6/2/2022: Serko has an oft stated mid-term target of NZ$100M revenue, this would require 4x growth from pre-covid levels (FY20 - ends March 2020) and rely primarily on massive growth in the North American market, as current primary markets of AU and NZ are too small and highly penetrated to achieve this.
I believe that AU + NZ revenue will max out at ~NZ$25M, so in reality, NZ$75M will be required from North America to achieve this, which represents growth of 15x from pre-covid revenue of NZ$4.8 (FY20).
Given the size of the North American market I believe this is achievable so the question becomes, how long will this take?
FY21 and FY22 revenues are both heavily COVID impacted and FY23 will be as well to some extent, which continues to delay a return to the pre-COVID level of business travel, although I’m hopeful FY23 will still see Serko achieve revenue growth on pre-COVID levels.
The business has been investing heavily into the North American market despite COVID (hence the increasing Opex) and currently has 10 TMCs and is in discussions with several large US corporates so I expect revenue to jump out of the gates as business travel recovers.
So with hopefully (COVID depending) some growth in FY23 I am assuming they can reach their NZ$100M revenue target in FY26. This still requires extremely high levels of growth so needs to be watched closely.
Serko currently trades on a 27 - 30 x guided FY22 multiple and was as high as 40!
However, that's too rich for my blood and so at $100M revenue I’ll use a more reasonable 10x multiple (like @Melo’s valuation) to give a market cap of $1 billion. At the current share count (120 million) that works out to a FY26 target of $8.33 per share.
Discounting that back by 15% per year to account for the higher risk level, gives a present value of $4.76 per share.
I hold a small position in RL and think the business has great potential so if it drops to below my idea of fair value I’ll be looking to top up.