KINATICO LTD (ASX:KYP) - CV1 vs XF1 - Significantly Undervalued, 39145080, page-10 - HotCopper | ASX Share Prices, Stock Market & Share Trading Forum

Originally posted by ambitious.1: ↑

I think CV1 is significantly undervalued. Keen to hear any feedback or opposing thoughts here.

XF1 is growing faster (call it 60% vs 30%) but they have had a different strategy. CV1 have pushed for cash flow positive earlier, while XF1 have slammed the pedal to the floor and continue to burn cash.

Now that CV1 are break even they’re pushing harder on sales more like XF1 have been doing. Hiring more sales staff, bundling new products, more engagement with existing client base, etc.

The CEO said on the call they’ll reinvest free cash flow into growth.This should see B2B revenue growth accelerate. If it moves towards XF1’s rate of growth so too will the stock.

XF1 have higher gross margins than CV1. But this is again because of a different strategy. CV1 went in with criminal history checks as the lead product. XF1 went in with automated reference checks (higher margin).

But CV1 have now released a reference check product and the pipeline of additional products they are rolling out are all significantly higher margin than criminal history checks. This is why gross margins are rising and will continue to do so as they bundle higher margin products to their existing client base.

If XF1 want to compete as a one stop shop (which I think is the eventual goal for both companies) then they will need to release some lower margin products over time as not all products are as high margin as reference checks. Margins probably converge somewhat. So the difference in margins today is likely backward looking.

Then there is international growth. XF1 have the attraction of growing offshore. To date, CV1 has been just Aus and NZ.But on the conference call CV1 were stating their ambition to grow overseas in the near term by partnership or acquisition. Sounds like they will do so without a large upfront investment.

They already offer thousands of checks internationally so the tech and product range is there. They mentioned global clients (e.g Chevron) that present one way of expanding off shore.And the CEO spoke about potential licensing/white label agreements with big offshore agencies.Any of those would provide some additional blue sky and be a good catalyst.

Both CV1 and XF1 have a similar B2B revenue base (~$8m). Both have high recurring revenue, blue chip sticky clients, good growth and so on.

Yet XF1 trades on 10x revenue and CV1 trades on just 2x.

CV1’s B2B segment is high quality - 90%+ recurring revenue, sticky enterprise clients, growing ARPU, low concentration risk (biggest client <2% of revenue) and a significant opportunity to bundle their new products to their existing customer base i.e high ROIC, low CAC.

I think that sort of revenue base deserves far more than the current 2x multiple. I think 5x is warranted today and if growth accelerates or they expand offshore it can justify 10x.

They should be able to grow this revenue both through bundling to the existing clients and through an increased investment in sales to acquire new customers. The CEO suggested both of these are going well.

If you valued CV1 the same way XF1 tell the market to value their stock (i.e with increasing uptake, rising ARPU, etc) then you get to a valuation for CV1 far higher than todays price.

XF1 have done an excellent job of execution and telling their story to the market. Thats why they are on 10x sales. I think the same opportunity exists for CV1.

So if the market takes a liking to it then there is plenty of room for it to re-rate.

Keen to hear the thoughts of others.

Expand

ambitious I’m new to this stock and thinking of buying, but don’t really understand what they do!
Are you happy to give me a summary of exactly what they do?
And is XF1 a competitor that will ultimately be winner takes all, or are they in a slightly different space where there’s room for 2?
Cheers.

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0.120	284000	6
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(20min delay)
Last 10.5¢		Change 0.000(0.00%)		Mkt cap ! $45.52M

Open	High	Low	Value	Volume
11.0¢	11.0¢	10.5¢	$20.82K	189.6K

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