Alright have had some time to go through the Tecknow presentation. Some thoughts below for those that are new to the story / can't be daft listening to it:
- There is a clear refinement of the messaging starting to filter through - 'RKT leverages Ai and autonomous drones to provide mission critical data services for enterprise customers'.
I like it, it's clear and accurately describes the value proposition for the company.
- A moat that comes from regulatory and compliance certifications the company has achieved in multiple jurisdictions for automated solutions beyond visual line of site.
- The company deals with Tier 1 + 2 customers and secures long term recurring revenue contracts.
- $4.5mil MC / $3mil EV / $6mil annualised revenue.
- The first customer for the company was BHP - thermal coal operations. They continue to be a customer today. Once RKT changes the workflow and streamlines the task, the RKT solution is then embedded with the company and in words of Chris 'we never leave once a unit is deployed with a customer'.
- The company has multiple opportunities within each sector to add value to workflows with automated solutions. Fully CASA approved and now scalable to deploy the services for customers anywhere globally.
- RKT is very much a labour arbitrage play. For example where a company would typically need two QS at $160k each to manage a site, this can be replaced with one RKT drone + services. Allowing companies to focus on making decisions.
- The Calidus contract being spoken about is interesting, with this being a recent contract win for the company, to then see the Administrators called in. The Administrators moved quickly to keep the services of RKT onsite and re-established a monthly services contract in order to do so.
I remember in past conversations the company speaking about the value of the month to month contracts being more substantial than the multiyear contracts (on a monthly basis). I think it's fair to assume the company is being paid more on a monthly basis for their services on site, which is good for short term cash flow optics. Plenty of press about from the VA talking about running the mine for another 6 - 9 months to allow a sale process to occur & in the Fin Review this week mentioning Mark Creasey possibly buying out the Macquarie debt. I'd be very surprised that once the Macquarie debt is resolved and the company is recapitalised they don't re-enter a multiyear contract once more with RKT.
- 11 units have been deployed with prospective customers as trials in various industries. Once the customer adopts the product it does not leave. Actively involved with once off trials and project related work that is paid for, but doesn't appear in the key metrics ARR / TCV.
- Financial highlights - Good cash flow management. Setting aside the payment of the once off tax bill last qtr, this would have seen the company in positive cash flow territory. Company believes the inflection point is now here to see the company operating profitably with the next 1 / 2 contract wins.
My read through on the recently announced Anglo contract renewal for circa 5x the previous value will likely see this occur, as it's an uplift of ~$250k per quarter and will flow through on a steady state basis next quarter. It will be interesting to see how other existing contracts evolve as they are due to expire. If the Anglo renewal is a sign of things to come, existing customer opportunities alone could be VERY material for the company as existing contracts mature.
- Looking at the major mining companies; RioTinto employes +400 , BHP 600, Glencore 400, Anglo 400 drone operators on staff alone. Through engagement with these companies (some of which are customers already) the indication given is to automate ~25% of this. Herein lies the direct and live opportunity for RKT to enable this outcome.
- Trial going with the Government agency in relation to patrol services / first responder. These services have been well adopted overseas and are now making their way to Australia. The company sees this as a very large opportunity to deliver its services into.
- Next 6 months+: Security management / first responder services is a large opportunity to deliver RKT's services to. The company has responded to multiple tender applications from Government and looks forward to updating the market in relation to these in the near term. The company sees these contracts as higher margins and of greater potential.
Keeping it simple to pull it altogether, something to ponder.....
What's an appropriate multiple for a growth - Ai / tech enabled company generating longer term, reoccurring revenue from Tier 1 + 2 and potentially Government customers?
You decide....
Land another 1 bigger or 2 Anglo sized contracts and we could see RKT generating $1mil+ in FCF per annum.
Applying the following multiples would see the valuations below derived (assuming the number of shares on issue remains the same). Keep in mind the current enterprise value is $3.5mil:
15x - $15mil - 4.3x the current price = 3.5c
20x - $20mil - 5.7x the current price = 4.6c
25x - $25mil - 7.1x the current price = 5.7c
30x - $30mil - 8.6x the current price = 6.9c
My personal base case is a 20x multiple and Iam positioned accordingly on the belief downside risk is a point or two lower from here. I think Chris, David & the team can land even a small percentage of the pipeline that would see a minimum $1mil p.a. in positive cash flow generated.
In the meantime please spare a thought for my donkeys' carrying my shredded RKT chess holdings statements. One day the ASX will stop cutting down forests...
RKT Price at posting:
0.8¢ Sentiment: Buy Disclosure: Held
(20min delay)