CV Check Ltd (CV1) - Checked-In for RegTech SaaS Transition

Equity Bottom-Up

629 Views15 Jun 2022 08:00

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SUMMARY

CV Check Ltd (CV1)

Checked-in for RegTech SaaS transition

CV Check Ltd (ASX:CV1) is a RegTech company providing workforce compliance monitoring and management technology and services (i.e. ‘Know Your People’ services). It is a key player in Australian pre-employment screening and verification (SaV) (~11.5% market share) reflecting a 39% revenue CAGR since its 2015 listing. CV1 has been operating cashflow positive for the past seven quarters ($2.1m FY22 to date) and is well capitalised with $12.3m cash. Following the April 2021 strategic acquisition of Bright People Technologies with its SaaS workforce compliance platform (‘Cited’) and Michael Ivanchenko’s appointment as CEO in August 2021, CV1’s key focus is to substantially grow SaaS revenues (from $2.4m). This would transition CV1 from predominantly transaction-based SaV revenue (~90%) towards high-margin (~85%) SaaS subscription revenue with its attendant operating leverage. Cross-selling to existing corporate SaV customers in ‘compliance heavy’ sectors is a key strategy and international opportunities are also being assessed. CV1 is also a potential beneficiary of structural tailwinds of increasing workforce complexity, compliance and ESG. Moreover, it is well placed for M&A (bidder or target).

Business model

CV1 has two core offerings: (1) Screening and verification (SaV) services via its CVCheck platform (91% FY22f revenues); and (2) A Software-as-a-Service (SaaS) real-time workforce compliance monitoring and management platform. SaV services generate transactional revenues with fees charged per check on a PAYG basis. They are targeted at business, skewed to police checks, and somewhat leveraged to the employment market. For SaaS, customers (employers) pay a fixed monthly fee plus transactional fees for SaV and other services. CV1 is now moving its SaaS pricing to a simple monthly all-in fee per worker of $15-$30 (inclusive of transactional services, minimum 12-month subscription term).

Key inflection point for SaaS transition strategy

CV1’s key strategic and operational focus is to substantially grow its industry and jurisdictionally agnostic SaaS platform’s subscriber base over the next three years. Having integrated the Bright acquisition and appointed a new CEO in 2021, and recently recruited a new sales director, it is now at an inflection point as the SaaS sales growth strategy commences in earnest. CV1 has ~500 large corporate SaV customers and cross-selling to those in ‘compliance heavy’ sectors (e.g. healthcare) is a key objective. On CV1’s analysis, there are 3.6m Australian workers with recurring compliance monitoring requirements in its target markets. In tandem, CV1 is assessing cost-effective international opportunities (e.g. licensing, JV) and enhancing its offering (e.g. imminent ‘Digital Credential Passport’ app launch). Moreover, CV1 is operating and free cashflow positive (buoyed by strong SaV revenue growth in FY21/FY22), well capitalised with $12.3m net cash, and operating in industries and a market environment which could be conducive to M&A.

DCF valuation of $0.26/share or $112m market cap

Our CV1 DCF-based valuation is $0.26 per share. This implies EV/Revenue multiples of 3.8x for FY22 and 3.3x for FY23. As a cross-reference, CV1 is trading at a 56% discount to its ASX- listed peers on FY22f EV/Revenue (1.3x vs. 2.9x) with more pronounced discounts to its closest peers [Xref Ltd (ASX:XF1) at 4.7x and IntelliHR Ltd (ASX:IHR) at 4.6x]. Relative to the US-listed SaV pure-plays (First Advantage, Sterling and HireRight), CV1 is trading at a 51% discount to their average 2.6x CY22f EV/Revenue.

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