05-15Half Year Report2023-05-15_7526000_half-year-report.md0.23
  27. 2023-05-04Date OF Interim Results And Investor Presentation2023-05-04_7511990_date-of-interim-results-and-investor-presentation.md0.23
  28. 2023-04-17H1 2023 Trading Update2023-04-17_7491689_h1-2023-trading-update.md0.21
  29. 2023-02-02Result OF Agm2023-02-02_7354168_result-of-agm.md0.07
  30. 2022-11-28Final Results2022-11-28_7216610_final-results.md0.25
  31. 2022-11-23Notice OF Results And Investor Presentation2022-11-23_7456041_notice-of-results-and-investor-presentation.md0.17
  32. 2022-10-24Trading Update2022-10-24_7431144_trading-update.md0.21
  33. 2022-05-09Interim Results Presentation2022-05-09_7197104_interim-results-presentation.md0.23
  34. 2022-05-09Interim Results2022-05-09_7196986_interim-results.md0.23
  35. 2022-04-19H1 2022 Trading Update2022-04-19_6983974_h1-2022-trading-update.md0.21
  36. 2022-02-04Result OF Agm2022-02-04_6746526_result-of-agm.md0.07
  37. 2021-11-22Final Results2021-11-22_6835621_final-results.md0.25
  38. 2021-10-04Trading Update2021-10-04_6648489_trading-update.md0.21
  39. 2021-09-08Investor Presentation2021-09-08_6770800_investor-presentation.md0.17
  40. 2021-05-17Interim Results2021-05-17_6375814_interim-results.md0.09

This research note was authored by a large language model after reading 35 regulatory filings published between 2021-05-17 and 2026-06-01. Each citation refers to a specific RNS announcement in the underlying data set. The note is an opinion, not advice. Do your own work before risking capital.