CV Check Ltd - Some FY22 Figures, OnCite App Launch and Peer M&A

Business model

CV1 has two core offerings: (1) Screening and verification (SaV) services via its CVCheck platform (91% FY22 revenue); and (2) A Software-as-a-Service (SaaS) real-time workforce compliance monitoring and management platform (9% FY22 revenue). SaV services generate transactional revenue 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). There is no charge to workers for download and use of the OnCite app.

Recent news: ‘Flash’ results, OnCite app launch, peer M&A

We highlight three recent developments: (1) Disclosure of FY22 unaudited figures for revenue ($26.4m), operating cashflow ($3.1m), capitalised product development spend ($2.6m) and cash balance ($12.2m). These are essentially in line with our expectations; (2) Launch of the OnCite app which is a key feature and selling point of CV1’s SaaS offering as it enables workers to directly capture, store and access their information/data via their mobile devices and supply it to their employer(s) more efficiently via the Cited platform (vs. manual data entry); and (3) Recent M&A activity and interest in CV1’s ASX-listed peer group with: (a) Proposed acquisitions of PYG by Deel Inc at 2.9x ARR and KYK by Richard White at est 10x FY22 EV/Revenue; and (b) Takeover approaches from Accel-KKR for both ELO and DTC (neither of which advanced). This reinforces our view that CV1 is well placed for potential 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 currently trading at a 61% discount to its ASX-listed peers on FY22f EV/Revenue (1.4x vs. 3.7x) with discounts of 58% and 53% respectively to its closest peers [Xref Ltd (ASX:XF1) at 3.4x and IntelliHR Ltd (ASX:IHR) at 3.0x]. Relative to the US-listed SaV pure-plays (First Advantage, Sterling and HireRight), CV1 is trading at a 43% discount to their average 2.5x CY22f EV/Revenue. Further, applying the FY22 EV/Revenue multiples implied by the PYG acquisition and indicative ELO offer to CV1 gives an EV range of $77m-$148m and equity values of $0.20-$0.37 per share.