Q2 FY20 Investor Presentation
28 July 2019: Update note from CG: "Estimates Revised" - https://www.asx.com.au/documents/research/cgau-skf-20190729.pdf
Canaccord Genuity has a "BUY" call on SKF with a 30c PT, implying 76% upside from yesterday's close - which was 17c.
Initiation of Coverage
The sky's the limit
Skyfii (SKF) is a data intelligence platform built for physical venues, providing data analytics and marketing software to help physical venues (shopping malls, airports, universities) use data to measure, predict and influence customer behavior. The company was founded in 2012 and has grown primarily through organic means (>85% 4year revenue CAGR) to become a leader in the venue analytics industry, reporting >600 customers across N. America, Aust/NZ, Africa, S. America, UK, and Europe.
SKF generates the majority of its revenues, gross profit and earnings through its proprietary IO platform (~55% rev., ~65% gp) which operates via a SaaS (Softwareas-a-Service) business model. The IO platform ingests data from over ~40k devices across >8,000 physical venues to provide a suite of analytic and marketing tools to enterprise customers and comprises three components: Connect (data collection), Insight (analytics) and Engage (marketing). SKF also provides auxiliary consultancy services (24% rev.) to leverage insights from the data.
While Wi-Fi is the most important data source for the IO platform, a core competitive advantage is its ability to absorb a vast number of unique data sources (30x), including BLE (Bluetooth) beacon networks, door-to-people counters, 2D/3D cameras, thermal imagery, video sources, web and social platforms, POS sales data, weather etc. When combined and correlated, the IO platform allows physical venue owners and operators a holistic view of customer behavior including the flow of customer traffic, impact on key sales events, while providing targeted customer communication for users that opt in to free internet connectivity.
According to Mordor Intelligence, the global location analytics market was estimated at US$8.3b in 2017 and is expected to reach US$19.6b by 2023, growing at a CAGR of +15.3% aided by the competition between online and offline retail and increasing significance of data analytics for bricks and motor retailers. As this remains an emerging industry, competition is largely fragmented and typically comprises small private operators. As such, we believe the industry is supportive of consolidation with SKF likely to be a participant following the bolt-on acquisitions of Beonic, Wicoms, and Causely over the previous three years.
SKF’s revenue has been historically derived from the domestic retail vertical (shopping malls, >50% rev.); however, the company has expanded its use cases to over 10 separate industry verticals in >30 countries. These include municipalities/smart cities, museums, sporting venues, dept. stores, financial serv., airports, gyms, casinos etc.
We value SKF at $0.30ps, using a sum-of-the-parts valuation methodology, separating its non-recurring implementation/professional services division and its highly recurring/ margin SaaS (IO platform) business. We are attracted to SKF’s recurring (<1% customer churn over previous 4 years), high margin (gp margins ~75%) and elevated revenue growth (+85% four-year rev. CAGR) profile. The company reports limited S&M spend (~5% of revenue), illustrating large inherent operating leverage as the business scales (SKF GPAPA margins 67% [+46% rev. growth]). As SKF generates software-like margins, we believe the stock should be compared to its domestic software peers and on an EV/revenue basis, SKF trades at a -70% discount to its domestic SaaS peers (SKF FY20 2.6x, SaaS peers 9.4x), despite elevated organic revenue growth (FY20 SKF +30% organic growth, Aust. SaaS peers +29%).
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Disclosure: I don't hold.
Chairman Address (00:00)
CEO Address (13:40)
Operating Highlights (24:38)
Financial Highlights (25:48)