Kinatico Ltd (Formerly CV Check Ltd) - Q2/H1 FY23 Preview and Industry Activity Round-Up

Business model

KYP has two core offerings: (1) 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 ‘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). For Cited SaaS, KYP now offers a simple monthly all-in fee per worker of $15- $30 (inclusive of transactional services, minimum 12-month subscription).

H1 FY23: Results preview and elevated peer M&A activity

Our H1 forecasts include five key metrics: (1) 9% yoy revenue growth to $14.0m with $12.3m from SaV (up 5% yoy including more moderate 3%-4% Q2 growth) and $1.7m from SaaS (up $0.5m yoy); (2) $0.7m EBITDA (flat on pcp); (3) $1.0m operating cashflow; (4) $0.8m free cash outflow due to sizeable ~$1.75m capitalised development spend (for OnCite and Cited enhancements); and (5) $11.1m cash. Meanwhile, biometric identity (‘ID’) verification and process automation services under the agreement with Scantek Solutions should be released across KYP’s products in early Q3. M&A activity and interest in KYP’s peer group has been at elevated levels in H1 including for six listed peers (ASX:ELO, PYG, KYK, RDY, LVT, DTC).

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 (ex-ELO, RDY) on FY22 EV/Revenue (0.9x vs. 2.7x) including its closest peers [Xref (ASX:XF1) at 2.5x and IntelliHR (ASX:IHR) at 2.8x]. The discount is 61% on FY23f. Relative to the US-listed SaV pureplays (First Advantage, Sterling and HireRight), KYP is trading at a 65% discount to their average 2.3x FY23f EV/Revenue. Key re-rating catalysts are: (1) Securing material new SaaS revenue; and (2) Evidence that process automation initiatives are positioning KYP for future scalability and operating leverage.