Shekel Brainweigh Ltd: Scaling up for Multiple Product Commercialisation
Shekel Brainweigh Ltd
Scaling up for multiple product commercialisation
Shekel Brainweigh Limited (ASX:SBW) has reported 1HFY21 sales growth of 34% to US$10.6m, which included ~250% growth in the New Retail division. The adjusted EBIT loss (for amortisation and one-off costs) was in-line with 1HCY20 despite elevated R&D spend, with the Scales division recording adjusted EBIT of US$1.1m. Importantly 2H sales are historically higher than 1H (45%/55%) offering higher absolute sales and reduced losses due to operating leverage. New product penetration should continue in a less disrupted world with more sales & marketing resources following recent capital raising initiatives. 2HCY21 will see the first sales of autonomous vending machine Hubz and the launch of self-checkout product identification software/hardware Fast Track. From a valuation perspective, if we assume adjusted FY21 EBIT of US$2.3m (A$3.1m) for the Scales division and apply an 8x multiple we get an A$25m value against the current market cap of $21m. This implies a negative $4m value for New Retail despite >A$12m in R&D spend over the last 3-years and new products at or near commercialisation.
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 products (Innovendi vending machines) is in commercialisation while others are close (Autonomous Micro- market Capsule and the Hubz, a second-generation autonomous vending machine).
Well placed to deliver on potential
CY20 was a Covid disrupted year for SBW, limiting new product sales and severely impacting healthcare sales as they took second place to Covid. 1HCY21 has showed early benefits of “opening” economies with new Scales contracts in Europe, a recovery in self-checkout sales and industrial projects in Israel resulting in 1H sales growth of 34%. Historically 2H sales are higher than 1H and while R&D spend remains elevated we expect continued growth in new product sales and a narrowing in operating losses.
Base case valuation A$0.37/share supported by Scales profit
Our base case DCF valuation for SBW is now $0.37/share (up from $0.35/share) following the roll forward and fine tuning of a number of assumptions. Using our adjusted FY21 EBIT forecast for the Scales division and applying an 8x multiple we derive a valuation of A$25.0m alone, well above the current market cap and implying a negative A$4m value for the “new retail” 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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- Shekel Brainweigh Ltd: Scaling up for Multiple Product Commercialisation08 Sep 2021