One UK stock that I invested in earlier this year was Windward (LSE: WNWD). The share price has risen 53% so far in 2024, yet I reckon it has more to give over the next few years. Here’s why.
An AI-powered platform
Windward operates a platform powered by artificial intelligence (AI) that uses predictive analytics to help clients foresee and manage risks on the high seas.
It’s used by shipping companies to optimise routes and reduce fuel costs, by insurers to assess risk and prevent fraud, by oil traders to make money, and by governments to enforce maritime regulations.
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Cargo owners and freight forwarders also rely on Windward to track shipments in real time, ensuring smooth logistics and timely deliveries. With around 90% of global goods transported by sea, this capability is more important than ever.
The maritime environment is becoming increasingly complex. In addition to growing regulation and sanctions, there are threats from bad actors like pirates and Houthi rebels in and around the Red Sea.
The company has a blue-chip customer base that includes BP, Shell, the US Coast Guard, and Interpol. It’s chaired by Lord Browne, the former boss of BP.
A strong H1
On 20 August, the firm reported a strong first half. Revenue rose 37% year on year to $17.6m, while annual contract value (ACV), a future indicator of revenue growth, was up 35% to $37.2m.
It added 32 new commercial customers, including Bernhard Schulte Shipmanagement and Berge Logistics, to end the period with 219 customers. This more than offset a bit of churn from some smaller customers.
The main risk to the investment case is that the company isn’t yet profitable. It lost $9m last year and a $2.5m loss is expected this year.
However, Windward is rapidly steering a course towards profitability. Gross margin edged up to 81% from 79%, while the EBITDA loss narrowed to $1.3m from a loss of $3.8m the year before.
Looking ahead to the full year, it expects revenue of $36.2m (28% year-on-year growth) and is confident of achieving an adjusted EBITDA break-even run rate. This increasing profitability is encouraging.
Deploying generative AI
In June, the company launched MAI Expert. This generative AI-powered virtual agent uses its proprietary data to do comprehensive and rapid vessel risk assessments. Management says MAI Expert reduces screening times by about 20 minutes per screen. This is providing a tangible return on investment for customers.
CEO Ami Daniel said: “We are recognised for our expertise in artificial intelligence in the maritime sector, and generative AI is therefore a natural evolution of our product roadmap, paving the way for a significantly increased total addressable market and a competitive differentiation among our peers.”
Quality small-cap stock
The price-to-sales multiple is around five. That’s not particularly expensive for a fast-growing software company.
To summarise some things I like here:
- Innovative firm with a scalable platform
- Profitability improving rapidly
- Small market cap of £112m
- Cash position of $13.8m
At 128p, the share price is still down 42% since early 2022. With Windward’s AI-powered solutions now more relevant than ever, I’d buy the stock today if I hadn’t done so already.
