I’ve been off Hotcopper for a while but stumbled across K2F recently and took a position. There aren’t too many investment opportunities that present themselves like K2F so I thought I would make a quick post to help my own research and for any others that may be interested.
Since listing 12 months ago K2F has drifted from 19c to a low of 6.8c on the back of low revenue and deals. As a result, it has been largely unnoticed by the market. However, over the last few months there have been a number of transformational events and a clear execution on the strategy that has resulted in a lift in revenue and significant future growth potential.
Since July 2017 K2F:
Restructured the board
Purchased Infoscope for $625k which had FY17 revenue of $1.5m and EBIT of ~$400,000 (EBIT multiple of 1.56). A great buy which will fit the existing product portfolio well with significant growth expected over FY18
New key partner agreements in addition to existing partner agreements: KONY, GE Digital, Capita
Multiple new contract wins
Infoscope sale to API Management delivered in October 2017
6 month consultancy to Western Power with further opportunities likely in CY18
Infoscope solution to the National Trust WA (BHP, Rio Tinto and 3 Aboriginal Corporations). Currently in testing with ‘go live” of January 2018
Advisory work with Horizon Power, Programmed, Mineral Resources and Public Transport Authority
Fieldreach Software and services contract with Arc Infrastructure which will have “material impact on revenue and profits” for FY18.
Increase in sales pipeline
Presentations at number of industry exhibitions and conferences resulting in further sales opportunities
According to company the "sales pipeline for 2018 is bigger than it has ever been, and K2F is confident of achieving further sales growth across a number of products". 7 proposals/tenders submitted as at 8 December 2017
Infoscope SAP Integration to be completed in Feb 2018
This will provide K2Fly with significant sales opportunities to SAPs large, global resources companies
SAP Sales execs will also be able to resell the software on a global basis to their client base
Financial Highlights
High Gross Profit Margin - 57.4%
Directors buying shares on market
Revenue for December quarter expected to be in the range of $630-640k ($2.5M annualised). Revenue for the equivalent quarter in 2016 was $144k (up 437%), and the September 2017 Quarter was $319k (up 197%).
Cash at bank - $946k
Expected cash outflows for December quarter of $650k against revenue of $630-640k. Nearly breakeven so no capital raising necessary
Further acquisitions planned for the future
Mcap/Revenue ratio - ~2.4x (super low which shows company is significantly undervalued)
I’m very bullish on the stock and expect big things in 2018 with a significant re-rating of the SP. In line with the options provided to Canary Capital and current revenues/position, this should easily move above previous 12 month high to 25c in the short term. If the company continues to execute on the strategy and win deals then this is only the beginning.
