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Research: TMT
In H124 SenSen delivered positive free cash flow for the first time, a key milestone. The group’s Smart Cities focus and standardised business model supported steady top-line progression, as well as strong gross margin expansion and loss reduction. As end-H1 cash was boosted by an annual Australian development grant, we believe reaching positive free cash flow from the group’s core operating assets remains a key target. Below we outline a pathway for SenSen to deliver this target in Q4, underpinned by consistent top-line growth on a lower cost base.
Written by
SenSen Networks |
Clear path to sustainable cash generation |
H124 results |
Software and comp services |
1 March 2024 |
Share price performance
Business description
Next events
Analysts
SenSen Networks is a research client of Edison Investment Research Limited |
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In H124 SenSen delivered positive free cash flow for the first time, a key milestone. The group’s Smart Cities focus and standardised business model supported steady top-line progression, as well as strong gross margin expansion and loss reduction. As end-H1 cash was boosted by an annual Australian development grant, we believe reaching positive free cash flow from the group’s core operating assets remains a key target. Below we outline a pathway for SenSen to deliver this target in Q4, underpinned by consistent top-line growth on a lower cost base.
Year end |
Revenue (A$m) |
Adj EBITDA* |
PBT** |
EPS** |
P/sales |
P/E |
06/21 |
5.5 |
(2.2) |
(2.9) |
(0.59) |
3.6 |
(3.9) |
06/22 |
9.1 |
(7.6) |
(8.4) |
(1.40) |
2.2 |
(3.9) |
06/23 |
10.8 |
(5.1) |
(6.1) |
(0.91) |
1.9 |
2.6 |
06/24e |
13.0 |
0.6 |
(0.3) |
(0.04) |
1.5 |
(0.9) |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
H124 results demonstrate strategy success
H124 total revenue grew 11% y-o-y to A$5.4m, with the group achieving growth across all geographies and performance validating SenSen’s refined Smart Cities focus. Gross margin expanded 10pp to 76%, attributed to an improved revenue mix and the shift to a more standardised business model, which has enabled faster and more consistent product deployment compared to the previous customisation approach. The EBITDA loss was reduced by c A$3m through cost optimisations, especially a 93-person staff reduction to 47 people at the Hyderabad centre, SenSen’s main service development hub. The significant EBITDA loss reduction and a A$2.5m R&D grant led to positive free cash flow, a key milestone for SenSen.
Next target expected to be met in Q4
Management is aiming to reach positive free cash flow in Q4 solely from its core assets, driven by revenue growth from the National Heavy Vehicle Regulator win and progress in the US (analysed in our Q2 note) on a lower cost base. This is despite the company experiencing some lengthening sales and delivery cycles, particularly with government customers, reflected in our 3% lower FY24 revenue estimate of A$13m, which still indicates 21% y-o-y growth. Exceptional costs and lower revenue reduce our FY24 profit and cash forecasts. We believe that delivering positive free cash flow in Q4 is still achievable and would demonstrate potential for sustainable cash generation from FY25.
Valuation: Rating misses long-term potential
On an FY24e EV/sales multiple of 1.6x, SenSen trades at a 53% discount to its small-cap AI peers. We believe the market overemphasizes short-term disruption from the recent strategy and cost moves. The current rating misses the long-term potential for operationally geared growth, especially in the target US market with key trials underway, where executing on a lower cost base could drive a re-rating of the stock.
Results and forecasts show positive cash progression
H124 results: Key milestone delivered
Operationally there have been no material updates since our Q224 note, with results reflecting progress across all geographies, with total revenue up 11% y-o-y to A$5.4m in H124. In addition to top-line growth, SenSen’s H124 results provide validation of the group’s refined Smart Cities focus, with key highlights including:
■
Gross margin expansion of 10pp to 76%, highlighting an improved revenue mix and driven by a more standardised business model rather a customisation model, enabling faster, more consistent deployment of its products.
■
A near A$3m reduction in EBITDA loss through cost optimisations, particularly staff where the move to a more standardised and refined model has enabled a 93 headcount reduction to 47 in its Hyderabad centre (SenSen’s hub for main service development).
■
The significant reduction in EBITDA loss and a A$2.5m research & development (R&D) grant supported a move to free cash flow positivity, a key milestone for the group.
Exhibit 1: H124 results summary
A$000s |
H124 |
H123 |
y-o-y change |
Revenue |
|||
Australia/New Zealand |
3,589 |
3,319 |
8% |
North America |
1,160 |
1,025 |
13% |
Asia |
672 |
525 |
28% |
Total |
5,421 |
4,869 |
11% |
Gross profit |
4,127 |
3,218 |
28% |
Gross margin |
76% |
66% |
10% |
Adjusted EBITDA |
(620) |
(3,481) |
-82% |
Adjusted EBITDA margin |
-11% |
-71% |
60% |
Profit/(loss) before tax |
(2,049) |
(4,551) |
-55% |
Adjusted PBT margin |
-38% |
-93% |
56% |
Free cash flow |
572 |
(2,335) |
N/A |
Net debt/(cash)* |
119 |
(957) |
N/A |
Source: SenSen Networks. Note: *Includes lease liabilities (H123: A$858k, H124: A$1,223k).
On a year-on-year basis, the group moved from a net cash position to a small net debt position. However, the 95% reduction in net debt from the FY23 year-end figure of A$2.6m provides a more accurate representation of SenSen’s progression. With total facilities of A$3.7m available and a positive cash flow trajectory, management has improved headroom to execute on its strategy.
Pathway to sustainable cash generation
As previously discussed, SenSen reached a key milestone by achieving positive free cash flow in H124, although this was substantially supported by the A$2.5m R&D grant, which should repeat next year. In Exhibit 2 we demonstrate a potential pathway for SenSen to reach positive free cash flow sustainably from its core operating assets.
The group is experiencing some lengthening sales and delivery cycles, particularly among its government customers, and so we estimate cash inflows will be weighted towards Q4. Additionally, we expect SenSen to incur some exceptional costs relating to its cost optimisation programme, such as redundancy payments, in Q3; the benefits of the programme should be fully recognised in Q4. Growth on a lower cost base drives our expectation of positive free cash flow in Q424, which we believe will be sustained into FY25.
|
Exhibit 2: Cash flow waterfall summarising sustainable free cash flow positivity |
|
|
Source: SenSen Networks, Edison Investment Research. Note: Cash from other activities includes financing and investing cash flow movements. |
Our year-end net cash forecast also includes a A$1.8m capital raise relating the SenSen’s dispute with Angel, where cash will be received once proceedings are dismissed, which management expects by 17 March. However, the company notes that receipt of this cash may be pushed to FY25 and additional outflows could be required if further proceedings with Angel are required.
Softened expectations reflect government customer base
We have lowered our FY24 revenue expectation by 3% to A$13m due to SenSen’s high concentration of government customers. Delays with these entities will likely cause some revenue to slip into FY25, a common issue in the market. However, SenSen’s National Heavy Vehicle Regulator contract win in Australia and strong US sales pipeline (currently 20 cities), with many proof-of-concept trials underway, provide relatively good visibility. Our estimate still shows robust 21% y-o-y revenue growth.
As previously discussed, exceptional costs related to SenSen’s cost optimisation programme and lower revenue drive the reduction in our FY24 profit forecasts, leading to a similar decrease in our cash flow expectations. Delivering on the free cash flow target in Q4 would pave the way for sustainable cash generation from FY25.
Exhibit 3: Summary of changes to forecasts
FY23 |
FY24e |
||||
A$m |
Reported |
Old |
New |
Change |
y-o-y |
Revenue |
10.8 |
13.4 |
13.0 |
-3% |
21% |
Gross profit |
7.5 |
10.4 |
10.1 |
-3% |
35% |
Gross margin |
69.3% |
77.5% |
77.5% |
0% |
8% |
Adjusted EBITDA |
(5.1) |
2.6 |
0.6 |
-77% |
N/A |
Adjusted EBITDA margin |
-47% |
19% |
5% |
-15% |
-33% |
EBIT, normalised |
(5.6) |
2.0 |
0.1 |
-198% |
N/A |
PBT, normalised |
(6.1) |
1.9 |
(0.3) |
N/A |
N/A |
EPS - normalised, diluted (c) |
(0.91) |
0.21 |
(0.04) |
N/A |
N/A |
Cash flow from operations |
(4.8) |
1.8 |
0.1 |
-92% |
N/A |
Net debt/(cash) |
2.6 |
(2.5) |
(0.9) |
-64% |
N/A |
Source: SenSen Networks, Edison Investment Research
Exhibit 4: Financial summary
A$’k |
2021 |
2022 |
2023 |
2024e |
||
Year end 30 June |
IFRS |
IFRS |
IFRS |
IFRS |
||
INCOME STATEMENT |
||||||
Revenue |
|
|
5,533 |
9,145 |
10,797 |
13,027 |
Cost of Sales |
(2,030) |
(3,513) |
(3,314) |
(2,931) |
||
Gross Profit |
3,503 |
5,633 |
7,483 |
10,096 |
||
Other income |
2,807 |
2,978 |
2,529 |
2,543 |
||
Oper. expense (not incl. share-based payments) |
(8,524) |
(16,217) |
(15,102) |
(12,037) |
||
Adjusted EBITDA |
|
|
(2,214) |
(7,606) |
(5,090) |
601 |
Normalised operating profit |
|
|
(2,685) |
(8,183) |
(5,605) |
59 |
Amortisation of acquired intangibles |
(83) |
(536) |
(960) |
(960) |
||
Exceptionals |
0 |
0 |
0 |
0 |
||
Share-based payments |
(72) |
(3,173) |
(208) |
(1,000) |
||
Reported operating profit |
(2,840) |
(11,893) |
(6,773) |
(1,900) |
||
Net Interest |
(176) |
(254) |
(463) |
(329) |
||
Joint ventures & associates (post tax) |
0 |
0 |
0 |
0 |
||
Exceptionals |
0 |
(154) |
(148) |
0 |
||
Profit Before Tax (norm) |
|
|
(2,861) |
(8,437) |
(6,068) |
(270) |
Profit Before Tax (reported) |
|
|
(3,016) |
(12,300) |
(7,384) |
(2,229) |
Reported tax |
(6) |
225 |
(26) |
(175) |
||
Profit After Tax (norm) |
(2,878) |
(8,488) |
(6,105) |
(271) |
||
Profit After Tax (reported) |
(3,022) |
(12,075) |
(7,409) |
(2,404) |
||
Minority interests |
0 |
0 |
0 |
0 |
||
Discontinued operations |
0 |
0 |
0 |
0 |
||
Net income (normalised) |
(2,878) |
(8,488) |
(6,105) |
(271) |
||
Net income (reported) |
(3,022) |
(12,075) |
(7,409) |
(2,404) |
||
Basic average number of shares outstanding (m) |
484 |
608 |
667 |
726 |
||
EPS - basic normalised (c) |
|
|
(0.59) |
(1.40) |
(0.91) |
(0.04) |
EPS - diluted normalised (c) |
|
|
(0.59) |
(1.40) |
(0.91) |
(0.04) |
EPS - basic reported (c) |
|
|
(0.62) |
(1.99) |
(1.11) |
(0.33) |
Dividend (c) |
0.00 |
0.00 |
0.00 |
0.00 |
||
Revenue growth (%) |
47.0 |
65.3 |
18.1 |
20.7 |
||
Gross Margin (%) |
63.3 |
61.6 |
69.3 |
77.5 |
||
EBITDA Margin (%) |
-40.0 |
-83.2 |
-47.1 |
4.6 |
||
Normalised Operating Margin (%) |
-48.5 |
-89.5 |
-51.9 |
0.5 |
||
BALANCE SHEET |
||||||
Fixed Assets |
|
|
2,168 |
9,127 |
9,052 |
9,083 |
Intangible Assets |
1,300 |
8,281 |
7,322 |
7,322 |
||
Tangible Assets |
800 |
770 |
1,692 |
1,722 |
||
Investments & other |
68 |
75 |
39 |
39 |
||
Current Assets |
|
|
8,022 |
11,391 |
7,286 |
8,652 |
Stocks |
241 |
232 |
486 |
305 |
||
Debtors |
979 |
1,943 |
1,467 |
1,175 |
||
Cash & cash equivalents |
5,176 |
6,214 |
1,898 |
4,841 |
||
Other |
1,625 |
3,002 |
3,435 |
2,332 |
||
Current Liabilities |
|
|
3,946 |
8,185 |
9,549 |
8,957 |
Creditors |
750 |
1,239 |
1,714 |
2,782 |
||
Tax and social security |
0 |
0 |
0 |
0 |
||
Short term borrowings |
861 |
1,954 |
3,101 |
2,545 |
||
Lease liabilities |
306 |
185 |
287 |
287 |
||
Other |
2,028 |
4,806 |
4,447 |
3,343 |
||
Long Term Liabilities |
|
|
244 |
201 |
1,198 |
1,198 |
Long term borrowings |
0 |
0 |
0 |
0 |
||
Lease liabilities |
138 |
183 |
1,091 |
1,091 |
||
Other long term liabilities |
106 |
19 |
107 |
107 |
||
Net Assets |
|
|
6,000 |
12,132 |
5,591 |
7,580 |
Minority interests |
0 |
0 |
0 |
0 |
||
Shareholders’ equity |
|
|
6,000 |
12,132 |
5,591 |
7,580 |
CASH FLOW |
||||||
Op Cash Flow before interest and tax |
(3,250) |
(7,770) |
(4,449) |
640 |
||
Net interest |
(127) |
(117) |
(335) |
(329) |
||
Tax |
(31) |
0 |
0 |
(175) |
||
Net operating cash flow |
|
|
(3,409) |
(7,887) |
(4,784) |
136 |
Capex |
(253) |
(254) |
(151) |
(220) |
||
Acquisitions/disposals |
0 |
(1,080) |
0 |
0 |
||
Equity financing |
7,043 |
9,644 |
0 |
3,855 |
||
Borrowings |
(414) |
1,120 |
909 |
(556) |
||
Dividends |
0 |
0 |
0 |
0 |
||
Other |
(253) |
(506) |
(290) |
(272) |
||
Net Cash Flow |
2,714 |
1,037 |
(4,316) |
2,943 |
||
Opening net debt/(cash) |
|
|
(1,150) |
(4,315) |
(4,259) |
1,204 |
FX |
0 |
0 |
0 |
0 |
||
Movement in borrowings |
451 |
(1,093) |
(1,147) |
556 |
||
Closing net debt/(cash) |
|
|
(4,315) |
(4,259) |
1,204 |
(2,296) |
Closing net debt/(cash) w/ leases |
|
|
(3,871) |
(3,891) |
2,581 |
(918) |
Source: Edison Investment Research, company accounts
|
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