I reserve a small section of my portfolio for promising small-cap stocks. That’s because they have tonnes of room to grow if they become successful. Look at FTSE 100 firm Ashtead. It was a penny stock in 2008!
Windward (LSE: WNWD) is an AIM-listed share that I recently bought. The share price is up 179% in 12 months, giving the firm a market cap of £90m.
Here’s why I like this software company’s prospects.
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Digitalising the global maritime industry
Windward uses artificial intelligence (AI) to provide risk management solutions to companies and organisations in the global shipping industry.
These range from oil supermajors and port authorities to banks, freight forwarders, commodity traders, and insurers.
Its cloud-based, all-in-one platform incorporates data from various sources to predict and mitigate risks.
For example, it offers features like route optimisation, where AI identifies the safest and most efficient shipping routes based on weather patterns, piracy threats, and port congestion.
It also carries out real-time cargo security risk assessments and tracks vessels to ensure adherence to environmental regulations and sanctions. And its solutions can now be delivered directly onto customer and third-party platforms.
Uncertain world
As we know, it can be carnage on the high seas these days.
Houthi rebels have launched dozens of attacks on commercial ships in the Red Sea and Gulf of Aden since November. And I’ve just been reading that Somali pirates are back and bolder than ever.
Windward says it provides an “AI-powered risk profile for every vessel in the world”. So I think this is a very relevant service in today’s unpredictable world.
Strong growth
In 2023, Windward’s revenue rose 31% year on year to $28.3m, while its EBITDA loss of $5m significantly decreased from the year before ($12.1m).
It increased its customer count to over 200, up from 132 at the end of 2022. This saw its annual contract value grow 35% to $34.5m, providing a solid basis for further growth.
Almost all (99%) of its revenue is subscription-based, with a 7.5% churn rate overall but none in key government customers. Meanwhile, its gross margin expanded from 72% to 79%
Looing ahead, management says it has “a clear pathway to achieving positive EBITDA”, and it had a year-end net cash position of $17.3m to help it get there.
An ocean of potential
Now, this is still a penny stock, so above-average volatility can be expected.
Moreover, there are other software firms in this space, while further AI rivals may emerge as the global maritime industry grows. So competition could become a key risk.
That said, I’m very encouraged by the firm’s growing roster of blue-chip customers and partners here. It has deepened its partnership with London Stock Exchange Group by integrating some of the latter’s World-Check services into its platform.
And INTERPOL, the world’s largest international police organisation, has chosen Windward to help it identify and prevent drug trafficking, human smuggling, and illegal fishing.
This suggests to me that Windward is building a competitive advantage through its AI-first approach, setting it up for further growth as it adds more services and – hopefully – customers.
All but 10% of global trade sails through the sea, so this is a very large market opportunity the company is pursuing. According to management, it is worth over $10bn.
I’m thinking about buying more shares in May.
