“Edison’s accessible and high-quality research gives us the opportunity to communicate an independent perspective of Tyman to a wide variety of potential stakeholders.”
Currency in GBP
Last close As at 24/03/2023
GBP0.30
▲ −1.00 (−3.23%)
Market capitalisation
GBP32m
Research: TMT
Checkit saw better-than-expected performance in Q421 and closed the year ahead of our forecasts. In FY21, Checkit Connect grew 13% y-o-y on a pro-forma (PF) basis while Checkit BEMS saw business rebound in H2 after lockdown restrictions in the construction sector were relaxed. The company made good progress with its strategy to build its subscription contract base: recurring revenue grew to 39% of FY21 revenue, up from 30% for FY21 PF. We have revised our forecasts to reflect better-than-expected trading in FY21 and the recent acquisition of Tutela in the US.
Checkit |
33% growth in recurring revenue |
FY21 trading update |
Software & comp services |
11 February 2021 |
Share price performance
Business description
Next events
Analyst
Checkit is a research client of Edison Investment Research Limited |
|||||||||||||||||||||||||||||||||||||||||||||
Checkit saw better-than-expected performance in Q421 and closed the year ahead of our forecasts. In FY21, Checkit Connect grew 13% y-o-y on a pro-forma (PF) basis while Checkit BEMS saw business rebound in H2 after lockdown restrictions in the construction sector were relaxed. The company made good progress with its strategy to build its subscription contract base: recurring revenue grew to 39% of FY21 revenue, up from 30% for FY21 PF. We have revised our forecasts to reflect better-than-expected trading in FY21 and the recent acquisition of Tutela in the US.
Year end |
Revenue (£m) |
PBT* |
EPS* |
DPS |
P/E |
EV/sales |
01/19 |
1.0 |
(4.4) |
(2.5) |
0.0 |
N/A |
N/A |
01/20 |
9.8 |
(5.1) |
(3.1) |
0.0 |
N/A |
2.1 |
01/21e |
13.2 |
(3.3) |
(5.4) |
0.0 |
N/A |
1.6 |
01/22e |
15.1 |
(3.2) |
(5.2) |
0.0 |
N/A |
1.4 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Q421 revenue growth of 6% y-o-y
Checkit generated Q421 revenue growth of 6% y-o-y, with 6% growth for Checkit Connect and 2% for Checkit BEMS. This resulted in group revenue growth of 3% for FY21 (PF), 2% ahead of our forecast. Recurring revenue grew 33% y-o-y to make up 39% of FY21 revenue (FY20: 30% PF), helped by a combination of new software subscribers, price increases and the shift of maintenance work onto subscription contracts. Management expects FY21 operating profit to be c 15% ahead of consensus. Cash at the end of FY21 was £11.5m, ahead of our £10.5m forecast. For the first time, the company published annualised recurring revenue (ARR) at year-end; ARR of £5.7m was 46% higher than at the end of FY20, highlighting the progress it has made in signing up new subscribers and shifting the maintenance contract base to a subscription basis.
Upgrading estimates
We have revised our forecasts to take account of the better-than-expected performance in FY21. We have also factored in last week’s Tutela acquisition and increased sales and marketing spend in FY22. Overall, estimated revenue increases by 1.8% in FY21 and 7.1% in FY22. We reduce our normalised operating loss from £3.8m to £3.3m in FY21 and leave our FY22 forecast unchanged.
Valuation: Sum of parts suggests upside
On an EV/sales multiple of 1.6x for FY21e and 1.4x for FY22e, Checkit trades at a significant discount to the UK software sector (5.7x current year sales). On a sum-of-the-parts basis attributing EV/sales multiples that better reflect the performance and prospects for each division, we estimate the stock is significantly undervalued. For example, using a 4x FY21e multiple for Checkit Connect and 1x for Checkit BEMS would result in a valuation of 72p per share.
FY21 trading update
The company expects to report the following revenue for Q421/FY21.
Exhibit 1: Checkit quarterly and annual revenues
Q421a |
Q420a |
y-o-y |
FY21a |
FY21e |
FY20 PF* |
Diff |
y-o-y |
|
Checkit Connect |
||||||||
Recurring |
1.5 |
1.0 |
51% |
5.1 |
5.0 |
3.9 |
3% |
33% |
Non-recurring |
0.2 |
0.6 |
(54%) |
1.6 |
1.5 |
2.1 |
7% |
(23%) |
1.7 |
1.6 |
6% |
6.7 |
6.5 |
6.0 |
4% |
13% |
|
Checkit BEMS |
||||||||
Non-recurring |
1.7 |
1.6 |
2% |
6.5 |
6.5 |
6.8 |
0% |
(5%) |
Group revenue |
3.4 |
3.2 |
6% |
13.2 |
13.0 |
12.8 |
2% |
3% |
Total recurring revenue |
1.5 |
1.0 |
51% |
5.1 |
5.0 |
3.9 |
3% |
33% |
Total non-recurring revenue |
1.9 |
2.2 |
(14%) |
8.1 |
8.0 |
8.9 |
1% |
(9%) |
Recurring/total |
44% |
31% |
39% |
38% |
30% |
Source: Checkit, Edison Investment Research. Note: *Reflects full 12 months for business acquired in May 2019.
Q421 revenues were stronger than forecast, resulting in FY21 revenues 2% ahead of our forecast. Checkit Connect came in 4% ahead of our forecast with both recurring and non-recurring revenues ahead of expectations. Checkit BEMS was in line with our forecast and ended the year only 5% lower than FY20 PF, despite significant disruption to activities in H121 due to COVID-19. Although there have been two lockdowns in H221, construction has been allowed to continue, and in some cases, it has been easier to send staff to work on projects as premises are effectively empty.
Checkit also disclosed year-end ARR for the first time. At £5.7m it was 46% higher than a year ago. This resulted from a combination of factors: more subscribers signing up to use software; price increases; and maintenance work classed as non-recurring being shifted onto subscription contracts.
The company expects the FY21 operating result will be c 15% better than current market estimates as a result of the higher revenues. Cash at the end of FY21 was £11.5m, significantly higher than our £10.5m forecast.
Supporting the UK vaccine roll-out
In January, Checkit announced it had supplied its Connected Automated Monitoring (CAM) technology to the NHS for use in vaccination centres. This includes the Excel Centre in London and more than 100 smaller vaccination clinics across the UK. Its CAM technology provides 24/7 real-time surveillance of temperature conditions in medical fridges and freezers using wireless sensors connected to cloud-based data storage. Checkit has worked with the NHS for a number of years and providing support to such a critical area highlights not only the company’s technology but its ability to support customers with installation and ongoing maintenance.
Outlook and changes to forecasts
Checkit noted it would focus on sales and marketing in FY22. It also noted that it expected to revise its accounting for intangible assets when it reports FY21 results in April. The company has previously written down the value of all intangible assets, ie goodwill, acquired intangibles and capitalised development costs. It now expects to reinstate some of this – as detail will not be available until April, we have not factored this into our forecasts.
We have revised our forecasts to take account of the following:
■
higher than expected revenue and cash and a smaller than expected loss for FY21;
■
the Tutela acquisition made last week; and
■
increased sales and marketing spend in FY22.
The table below shows our revised estimates.
Exhibit 2: Changes to forecasts
£m |
FY21e |
FY22e |
|||||||
Old |
New |
Change |
y-o-y |
Old |
New |
Change |
y-o-y |
||
Revenues |
13.0 |
13.2 |
1.8% |
34.7% |
14.1 |
15.1 |
7.1% |
14.3% |
|
Gross profit |
4.6 |
4.8 |
2.2% |
82.8% |
5.2 |
5.6 |
8.6% |
18.4% |
|
Gross margin |
35.8% |
36.0% |
0.2% |
9.5% |
36.8% |
37.3% |
0.5% |
1.3% |
|
EBITDA |
(3.0) |
(2.5) |
-13.7% |
-2.1% |
(2.4) |
(2.4) |
0.0% |
-4.6% |
|
EBITDA margin |
-22.8% |
-19.3% |
3.5% |
7.2% |
-17.3% |
-16.1% |
1.1% |
3.2% |
|
Normalised operating profit |
(3.8) |
(3.3) |
-10.8% |
-35.6% |
(3.2) |
(3.2) |
0.0% |
-3.5% |
|
Normalised operating profit margin |
-28.9% |
-25.4% |
3.6% |
27.7% |
-22.9% |
-21.4% |
1.5% |
3.9% |
|
Reported operating profit |
(4.5) |
(4.1) |
-9.0% |
-75.2% |
(3.6) |
(3.6) |
0.0% |
-11.4% |
|
Reported operating margin |
-34.7% |
-31.0% |
3.7% |
137.3% |
-25.8% |
-24.1% |
1.7% |
7.0% |
|
Normalised PBT |
(3.8) |
(3.3) |
-10.8% |
-34.4% |
(3.2) |
(3.2) |
0.0% |
-3.5% |
|
Reported PBT |
(4.5) |
(4.1) |
-9.0% |
-75.0% |
(3.6) |
(3.6) |
0.0% |
-11.4% |
|
Normalised net income |
(3.8) |
(3.3) |
-10.8% |
-32.9% |
(3.2) |
(3.2) |
0.0% |
-3.5% |
|
Reported net income |
(3.6) |
(3.2) |
-11.2% |
-104.3% |
(3.6) |
(3.6) |
0.0% |
13.6% |
|
Normalised basic EPS |
(6.05) |
(5.39) |
-10.9% |
74.1% |
(5.21) |
(5.17) |
-0.7% |
-4.0% |
|
Normalised diluted EPS |
(6.05) |
(5.39) |
-10.9% |
74.1% |
(5.21) |
(5.17) |
-0.7% |
-4.0% |
|
Reported basic EPS |
(5.81) |
(5.15) |
-11.3% |
-111.2% |
(5.85) |
(5.81) |
-0.7% |
12.9% |
|
Net debt/(cash) |
(10.5) |
(11.5) |
9.3% |
-19.5% |
(7.1) |
(7.1) |
-0.3% |
-38.2% |
|
Source: Edison Investment Research
|
Exhibit 3: Financial summary |
||||||
£m |
2019 |
2020 |
2021e |
2022e |
||
31-January |
IFRS |
IFRS |
IFRS |
IFRS |
||
INCOME STATEMENT |
||||||
Revenue |
|
|
1.0 |
9.8 |
13.2 |
15.1 |
Cost of Sales |
(1.0) |
(7.2) |
(8.4) |
(9.5) |
||
Gross Profit |
0.0 |
2.6 |
4.8 |
5.6 |
||
EBITDA |
|
|
(2.3) |
(2.6) |
(2.5) |
(2.4) |
Normalised operating profit |
|
|
(4.4) |
(5.2) |
(3.3) |
(3.2) |
Amortisation of acquired intangibles |
(0.1) |
(1.0) |
0.0 |
0.0 |
||
Exceptionals |
0.0 |
(10.3) |
(0.8) |
(0.4) |
||
Share-based payments |
0.0 |
0.0 |
0.0 |
0.0 |
||
Reported operating profit |
(4.5) |
(16.5) |
(4.1) |
(3.6) |
||
Net Interest |
0.0 |
0.1 |
0.0 |
0.0 |
||
Joint ventures & associates (post tax) |
0.0 |
0.0 |
0.0 |
0.0 |
||
Exceptionals |
0.0 |
0.0 |
0.0 |
0.0 |
||
Profit Before Tax (norm) |
|
|
(4.4) |
(5.1) |
(3.3) |
(3.2) |
Profit Before Tax (reported) |
|
|
(4.5) |
(16.4) |
(4.1) |
(3.6) |
Reported tax |
0.0 |
0.7 |
0.0 |
0.0 |
||
Profit After Tax (norm) |
(4.4) |
(5.0) |
(3.3) |
(3.2) |
||
Profit After Tax (reported) |
(4.5) |
(15.7) |
(4.1) |
(3.6) |
||
Minority interests |
0.0 |
0.0 |
0.0 |
0.0 |
||
Discontinued operations |
8.6 |
89.4 |
0.9 |
0.0 |
||
Net income (normalised) |
(4.4) |
(5.0) |
(3.3) |
(3.2) |
||
Net income (reported) |
4.1 |
73.7 |
(3.2) |
(3.6) |
||
Basic average number of shares outstanding (m) |
178 |
178 |
161 |
62 |
||
EPS - basic normalised (p) |
|
|
(2.48) |
(3.10) |
(5.39) |
(5.17) |
EPS - diluted normalised (p) |
|
|
(2.48) |
(3.10) |
(5.39) |
(5.17) |
EPS - basic reported (p) |
|
|
2.31 |
45.78 |
(5.15) |
(5.81) |
Dividend (p) |
0.00 |
0.00 |
0.00 |
0.00 |
||
Revenue growth (%) |
N/A |
880.0 |
34.7 |
14.3 |
||
Gross Margin (%) |
0.0 |
26.5 |
36.0 |
37.3 |
||
EBITDA Margin (%) |
-230.0 |
-26.5 |
-19.3 |
-16.1 |
||
Normalised Operating Margin |
-440.0 |
-53.1 |
-25.4 |
-21.4 |
||
BALANCE SHEET |
||||||
Fixed Assets |
|
|
5.0 |
1.2 |
1.2 |
1.8 |
Intangible Assets |
2.9 |
0.0 |
0.0 |
0.6 |
||
Tangible Assets |
1.7 |
1.2 |
1.2 |
1.2 |
||
Investments & other |
0.4 |
0.0 |
0.0 |
0.0 |
||
Current Assets |
|
|
19.5 |
19.4 |
17.3 |
13.4 |
Stocks |
4.3 |
1.7 |
2.0 |
2.2 |
||
Debtors |
5.1 |
3.4 |
3.3 |
3.9 |
||
Cash & cash equivalents |
10.1 |
14.3 |
11.5 |
7.1 |
||
Other |
0.0 |
0.0 |
0.6 |
0.2 |
||
Current Liabilities |
|
|
(7.9) |
(5.6) |
(6.3) |
(6.7) |
Creditors |
(7.6) |
(5.1) |
(5.8) |
(6.2) |
||
Tax and social security |
(0.3) |
0.0 |
0.0 |
0.0 |
||
Short term borrowings |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other |
0.0 |
(0.5) |
(0.5) |
(0.5) |
||
Long Term Liabilities |
|
|
(0.3) |
(0.7) |
(0.7) |
(0.7) |
Long term borrowings |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other long-term liabilities |
(0.3) |
(0.7) |
(0.7) |
(0.7) |
||
Net Assets |
|
|
16.3 |
14.3 |
11.5 |
7.9 |
Minority interests |
0.0 |
0.0 |
0.0 |
0.0 |
||
Shareholders' equity |
|
|
16.3 |
14.3 |
11.5 |
7.9 |
CASH FLOW |
||||||
Op Cash Flow before WC and tax |
(2.3) |
(2.6) |
(2.5) |
(2.4) |
||
Working capital |
(0.5) |
(1.0) |
0.6 |
(0.5) |
||
Exceptional & other |
9.1 |
4.3 |
(0.8) |
(0.4) |
||
Tax |
(0.5) |
(0.5) |
0.0 |
0.0 |
||
Net operating cash flow |
|
|
5.8 |
0.2 |
(2.7) |
(3.0) |
Capex |
(2.2) |
(1.6) |
(0.3) |
(0.3) |
||
Acquisitions/disposals |
1.3 |
84.2 |
0.2 |
(0.2) |
||
Net interest |
0.0 |
0.1 |
0.0 |
0.0 |
||
Equity financing |
0.0 |
(77.9) |
0.5 |
0.0 |
||
Dividends |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other |
0.0 |
(0.8) |
(0.5) |
(0.5) |
||
Net Cash Flow |
4.9 |
4.2 |
(2.8) |
(4.0) |
||
Opening net debt/(cash) |
|
|
(5.2) |
(10.1) |
(14.3) |
(11.5) |
FX |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other non-cash movements |
0.0 |
0.0 |
0.0 |
0.0 |
||
Closing net debt/(cash) |
|
|
(10.1) |
(14.3) |
(11.5) |
(7.1) |
Source: Checkit, Edison Investment Research
|
|
Research: Financials
Tungsten’s H121 results in December showed resilience in a difficult period and the group is making progress in implementing its strategy. New products are gaining traction, a reshaped salesforce is building a promising pipeline and partnerships are in place or under discussion to provide complementary services, broaden the reach of the network and create new channels to market. COVID-19 causes uncertainty over prospective transaction-related revenues, but may also act as a prompt for potential customers to digitise their invoice handling.
Get access to the very latest content matched to your personal investment style.
