Evening everyone, just giving an outlook on the potential of K2F over the next 12-18months and beyond and why they are perfectly situated to grow exponentially. Recommendation - BuyFeatures
| 1 | | Share Price | | 2 | Share Price | $0.26 |
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.26
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| 3 | Target Price | $0.40 |
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| 4 | 52-Week Price | $0.22-$0.43 |
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| 5 | Market Cap | $35million |
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| 6 | SOI | 138million |
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| 7 | Cash at Bank | $7million |
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| 8 | EV | $26million |
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| 9 | ARR | $3.38million |
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| 10 | TCV | $9.9million |
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K2fly Ltd (K2F) is an ASX listed technology company providing enterprise-level technical assurance and reporting solutions across all aspects of the Environmental, Social and Governance functions. Servicing the mining, oil & gas, utilities and agriculture sectors, K2fly delivers a suite of solutions in governance and compliance, stakeholder engagement and permits and obligations services.
Industry OverviewK2F’s suite of software solutions are targeted at the mining, oil, gas, utilities and agriculture sectors. With a vast increase in companies focus on all aspects of the Environmental, Social and Governance functions – K2F is in an extremely encouraging position for the future. Capital is flowing more readily to sustainable assets where $1 in $4 invested (or USD$30T) is now ESG or impact driven. Numerous current opportunities to grow our international customer base to address rapidly evolving land access, tailings and ESG reporting requirements.
Record results across the boardQ4 Results: record invoices of $2.54million (34% increase on Q42020) with Total Contract Value (TCV) at 30 June 2021 at $9.9million (48% increase on Q42020). FY21 Results: Invoices of $7.8million (increase of 18% on FY20). FY21 Revenue $6.95mill with a net loss of $2.96million, gross profit margin increasing from 41% to 53% over the year.
Catalysts
Acquisitions:
- On 5 November 2020, the Company completed the acquisition Sateva. Sateva provides innovative software solutions and IT consulting services, including software development and services for sectors in which the Company already operates including mining, resources, and rail industries. Sateva had 3 products in production, development or near commercialisation.
- On 31 March 2021, the Company completed the acquisition of the assets held by a Wesfarmers subsidiary used in the operation of Decipher. Decipher offers cloud-based software-as-a-service monitoring and compliance solutions in tailings management and rehabilitation for mining industry customers.
- The Sateva and Decipher software products suite acquisitions will strengthen K2fly’s technical assurance suite of software solutions that address global tier 1 and tier 2 mining companies with the objective of the acquisitions including exposure to future potential cash flows.
Sales:
- Q4 FY21 K2fly made its inaugural sale of the full Mine Technical assurance suite from the SATEVA acquisition in September 2020. The five-year agreement is worth $2.44M and are positive this is the beginning of a long-term partnership with Roy Hill.
- In June 2021 K2fly expanded its relationship with Rio Tinto Iron Ore with a new agreement to implement its Maximum Return, Geology Data Management solution. The initial 3-year agreement is valued at $750k.
- Alcoa USA Corp has signed a 5-year contract with K2fly for stage 1 of a Dams and Tailings solution across 7 global sites commencing in August 2021. (TCV) Total Contract Value* for this transaction is over AUD $1.5m.
Future Catalysts- Future acquisitions are fully funded with $7mill cash at bank and over $2.1million of receivables at the end of 30 June 2021. K2F has found tremendous value from acquiring boutique technology firms who can add to their SaaS stable of adjacent products and solutions and then grow them into their suite of Tier 1 and 2 global clients.
- K2F’s customers are closely associated with technical assurance, global land and ESG risk management and are looking for better enterprise solutions at a corporate level.
- Current clients are five of the top six Tier 1 miners where addressable ARR is $60mill, and 24% of Tier 2 customers with an addressable ARR of $100mill, however, their solution penetration is 2% of this potential market which shows the growth runway.
- Future opportunities to further improve technical assurance,governance and public disclosures across environmental andsustainability reporting, mineral endowment as well as adjacentexpansion into oil and gas. Further global growth opportunitiesnow supported as a SAP Endorsed App.
- Community expectations, regulatory and technology changesare surging demand. Tailings and heritage are similar blueocean offerings in high demand due to corporate ESG andsocial license concerns.
Key Risks
Regulatory risk: A key driver of demand for K2F’s software platform is the need for organisations to be able to demonstrate they are complying with regulatory and environmental requirements. If there is a change in regulation, then this can impact the demand – positively or negatively.
Competition risk: The competitive landscape could change if a competitor develops a similar or better product than K2F’s several platforms in terms of functionality, ease of implementation/integration and/or price. At present K2Fly is relatively unique in terms of the sectors it covers and the functionality of its software but this could change especially if the demand for environmental management software continues to increase which may attract new providers to the market.
Top Shareholders:
| MUFG for CBA | 7.46% |
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| 1 | Regal | 8.06% |
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| 2 | Tribeca | 7.87% |
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| 3 | First Sentient | 6.38% |
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| 4 | CSBP for WES | 10.13% |
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| 5 | Brian Miller (Director) | 3.98% |
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| 6 | Total Top 20 | 62%* |
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* estimate based on FY21 movement.
As per my first statement, I believe that K2F is a strong buy in the market we are in today given the massive push towards ESG and its general growth runway as mentioned previously. Price target of $0.40 in the short term.
Cheers
LD
(20min delay)