Shekel Brainweigh Ltd: New Chairman’s Key Priorities + a “capsule” Update
Shekel Brainweigh Ltd
New Chairman’s key priorities + a “capsule” update
Shekel Brainweigh Limited (ASX:SBW) conducted an investor call on 20/10/20 to introduce new Executive Chairman Arik Schor and outline the group’s (3) key priorities for the next 12-months. They are 1) fix the capital structure of the business to ensure the group has the necessary funding to progress new product developments. This is expected before December 2020 and structure aside is a key re-rating catalyst, 2) Get the core “scales” business back to growth, with the earnings of this division impacted recently by increased R&D spend and loan write-downs which has distorted the underlying profitability of this division. We estimate this division is currently delivering normalised EBIT of ~US$2.0m, and 3) deliver on new innovation, and in particular the Innovendi vending machine and the “capsule” or “black box” as it is known by French development partner Casino Group (CO.PA). Focus on new product innovation has clearly shifted to Innovendi and the capsule in recent quarters, with a capsule soft launch currently being undertaken in France and full public launch expected in December 2020. This fully autonomous convenience store is expected to roll-out in CY21 and looks a serious technology contender to the Amazon Go concept which has been under development for years. We have modest unit sales of the capsule in our medium-term numbers with clear upside given this launch and the launch partner.
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 (Innovendi Dry, smart shelving and the Micro-market Capsule).
Group near-term priorities
New Chairman Arik Shor has articulated the key strategic priorities for SBW over the next 12 months, which are very much in-line with our current thinking. Raising additional capital to ensure a continuation of new product development is a clear priority and is expected to be finalised over the next 3 months. From a normalised base of ~US$2.0m EBIT, the company is focused on growing the core business, with new own brand innovations and self-checkout “fast track” innovations on the horizon. Following ~US$12m in R&D spend over the last 3 years, management is focused on a near-term return in this investment, with new management and organisational structure key to delivering.
Base case valuation A$0.38/share fully diluted
Our base case DCF valuation is A$0.38/share ($53m), with A$24m alone attributed to the core “scales” business (8x normalised EBIT multiple). New product development is gathering steam and a successful fund raising to continue this momentum is key.
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- Shekel Brainweigh Ltd: New Chairman’s Key Priorities + a “capsule” Update26 Oct 2020