Envirosuite (EVS) 8 April 2019 BELL POTTERInvestment CaseCompany...

Envirosuite (EVS) 8 April 2019 BELL POTTER
Investment CaseCompany DescriptionEnvirosuite is a leading global provider of environmental management software. The coreproduct of the company – Envirosuite – is a cloud based platform that providesenvironmental monitoring, management and investigative capabilities to a wide range ofsectors including wastewater, mining, agriculture and ports and as well as government forregulatory purposes. The company now has over 90 subscriptions on the Envirosuiteplatform and over $5m in annualised recurring revenue (ARR).Envirosuite was originally an environmental consultancy business that was founded in thelate 1980’s and listed on the ASX in 2008 under the name Pacific Environment. In 2016the company changed its name to Envirosuite – in recognition of the change in focus tosoftware – and then in 2017 the consultancy business was sold to ERM. Today thecompany is purely focused on the development and sale of Envirosuite and is targeting tobe profitable and cash flow positive by the end of FY20.Investment ThesisWe initiate coverage of Envirosuite with a BUY (Speculative) recommendation. Ourinvestment thesis is based on: Valuation of $0.23: We initiate coverage of Envirosuite with a BUY (Speculative) ratingand a valuation of $0.23. The valuation is generated from a blend of two valuationmethodologies we apply to the company: EV/Revenue and DCF. The valuation is a44% premium to the current share price and the total expected return is the same giventhere is no forecast dividend yield. Large global market: The size of the total addressable market (or TAM) for Envirosuiteis estimated to be between US$3-4 billion p.a. globally and note this only includes thetarget verticals of the company. The size of the key target vertical – wastewater – isestimated to be US$800m p.a. globally and Envirosuite is currently expanding itstechnical solution to access a US$2bn market opportunity. Lack of direct competitors: There are many suppliers of environmental managementsoftware globally though there are few if any providers who cover all of the samesectors as Envirosuite or whose software has the same functionality. The greaterfunctionality means the Envirosuite software tends to be more expensive than that of itscompetitors but also means the company often wins the tender when the requirementsare complex. Pure SaaS business: Envirosuite is now a pure play technology company post thesale of the 30-year-old consulting business in 2017. The company is also a SaaSbusiness following the upgrade of its software to a scalable platform in 2015. As aSaaS business the key measure of performance is ARR and Envirosuite has a statedtarget to double the ARR to $6m in FY19 and then double it again to $12m in FY20. Good Balance Sheet: At 31 December 2018 Envirosuite had net cash of $9.1m and nocontingent liabilities such as deferred vendor consideration. The company is currentlyloss making but we estimate the cash balance is sufficient to fund the business until itbecomes profitable in or around FY21. The company has a stated goal to have positivemonthly EBITDA by the end of FY20.