Kinatico Ltd (Formerly CV Check Ltd) - Q1 Revenue up 9% + Automation Via Scantek Deal
Kinatico Ltd (ASX:KYP) [formerly CV Check Ltd] is a RegTech company providing workforce compliance monitoring and management technology and services (i.e. ‘Know Your People’ services). KYP’s recent Q1 FY23 reports revealed: (1) $6.9m revenue (up 9% yoy) of which 10% was SaaS revenue ($720k - up from $600k in pcp and Q4 FY22); (2) $7.5m cash receipts; (3) 64% P&L gross margin (flat on pcp); (4) $233k operating cashflow; (5) $826k free cash outflow (post $1.06m capitalised development spend and capex); and (6) $11.1m cash (and net cash). These key figures were largely in-line with our expectations and our forecasts remain intact. We also highlight three other recent developments: (1) White-label agreement with Perth-based Scantek Solutions Pty Ltd (‘Scantek’) for process automation and biometric identity (‘ID’) verification services. Integration is under way and the services will be released across KYP’s products in late Q2/early Q3 FY23 (with Scantek charging a fee per ID verification). Whilst the arrangement should generate some net cost savings in H2 FY23/FY24, we consider its significance lies in facilitating future SaaS scalability at low incremental cost; (2) New Cited SaaS agreement with Aruma Disability Services (‘Aruma’) for $218k pa revenue. KYP’s annualised SaaS revenue run-rate is currently ~$3.2m - and the remainder of FY23 is a key period to establish sales momentum; and (3) KYP has been buying-back shares most trading days (2.2m to date for $227k [of maximum $2m/~4% issued shares]).
Business model
KYP has two core offerings: (1) Screening and verification (SaV) services primarily via its CVCheck platform (91% FY22 revenue); and (2) SaaS (9% FY22 revenue) encompassing real- time workforce compliance monitoring and management delivered via its ‘Cited’ platform (and accompanying ‘OnCite’ app), and workforce logistics solutions via its legacy ‘Enable’ platform. 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). KYP is now moving its Cited SaaS pricing to a simple monthly all-in fee per worker of $15-$30 (inclusive of transactional services, minimum 12-month subscription). There is no charge for OnCite app download and use.
Q1 FY23: $1m tech development spend + Scantek arrangement
KYP’s Q1 results were largely in-line with our expectations with key metrics of: (1) 9% yoy revenue growth primarily driven by higher SaV volumes; (2) $720k SaaS revenue (up $120k yoy and qoq); (3) 64% P&L gross margin (flat on pcp); (4) $233k net operating cashflow; (5) $826k free cash outflow due to sizeable $996k capitalised development spend (for OnCite and Cited enhancements); and (6) $11.1m cash (and net cash). In addition to the ongoing emphasis on growing Cited’s SaaS revenue, a key focus for Q2/Q3 is the delivery of automation and biometric ID verification services across KYP’s offerings following integration of Scantek’s solution. This should facilitate future SaaS scalability and operating leverage.
DCF valuation of $0.26/share or $113m market cap
Our KYP DCF valuation remains unchanged at $0.26 per share (11.6% WACC). This implies EV/Revenue multiples of 3.8x for FY22 and 3.3x for FY23f. As a cross-check, KYP is currently trading at a 66% discount to its ASX-listed peers on FY22 EV/Revenue (1.0x vs. 3.0x) including its closest peers [Xref (ASX:XF1) at 2.6x and IntelliHR (ASX:IHR) at 3.8x]. Relative to the US- listed SaV pureplays (First Advantage, Sterling and HireRight), KYP is trading at a 61% discount to their average 2.6x CY22f EV/Revenue. While the buy-back should underpin the share price in FY23, key re-rating catalysts are: (1) Securing material new SaaS contracts; and (2) Evidence that automation positions KYP for future scalability and operating leverage.
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- Kinatico Ltd (Formerly CV Check Ltd) - Q1 Revenue up 9% + Automation Via Scantek Deal27 Oct 2022