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Last close As at 25/03/2023
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GBP32m
Research: TMT
Checkit’s FY23 trading update confirmed that year-end annual recurring revenue (ARR), FY23 reported revenue and year-end net cash beat our forecasts. ARR increased 28% y-o-y despite the challenging economic environment, as the company made good progress signing up new customers and expanding existing contracts. With 93% recurring revenue for continuing operations, the transition to a subscription-based model is complete. We will review our forecasts following FY23 results on 27 April.
Checkit |
FY23 ARR ahead of expectations |
FY23 trading update |
Software and comp services |
16 February 2023 |
Share price performance
Business description
Next events
Analyst
Checkit is a research client of Edison Investment Research Limited |
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Checkit’s FY23 trading update confirmed that year-end annual recurring revenue (ARR), FY23 reported revenue and year-end net cash beat our forecasts. ARR increased 28% y-o-y despite the challenging economic environment, as the company made good progress signing up new customers and expanding existing contracts. With 93% recurring revenue for continuing operations, the transition to a subscription-based model is complete. We will review our forecasts following FY23 results on 27 April.
Year end |
Revenue |
ARR |
PBT* |
EPS* |
DPS |
EV/sales |
01/21 |
13.2 |
5.7 |
(3.1) |
(5.2) |
0.0 |
1.3 |
01/22 |
13.6 |
9.1 |
(4.7) |
(7.0) |
0.0 |
1.2 |
01/23e |
10.4 |
10.8 |
(7.6) |
(7.1) |
0.0 |
1.6 |
01/24e |
12.5 |
13.3 |
(5.2) |
(4.9) |
0.0 |
1.3 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
ARR of £11.5m up 28% y-o-y
Checkit reported ARR of £11.5m at the end of FY23, up 28% y-o-y and well ahead of our £10.8m forecast. In the United States, the company achieved 91% y-o-y growth in ARR to £2.8m, helped by contracts with biopharma customers and a new contract with a large resort and casino operator. The company recently disclosed that it had renewed one of its largest enterprise contracts with an integrated energy company to support more than 300 sites.
Successful transition to recurring revenue model
Checkit reported revenue from continuing operations of £10.3m (+22% y-o-y), with 41% growth in recurring revenue, which made up 93% of continuing revenue (up from 81% in FY22). Revenue of £0.6m from the BEMS business (FY22: £4.9m) was reported in discontinued operations. Total revenue of £10.9m compares to our £10.4m forecast. At the end of FY23, Checkit had net cash of £15.6m, ahead of our £15.2m forecast. We will review our forecasts when FY23 results are announced in April, when we expect the company to disclose the split of profitability between continuing and discontinued operations.
Valuation: Trading at a discount to peers
On our current estimates, on an EV/sales multiple of 1.6x for FY23e and 1.3x FY24e, Checkit trades at a material discount to the UK software sector (3.4x current year sales, 3.0x next year sales) and US SaaS peers (6.4x current year, 5.4x next year). If Checkit were to trade on the UK average for FY24e, it would be worth 49p per share and moving to trade in line with US SaaS peers would imply a valuation of 77p. Sustained ARR growth will be the key trigger for Checkit to attract a multiple more in line with SaaS peers, evidenced by customers signing up to use its software and existing customers expanding their usage. In the current environment, faster movement towards break-even is also likely to support the share price.
Exhibit 1: Financial summary
£'m |
2019 |
2020 |
2021 |
2022 |
2023e |
2024e |
||
Year end 31 January |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
INCOME STATEMENT |
||||||||
Revenue |
|
|
1.0 |
9.8 |
13.2 |
13.6 |
10.4 |
12.5 |
Cost of Sales |
(1.0) |
(7.2) |
(6.7) |
(7.4) |
(4.2) |
(4.4) |
||
Gross Profit |
0.0 |
2.6 |
6.5 |
6.2 |
6.3 |
8.1 |
||
EBITDA |
|
|
(2.3) |
(4.9) |
(2.5) |
(4.2) |
(6.5) |
(3.7) |
Normalised operating profit |
|
|
(4.4) |
(6.5) |
(3.1) |
(4.7) |
(7.6) |
(5.2) |
Amortisation of acquired intangibles |
(0.1) |
(1.0) |
(1.3) |
(1.4) |
(0.6) |
(0.0) |
||
Exceptionals |
0.0 |
(1.7) |
(0.9) |
(1.0) |
0.0 |
0.0 |
||
Share-based payments |
0.0 |
0.0 |
0.0 |
0.0 |
(0.1) |
0.0 |
||
Reported operating profit |
(4.5) |
(9.2) |
(5.3) |
(7.1) |
(8.3) |
(5.2) |
||
Net Interest |
0.0 |
0.1 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Joint ventures & associates (post tax) |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Exceptionals |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Profit Before Tax (norm) |
|
|
(4.4) |
(6.4) |
(3.1) |
(4.7) |
(7.6) |
(5.2) |
Profit Before Tax (reported) |
|
|
(4.5) |
(9.1) |
(5.3) |
(7.1) |
(8.3) |
(5.2) |
Reported tax |
0.0 |
0.1 |
0.3 |
0.3 |
0.1 |
0.0 |
||
Profit After Tax (norm) |
(4.4) |
(6.4) |
(3.1) |
(4.7) |
(7.6) |
(5.2) |
||
Profit After Tax (reported) |
(4.5) |
(9.0) |
(5.0) |
(6.8) |
(8.2) |
(5.2) |
||
Minority interests |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Discontinued operations |
8.6 |
89.8 |
0.6 |
0.0 |
0.0 |
0.0 |
||
Net income (normalised) |
(4.4) |
(6.4) |
(3.1) |
(4.7) |
(7.6) |
(5.2) |
||
Net income (reported) |
4.1 |
80.8 |
(4.4) |
(6.8) |
(8.2) |
(5.2) |
||
Basic average number of shares outstanding (m) |
178 |
161 |
62 |
68 |
108 |
108 |
||
EPS - basic normalised (p) |
|
|
(2.5) |
(4.0) |
(5.2) |
(7.0) |
(7.1) |
(4.9) |
EPS - diluted normalised (p) |
|
|
(2.5) |
(4.0) |
(5.2) |
(7.0) |
(7.1) |
(4.9) |
EPS - basic reported (p) |
|
|
2.3 |
50.2 |
(7.2) |
(10.0) |
(7.6) |
(4.9) |
Dividend (p) |
0.00 |
0.00 |
0.00 |
0.00 |
0.00 |
0.00 |
||
Revenue growth (%) |
N/A |
880.0 |
34.7 |
2.7 |
(22.9) |
19.4 |
||
Gross Margin (%) |
0.0 |
26.5 |
49.2 |
45.8 |
60.2 |
65.0 |
||
EBITDA Margin (%) |
(230.0) |
(50.0) |
(18.9) |
(31.0) |
(62.6) |
(30.0) |
||
Normalised Operating Margin |
(440.0) |
(66.3) |
(23.5) |
(34.7) |
(73.2) |
(42.1) |
||
BALANCE SHEET |
||||||||
Fixed Assets |
|
|
5.0 |
8.5 |
6.8 |
8.3 |
9.6 |
10.3 |
Intangible Assets |
2.9 |
7.3 |
6.0 |
7.3 |
8.4 |
8.9 |
||
Tangible Assets |
1.7 |
1.2 |
0.8 |
1.0 |
1.2 |
1.4 |
||
Investments & other |
0.4 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Current Assets |
|
|
19.5 |
19.8 |
17.5 |
28.7 |
19.0 |
13.3 |
Stocks |
4.3 |
1.7 |
1.1 |
1.8 |
1.4 |
1.2 |
||
Debtors |
5.1 |
3.4 |
4.4 |
2.6 |
2.3 |
2.6 |
||
Cash & cash equivalents |
10.1 |
14.3 |
11.5 |
24.2 |
15.2 |
9.5 |
||
Other |
0.0 |
0.4 |
0.5 |
0.1 |
0.0 |
0.0 |
||
Current Liabilities |
|
|
(7.9) |
(5.6) |
(5.9) |
(5.4) |
(5.2) |
(5.4) |
Creditors |
(7.6) |
(5.1) |
(5.6) |
(4.9) |
(4.7) |
(4.9) |
||
Tax and social security |
(0.3) |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Short term borrowings |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other |
0.0 |
(0.5) |
(0.3) |
(0.5) |
(0.5) |
(0.5) |
||
Long Term Liabilities |
|
|
(0.3) |
(1.3) |
(0.8) |
(0.6) |
(0.6) |
(0.6) |
Long term borrowings |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other long term liabilities |
(0.3) |
(1.3) |
(0.8) |
(0.6) |
(0.6) |
(0.6) |
||
Net Assets |
|
|
16.3 |
21.4 |
17.6 |
31.0 |
22.9 |
17.6 |
Minority interests |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Shareholders' equity |
|
|
16.3 |
21.4 |
17.6 |
31.0 |
22.9 |
17.6 |
CASH FLOW |
||||||||
Op Cash Flow before WC and tax |
(2.3) |
(4.9) |
(2.5) |
(4.2) |
(6.5) |
(3.7) |
||
Working capital |
(0.5) |
(1.0) |
0.3 |
0.2 |
0.4 |
0.2 |
||
Exceptional & other |
9.1 |
5.3 |
(0.7) |
(1.0) |
0.0 |
0.0 |
||
Tax |
(0.5) |
(0.5) |
0.0 |
0.1 |
0.1 |
0.0 |
||
Net operating cash flow |
|
|
5.8 |
(1.1) |
(2.9) |
(4.9) |
(6.1) |
(3.5) |
Capex |
(2.2) |
(0.3) |
(0.3) |
(2.3) |
(2.6) |
(1.8) |
||
Acquisitions/disposals |
1.3 |
84.2 |
0.3 |
0.0 |
0.1 |
0.0 |
||
Net interest |
0.0 |
0.1 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Equity financing |
0.0 |
(77.9) |
0.5 |
20.2 |
0.0 |
0.0 |
||
Dividends |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other |
0.0 |
(0.8) |
(0.4) |
(0.3) |
(0.4) |
(0.4) |
||
Net Cash Flow |
4.9 |
4.2 |
(2.8) |
12.7 |
(9.0) |
(5.7) |
||
Opening net debt/(cash) |
|
|
(5.2) |
(10.1) |
(14.3) |
(11.5) |
(24.2) |
(15.2) |
FX |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other non-cash movements |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Closing net debt/(cash) |
|
|
(10.1) |
(14.3) |
(11.5) |
(24.2) |
(15.2) |
(9.5) |
Source: Checkit, Edison Investment Research
|
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Research: Investment Companies
Fidelity Emerging Markets (FEML) has been managed by portfolio managers Nick Price and Chris Tennant since October 2021. The portfolio faced a challenging 2022 as emerging markets declined sharply in what was the worst year for the asset class since the global financial crisis. According to Fidelity, valuations now appear attractive, with the MSCI Emerging Market Index trading on a multiple of c 12x P/E at the end of 2022, relative to the MSCI World Index (23 developed markets), which traded on c 17x. The portfolio’s underperformance over the year was driven by its overweight exposure to Russia, although performance started to stabilise towards the end of the period. The managers continue to seek out high-quality companies with strong balance sheets and have looked for opportunities to increase exposure to value-oriented parts of the market on a highly selective basis.
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