Cyan, an Aim-listed minnow, has seen its shares more than double after unveiling an order bigger than its market value before the deal.
The smart metering company has received an order from Iran worth £10m for 360,000 units, after an initial testing period earlier in the year. Its shares have jumped 115% to 0.28p, with its market capitalisation soaring from £9.4m to £19m. Cyan said:
The order [from telecommunications contractor Micromodje] is significantly larger than any purchase order received to date by Cyan and marks a step change in the company’s commercial progress.
This is one of the first substantial deals secured by a UK company since sanctions were lifted on Iran in January. Iran plans to replace electricity meters for all customers - around 33m meters - within seven years. Cyan executive chairman John Cronin said:
Not only is the order ten times larger than any previous orders we have received, but this Iranian order also marks Cyan’s entry into a new territory.
Analyst Adam Forsyth at the company’s broker Cantor Fitzgerald issued a buy note with a 1p price target, saying:
We think that the rapid follow up to the pilot order announced in February shows that Cyan’s product is easy to deploy and is delivering its expected benefits. We think the company is beginning to gain real market traction, de-risking our investment case.
The shipment and installation of hardware will begin towards the end of the current year following integration of Cyan’s hardware with a locally manufactured smart meter. Hardware revenue will be recognised as it is delivered over a two year period. The software licence income will be recognised over a five year initial contract period following successful meter installation and paid annually in advance on a per meter per year basis. This will deliver a recurring revenue stream beyond the initial hardware sales and potentially beyond the initial contract period.
[There is] a larger market opportunity – Iran has begun a national smart metering program (FAHAM in Persian) with the stated goal of replacing approximately 33m meters in seven years and with funding from the state-owned power company. Cyan has already entered into a dialogue with Micromodje on the next planned rollout of 1m smart meters. On a pro-rata basis such a deal could be worth £28m and the total market of 33m units worth up to £920m.
We see delays in securing sales orders as the biggest risk to [our] valuation. Today’s announcement helps to reduce that risk. Order conversion risk here will depend on continuing diplomatic rapprochement with Iran but this does not detract from the endorsement of Cyan’s technology that this deal represents in our view.
