Vection Technologies — Established strategy to drive scalable growth

Vection Technologies (ASX: VR1)

Last close As at 20/04/2024

AUD0.03

0.00 (0.00%)

Market capitalisation

AUD29m

More on this equity

Research: TMT

Vection Technologies — Established strategy to drive scalable growth

Vection Technologies’ Q124 and AGM update shows continued top-line momentum driven by an established partner strategy. Now embedded with leading players across diverse verticals, management sees an opportunity to convert low-margin, one-off transactions into large, multi-year contracts in FY24. Expanding use cases and commercialisation is driving rapid market growth, underpinning secular tailwinds. To bolster its outlook, the company introduced several efficiency measures in the period, which it expects to enhance margins and cash flows more visibly in H2.

Max Hayes

Written by

Max Hayes

Associate Analyst

TMT

Vection Technologies

Established strategy to drive scalable growth

Q124 and AGM update

Software and comp services

12 December 2023

Price

A$0.02

Market cap

A$23m

Net debt (A$m) at 30 September 2023

(ex-financial leases)

2.7

Shares in issue

1,127m

Free float

49%

Code

VR1

Primary exchange

ASX

Secondary exchange

OTC (VCTNY)

Share price performance

%

1m

3m

12m

Abs

(14.3)

(36.8)

(56.4)

Rel (local)

(17.0)

(37.0)

(56.4)

52-week high/low

A$0.07

A$0.02

Business description

Based in Australia, Vection Technologies operates in the field of extended reality, which encompasses immersive technologies such as augmented reality, virtual reality and mixed reality. The company’s immersive solutions suite, IntegratedXR, is a combination of technology solutions designed to integrate systems, processes and technologies via digital transformation. Vection Technologies partners with companies to build out the foundational elements that enable them to engage with the metaverse.

Next events

Q224 update

January 2024

H124 report

February 2024

Analysts

Max Hayes

+44 (0)20 3077 5700

Katherine Thompson

+44 (0)20 3077 5700

Vection Technologies is a research client of Edison Investment Research Limited

Vection Technologies’ Q124 and AGM update shows continued top-line momentum driven by an established partner strategy. Now embedded with leading players across diverse verticals, management sees an opportunity to convert low-margin, one-off transactions into large, multi-year contracts in FY24. Expanding use cases and commercialisation is driving rapid market growth, underpinning secular tailwinds. To bolster its outlook, the company introduced several efficiency measures in the period, which it expects to enhance margins and cash flows more visibly in H2.

Year end

Revenue (A$m)

Adj EBITDA*
(A$m)

PBT**
(A$m)

EPS**
(c)

EV/sales
(x)

P/sales
(x)

Net cash***
(A$m)

06/21

3.5

(0.2)

(2.5)

(0.27)

7.6

6.8

2.2

06/22

18.9

1.4

(7.0)

(0.67)

1.4

1.3

10.8

06/23

26.3

1.5

(11.2)

(1.05)

1.0

0.9

0.7

Note: *Adjusted EBITDA is normalised, excluding non-cash payments, exceptional items and interest revenue. FY22 figure re-stated. **PBT and EPS are normalised, excluding exceptional items and interest revenue. ***Includes debt, financial leases and term deposits.

No signs of momentum slowing

Vection’s AGM update showed continued momentum, with total revenue up 88% yo-y to A$6.9m (+76% organically) in the first four months of FY24. This top-line improvement drove an 86% increase in Q1 cash receipts to A$8.2m and a 30% rise in total contract value (TCV). We note that Q1 is seasonally the weakest quarter due to European exposure concentrated during holiday periods, so management believes there is room for further momentum over the remaining three quarters of FY24. To bolster its financial outlook, the group is enacting several efficiency measures across the business. Although revenue and cash flows grew, Vection reported a A$4.0m free cash outflow in Q124 (Q123: A$1.6m outflow), emphasising the need for planned cost reduction efforts to enhance margins going forward.

Partner strategy to drive long-term value

Vection’s established partner strategy is accelerating, with 66% of Q1 TCV generated from partners. Multi-year relationships with advisers, tech leaders and notable players across verticals provide access to larger contract opportunities and enhanced visibility with key players and can augment Vection’s technology. Currently a large share of these transactions are one-off and low-margin but have the potential to convert into large, multi-year agreements in FY24. Longer-term opportunities hold promise, such as the Lunar City joint venture targeting the space industry – management expects market revenues could reach US$1tn by 2030. More broadly, global spending on extended reality is forecast to grow by 36% annually to US$100bn by end-2026 (source: Statista), driven by expanding use cases and growing commercialisation, underpinning tailwinds for Vection. This is shown by partner Marotta applying Vection’s technology for hypersonic flights.

Valuation: Scaling on lower cost to drive upside

With Vection’s partner deals gaining momentum, converting initial projects into larger contracts presents significant upside for revenue and earnings growth, alongside operating efficiencies. Success here may catalyse stock appreciation.

Exhibit 1: Financial summary

A$000s

2021 restated

2022

2023

Year end 30 June

AAS

AAS

AAS

PROFIT & LOSS

Revenue

 

3,471

18,894

26,299

Variable Cost of Sales

(849)

(11,454)

(19,280)

Gross Profit

2,622

7,440

7,019

Operating Expenses*

(3,993)

(10,453)

(11,356)

Adjusted EBITDA

 

(209)

1,385

1,465

Non-Cash Payments

(230)

(1,892)

(1,860)

EBITDA

 

(439)

(508)

(395)

D&A

(658)

(958)

(1,217)

Operating Profit (Normalized)

 

(2,285)

(5,907)

(7,625)

Exceptionals/Other

(26)

(44)

(212)

Operating Profit/(Loss) (EBIT)

 

(2,259)

(5,863)

(7,414)

Net Interest and financial expense

(171)

(1,070)

(3,554)

Profit Before Tax (norm)

(2,456)

(6,977)

(11,179)

Profit Before Tax (AAS)

 

(2,430)

(6,933)

(10,968)

Tax

(77)

(168)

(55)

Profit After Tax (norm)

 

(2,533)

(7,144)

(11,234)

Profit After Tax (AAS)

 

(2,506)

(7,100)

(11,023)

P/(L) from discontinued operations

(36)

N/A

N/A

Minority interest

(137)

(419)

(202)

Net income (norm, to Vection Technologies equity holders)

(2,533)

(7,144)

(11,234)

Net income (AAS, to Vection Technologies equity holders)

 

(2,543)

(7,100)

(11,023)

Average Number of Shares Outstanding, basic, millions

931

1,071

1,071

EPS - normalised, basic (AUS cents)

 

(0.27)

(0.67)

(1.05)

EPS- AAS, basic, to Vection Technologies equity holders (AUS cents)

(0.24)

(0.62)

(0.98)

Gross Margin (%)

75.5%

39.4%

26.7%

EBITDA Margin (%)

N/A

N/A

N/A

Operating Margin (before GW and except.) (%)

N/A

N/A

N/A

BALANCE SHEET

Fixed Assets

 

18,273

17,785

16,419

Intangible Assets

17,338

17,028

15,463

Tangible Assets

240

293

550

Right of Use Assets

632

424

322

Other

63

41

84

Current Assets

 

13,063

22,419

25,683

Cash

7,084

14,869

11,359

Receivables

4,879

6,208

13,647

Inventories

1,084

1,341

676

Other

17

N/A

N/A

Current Liabilities

 

11,272

8,475

19,382

Trade and other payables

3,615

6,974

10,969

Provisions and Other

6,405

30

16

Employee benefits

36

78

72

Lease liabilities

168

195

211

Borrowings

1,047

1,199

8,114

Long Term Liabilities

 

4,637

3,751

3,529

Employee benefits

333

433

544

Lease liabilities

530

286

165

Borrowings

3,175

2,415

2,194

Other

599

616

627

Net Assets

 

15,428

27,977

19,191

Minority Interest

(117)

(479)

(711)

Shareholder's Equity

 

15,545

28,457

19,902

CASH FLOW

Operating Cash Flow (before interest, tax, etc.)

 

(2,251)

(1,092)

(7,392)

Net Interest

(50)

(50)

(28)

Tax

(24)

(104)

(58)

Capex

(66)

(164)

(403)

Purchase of intangibles

(1,330)

(1,838)

(2,677)

Acquisitions/disposals

2,305

(21)

(7)

Equity financing

7,221

12,127

N/A

Lease payments

(96)

(80)

(3)

Change in net cash

5,708

8,777

(10,568)

Opening net debt/(cash), not incl. leases

 

(735)

(2,862)

(11,255)

Exchange rate movements

(280)

(383)

365

Other

(3,301)

0

N/A

Closing net debt/(cash), not incl. leases

 

(2,862)

(11,255)

(1,052)

Closing net debt/(cash), incl. leases and other marketable securities

(2,164)

(10,774)

(676)

Source: Edison Investment Research, company accounts

General disclaimer and copyright

This report has been commissioned by Vection Technologies and prepared and issued by Edison, in consideration of a fee payable by Vection Technologies. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2023 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only.No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

General disclaimer and copyright

This report has been commissioned by Vection Technologies and prepared and issued by Edison, in consideration of a fee payable by Vection Technologies. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2023 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only.No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

More on Vection Technologies

View All

Latest from the TMT sector

View All TMT content

Research: Investment Companies

Baillie Gifford China Growth Trust — China’s recovery well worth the wait

Baillie Gifford China Growth Trust (BGCG) invests in China, focusing on innovative, rapidly growing companies best positioned to benefit from China’s still favourable long-term economic outlook and the structural trends that should drive equity markets for years to come. Key portfolio themes include e-commerce, food delivery, domestic brands, semiconductors, robotics and automation, and renewable energy. The trust’s relaunch in September 2020 coincided with a series of challenges for the Chinese economy, investor confidence and the growth companies BGCG favours, so performance has lagged the benchmark. However, the operational performance of most of BGCG’s holdings is strong, their prospects are very positive, and the trust’s managers believe that it is only a matter of time until confidence returns and share prices more accurately reflect these robust fundamentals.

Continue Reading
Baillie Gifford China Growth Trust_resized

Subscribe to Edison

Get access to the very latest content matched to your personal investment style.

Sign up for free