Shekel Brainweigh Ltd: Equity Raising to Support New Product Delivery
Shekel Brainweigh Ltd
Equity raising to support new product delivery
Shekel Brainweigh Limited (ASX:SBW) has addressed one of the key priorities for the group and announced the successful completion of a A$2.1m (US$1.6m) capital raise at $0.16/share plus attaching options. The raise will be used for HR recruitment to promote the Go to Market of Shekel’s range of new products and should suffice until further progress is made on the group’s two other priorities, being a resumption of growth in the core scales business and the delivery of new product sales. To this point SBW recently formed a JV with Imbera Cooling (refrigeration) and Parlevel Systems (vending management software) to produce the Hubz, a new generation version of the Innovendi to be manufactured & distributed in the US & Latin America. This adds to other new products in the market including Innovendi, the Micro-market Capsule or “Black Box” currently in trial with Casino France and Smart Shelves. Given COVID disruptions and the recent nature of these alliances/trials it is unlikely we will see significant progress in new product unit sales until the middle of CY21. Our numbers are unchanged, but downside risk exists for new product sales assumptions in 2H20 and 1H21, which we will review post the CY20 result in February. Our DCF valuation has been adjusted to reflect the 1) 7% appreciation of the A$ and 2) the 10% increase in shares on issue.
Business model
SBW produces weighing scale hardware/software that is employed by OEMs for self- checkout and healthcare applications requiring speed and accuracy. Prices received from customers are typically fixed, and gross margins are in-line with that achieved by most OEM equipment suppliers. The group is looking to extend this market leading technology into new verticals, opening up larger market opportunities, potentially higher gross margins and some recurring SaaS style revenue from data analytics. One of the new verticals (Innovendi vending machines) is in commercialisation while others are nearing commercialisation (Micro-market Capsule and the Hubz).
Raise partially addresses capital structure
The US$1.6m raise is lower than that required to maintain recent R&D spend and provide working capital for growth, but enough to provide a buffer until the group can demonstrate commercial traction for new products, and renewed growth for the core scales business, both key priorities for new management and both significantly impacted by COVID disruptions over CY20. In our view, the simple equity structure of the raise should aid liquidity and is only modestly (10%) dilutive.
Base case valuation A$0.33/share fully diluted
Our base case DCF valuation for SBW has decreased from $0.38/share to $0.33/share, impacted by the higher A$/US$ ($0.72c to $0.77c or 2cps) and the dilution from the equity raise (3cps). We continue to highlight investors are paying nothing for the “new retail” division if the underlying core scales business is valued at 8x our estimated underlying EBIT, while our DCF valuation incorporates a high (10.8%) WACC acknowledging timing/forecast risk.
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- Shekel Brainweigh Ltd: Equity Raising to Support New Product Delivery21 Jan 2021