Shekel Brainweigh Ltd: Signs of Improvement 2H20 and Confidence for CY21
Shekel Brainweigh Ltd
Signs of improvement 2H20 and confidence for CY21
Shekel Brainweigh Limited (ASX:SBW) has reported FY20 sales of US$18.3m, 3% below the PCP but a solid result considering the impacts of COVID on own brand sales (-45%) and business development (travel restrictions). Adjusted FY20 EBITDA losses increased from US$1.9m to US$2.6m due mainly to a lower gross margin impacted by FX (NIS/USD). Importantly R&D remained elevated at 18% of sales (or US$3.3m) as the group continues new product commercialisation, with (7) paid pilots currently in place. Working capital was well controlled, down 500bps to 37% of sales while net cash (ex the working capital facility) post the January capital raising was ~US$3m (A$4.0m). Improving 2H20 run-rates and new product launches point to a much better CY21, and we are forecasting 19% sales growth and a modest EBITDA loss as a result, driven by 1) cycling of the 45% own brand sales decline, 2) first “Hubz” vending kit sales expected from Q2CY21, 3) the annualisation of three new scales customers from 2H20, 4) a “FastTrack” self-checkout launch in 2HCY21 and 5) the cycling of a 10% retail self-checkout sales decline. We have fine-tuned our new product sales mix towards the Hubz kits and away from the Innovendi machines and incorporating a higher A$ and bond yield our DCF valuation is A$0.35/share.
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).
Many positives moving into CY21
The rate of sales and gross margin declines slowed in 2H20 relative to 1H20 (sales -5% to - 1%, gross profit -17% to -3%), suggesting the worst of the COVID and FX impacts are behind us and providing easy comparatives to cycle. New scales customers could provide up to US$2m or 10% of current sales over CY21, while first time contributions from new products including the “Hubz kits” and “Fast Track” are expected in Q2CY21 and Q4CY21 respectively. Given the above we are forecasting double digit sales growth and a narrowing of EBITDA losses over CY21.
Base case valuation A$0.35/share fully diluted
Our base case DCF valuation for SBW has increased from $0.33/share to $0.35/share on result fine tuning. This valuation incorporates a higher A$/US$ ($0.78c), dilution from the recent equity raise and a WACC of 11.1%, acknowledging the timing and forecast risk associated with new products. 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.
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- Shekel Brainweigh Ltd: Signs of Improvement 2H20 and Confidence for CY2104 Mar 2021