LATEST FROM Canaccord Genuity - SP Target of 30 c
Owen Humphries | Analyst | Canaccord Genuity (Australia) Ltd. |
[email protected] | +61.2.9263.2702Seth Hoskin | Analyst | Canaccord Genuity (Australia) Ltd. |
[email protected] | +61 3 8688 9146FY22E >+50% rev.g trading on ~3x EV/gross profitSKF has delivered a solid 3Q21 result, highlighted by record quarterly recurring revenue(core value driver) of $2.9m, up +24% versus pcp and +4% above guidance. The resultreflected “strong momentum in the latter part of the quarter” which management notedhas continued into 4Q21E. Total operating revenue of $3.6m was down -9% qoq due toa decline in non-recurring revenues (i.e. hardware installation/professional services) to$0.7m in 3Q21 from $1.2m 1Q21; however, this can be lumpier quarter to quarter.Positively, pro-forma annualised ARR came in at $13.3m ($11m SKF, $2.3mCrowdVision), in line with our expectations, and the company has announcedrevised FY21E total revenue guidance of $15.5-16.5m (prev. A$15-16m) andFY21E recurring revenue of A$11-12m (prev. A$11-12m) due to a 12-weekcontribution from CrowdVision which has been successfully acquired/integrated(prev. guidance was excl. contribution from CrowdVision).Earnings revisions: We have lifted our FY21E ARR and revenue forecasts to A$11.5mand $16.0m respectively, reflecting the 12-week contribution from CrowdVision. We havenot made any changes to our underlying forecasts from FY22E and beyond.SKF's recent acquisition, CrowdVision, specialises in automated pedestrian analyticsand insights, predominately targeting airports (~50% revenues) as well as stadiums,exhibition centres and large-scale resort hotels/casinos. The company appears to be amarket leader in the airports vertical, contracting 13 of the top 30 US airports, and remainsthe only TSA-approved supplier for the US airport sector (applicable global market >2.5kairports with >15m pa PAX, ARPU $60k pa, TAM $150m). CrowdVision’s IP appears tobe its use of LIDAR technology, which is a new way to monitor movement of people withno privacy concerns and less hardware requirements, versus people counting and Wi-Fitechnology (SKF Core business).SKF will be focused on the integration of the CrowdVision team and technology into the SKFoffering in the coming quarters. The company’s near-term initiatives are i) investment inmarketing across all markets/products, ii) near-term conversion on CrowdVision and SKFpipelines, iii) significant focus on key verticals e.g. Airports, Stadiums, Grocery, Corporateoffices, Universities, Schools, and Municipalities, and iv) continue to pursue accretiveacquisitions that broaden offering to current and new customers. We note SKF has ~$13m of available liquidity post its recent capital raise, which puts it in the bestfinancial postilion in its history, in our view.In our view, FY21E and the acquisition of CrowdVision is setting the stage for amaterial pick-up in FY22E ARR (CGe combined group ARR $17m, total revenue of~$25m FY22E) underpinned by +25% growth in SKF core (A$24m qualified pipeline, A$3.4m negotiation/committed) and improved contribution from CrowdVision (+50% to A$3.2m, US$7m near-term pipeline) as capital spend increases in airports globally. SKF hasnot incorporated any synergies into its revenue targets; however, we believe there existsthe opportunity to integrate/cross-sell the CrowdVision technology into its establishedcustomer base (>11k venues utilising SKF’s IO platform, incl. >30x airports). We note theacquisition now provides a substantial additional headcount in the US market, which isexpected to be SKF’s core growth market.We believe SKF's largest limiting factor with investors has been its scale despite impressiveexecution over the previous four years (+54% ARR CAGR, negligible churn). SKF’s industryverticals were materially impacted during COVID (provider of software to bricks and mortarretailers/stadiums/airports); however, group revenues barely flinched with its growthtargeted to return to its historic trajectory in FY22E and beyond (+10% qoq growth).The company is trading on 3.1x FY22E EV/GP (versus peer average ~16x), whichwe think provides potential to see a large multiple re-rating coupled with itsrevenue growth that will likely be aided by an increase in institutional interestas the stock passes the critical A$20m ARR milestone (CGe CY22).
