Shekel Brainweigh Ltd: On Track in CY21 and Confidence Building for CY22+
Shekel Brainweigh Ltd
On track in CY21 and confidence building for CY22+
Shekel Brainweigh Limited (ASX:SBW) has reported YTD CY21 sales growth for its core Scales Division of 22%, and an “open order book” at the end of October of US$6.8m, which is 1.4x the same period last year. These two factors have SBW on track to meet our 2HCY21 Scales division sales estimates. Confidence continues to build around the Retail Innovation Division with SBW receiving an initial order for 67 “Hubz” vending machines from Belgium company Smart Technics BV, a subsidiary of Colruyt Group (EBR:COLR), for delivery by the end of CY21. The company also continues to see good progress in a number of “Smart Bay” trials and is readying its new “Fast Track” produce identification software for commercial demonstration at the National Retail Federation (NRF) retail conference and expo in New York in January 2022. Together with continued Innovendi sales under the Tnuva contract, this also places SBW on- track to meet our Retail Innovation divisional 2HCY21 sales estimates and provides further validation for new products. As a result, our CY21 sales and earnings estimates remain unchanged, as does our DCF of $0.37/share. Using a sum-of-the-parts valuation for CY21 we continue to highlight that the Retail Innovation Division is assigned little value at current prices.
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 revenues from data analytics. One of the new products (“Innovendi” vending machines) is in commercialisation while others are close (“Autonomous Micro- Market Capsule” and the “Hubz”, a second-generation autonomous vending machine).
The sales outlook continues to build for CY22 and beyond
The core Scales Division continues to record solid sales growth (+22% YTD October) and had an open order book in October to deliver our implied Q4 CY21 sales estimates for Scales. New and returning customers together with new innovations promise further growth in CY22. Following a number of pilot trials and product refinement, SBW has received its biggest “Hubz” order to date - 67 units from Smart Technics BV (part of the Colruyt Group of Belgium), and together with ongoing Innovendi sales goes a long way to meeting our CY21 sales estimates. Progress continues to be made in “Capsule” and “Smart Bay” pilots and a commercial launch of “Fast Track” is slated for January 2022. The company last week gave a presentation at the Coffee Microcaps forum outlining these developments.
Base-case valuation A$0.37/share supported by Scales profit
Our base-case DCF valuation for SBW remains $0.37/share. Using our adjusted CY21 EBIT forecast for the Scales Division, and applying an 8x multiple, we derive a valuation of A$25.0m alone, equal to the current market cap and implying little value to the Retail Innovation Division despite multiple products in the market. A $0.37/share DCF implies a fully-diluted market cap of A$64m.
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