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Last close As at 09/06/2023
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Market capitalisation
GBP28m
Research: TMT
Checkit made good progress during FY22 with its strategy to transition to a pure SaaS business. Annualised recurring revenue (ARR) grew 44%
y-o-y, helped by new customer wins and expansion of existing contracts, with recurring revenue reaching 75% of total revenue in Q422 compared to 51% for the full year. Management expects to meet market expectations for FY23; our FY23 forecasts are substantially unchanged and we introduce FY24 forecasts that factor in ARR growth of 32%.
Checkit |
Growth strategy on track |
FY22 results |
Software & comp services |
28 April 2022 |
Share price performance
Business description
Next events
Analyst
Checkit is a research client of Edison Investment Research Limited |
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Checkit made good progress during FY22 with its strategy to transition to a pure SaaS business. Annualised recurring revenue (ARR) grew 44%
y-o-y, helped by new customer wins and expansion of existing contracts, with recurring revenue reaching 75% of total revenue in Q422 compared to 51% for the full year. Management expects to meet market expectations for FY23; our FY23 forecasts are substantially unchanged and we introduce FY24 forecasts that factor in ARR growth of 32%.
Year end |
Revenue (£m) |
ARR* (£m) |
PBT** |
EPS** |
DPS |
EV/sales |
01/21 |
13.2 |
5.7 |
(3.1) |
(5.2) |
0.0 |
1.3 |
01/22 |
13.3 |
8.2 |
(4.7) |
(7.0) |
0.0 |
1.3 |
01/23e |
11.2 |
12.0 |
(8.8) |
(8.1) |
0.0 |
1.5 |
01/24e |
14.0 |
15.9 |
(6.6) |
(6.1) |
0.0 |
1.2 |
Note: *ARR, annualised recurring revenue; **PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
FY22 results reflect a year of transformation
In H222, the company decided to accelerate its transition to a pure SaaS business model, using the £20m proceeds raised to ramp up investment in sales and marketing, and product development with the goal of driving growth in ARR. An 8% decline in normalised revenue reflects the winding down of the non-recurring BEMS business, as the company transitions to a smart building SaaS offering.
FY23: Scaling the business
We maintain our FY23 estimates, which forecast ARR growth of 46%, a revenue decline of 15% (as the BEMS project work is phased out) and recurring revenue growing to 89% of total revenue. For FY24, we forecast ARR growth of 32% and revenue growth of 24%. Checkit is focused on driving adoption of its software, particularly in the US, adding third-party IoT sensors to the platform, developing an alliance and partnership initiative and completing its Smart Buildings SaaS offering.
Valuation: Recurring revenue growth is key to upside
On an EV/sales multiple of 1.5x for FY23e and 1.2x for FY24e, Checkit trades at a significant discount to the UK software sector (4.2x current year sales, 3.5x next year sales) and US SaaS peers (8.8x current year, 7.0x next year sales). We note the current year multiple for the UK software sector is down c 23% and for US SaaS peers down c 45% since we wrote in December, reflecting the market shift from growth to value. If Checkit were to trade on the UK average for FY23e, it would be worth 65.9p per share and moving to trade in line with US SaaS peers would imply a valuation of c 114p. Key triggers to help Checkit attract a multiple more in line with SaaS peers include evidence that customers are signing up to use its software, existing customers are expanding their usage and non-recurring revenues are being converted to subscription services. The company has already made a good start on all three of these metrics.
Review of FY22 results
The company has had a busy year, acquiring Tutela in the US, making the decision to transition the BEMS business to a SaaS solution and raising net proceeds of £20m from the placing of 45.6m shares at 46p per share, to fund the acceleration of the transition to a pure SaaS business. We discuss the financial performance below.
Exhibit 1: FY22 results highlights
£m |
||||||
FY21a |
FY22e |
FY22a |
Change |
y-o-y |
||
ARR |
5.7 |
8.2 |
8.2 |
0.0% |
43.9% |
|
Revenues |
13.2 |
13.3 |
13.3 |
0.0% |
0.8% |
|
Gross profit |
6.5 |
6.2 |
6.2 |
-0.4% |
-4.6% |
|
Gross margin |
49.2% |
46.8% |
46.6% |
-0.2% |
-2.6% |
|
EBITDA |
(2.5) |
(3.7) |
(4.2) |
15.0% |
68.0% |
|
EBITDA margin |
-18.9% |
-27.5% |
-31.6% |
-4.1% |
-12.6% |
|
Normalised operating profit |
(3.1) |
(4.5) |
(4.7) |
5.5% |
51.6% |
|
Normalised operating profit margin |
-23.5% |
-33.5% |
-35.3% |
-1.8% |
-11.9% |
|
Reported operating profit |
(5.3) |
(6.4) |
(7.1) |
11.8% |
34.0% |
|
Reported operating margin |
-40.2% |
-47.8% |
-53.4% |
-5.6% |
-13.2% |
|
Normalised PBT |
(3.1) |
(4.5) |
(4.7) |
5.5% |
51.6% |
|
Reported PBT |
(5.3) |
(6.4) |
(7.1) |
11.8% |
34.0% |
|
Normalised net income |
(3.1) |
(4.5) |
(4.7) |
5.5% |
51.6% |
|
Reported net income |
(4.4) |
(6.1) |
(6.8) |
10.7% |
54.5% |
|
Normalised basic & diluted EPS (p) |
(5.2) |
(6.6) |
(7.0) |
5.6% |
34.6% |
|
Reported basic EPS (p) |
(7.2) |
(9.1) |
(10.0) |
9.2% |
39.6% |
|
Net debt/(cash) |
(11.5) |
(24.2) |
(24.2) |
0.1% |
110.4% |
|
0.0% |
43.9% |
Source: Checkit
Checkit provided an FY22 trading update in February, when it confirmed it generated revenue of £13.3m in the year (+0.8% y-o-y), with ARR of £8.2m at year-end (+£2.5m/+43.9% y-o-y/+43% normalised). New business contributed £0.8m to ARR growth and transitioning customers over to subscription contracts contributed a further £0.3m. Annualised new bookings totalled £3.5m in the year; not all are yet included in ARR, reflecting customer contracts that have not yet gone live.
Today’s results confirmed that the EBITDA loss widened to £4.2m from £2.5m in FY21, as the company increased investment in sales and marketing, and product development. Sales and marketing spend doubled to £2.7m and product development spend totalled £3.4m (of which £1.5m was capitalised). The normalised operating loss of £4.7m was slightly larger than our £4.5m forecast, due to the higher cost base. The company reported one-off items totalling £1.0m (£0.7m for restructuring and transformation costs, £0.1m costs relating to the fundraise and £0.2m costs to close the Indian operations) as well as £1.4m amortisation of acquired intangible assets, resulting in reported operating loss of £7.1m.
The company closed the year with net cash of £24.2m, reflecting the £20m funds raised at the end of 2021.
Exhibit 2: Revenue breakdown
£m |
FY22 |
FY21 |
FY21 normalised |
y-o-y |
y-o-y normalised |
Recurring revenue |
6.8 |
5.1 |
5.2 |
33.3% |
30.8% |
Non-recurring revenue |
6.5 |
8.1 |
9.2 |
-19.8% |
-29.3% |
Total revenue |
13.3 |
13.2 |
14.4 |
0.8% |
-7.6% |
Source: Checkit. Note: normalised revenue treats Tutela US (acquired February 2021) as owned for both periods
Recurring revenue grew 33% y-o-y, or 31% on a normalised basis, to make up 51% of FY22 revenue and 75% of Q422 revenue. The company noted that like-for-like US recurring revenue grew 82% y-o-y.
Non-recurring revenue declined 20% (29% normalised) as the company started the transition of the BEMS business to a SaaS offering.
Outlook and changes to forecasts
At year-end, the company had a pipeline worth £15.4m and noted the quality had improved over the year, with tier 1 enterprise targets increasing from 21% to 54% of the pipeline. In the US, the pipeline includes a number of multi-site organisations in the healthcare, food and hospitality sectors. Management is focused on rapid expansion in the US and is aiming for it to be the largest contributor to ARR by the end of FY24.
Management noted trading so far this year has progressed well and in line with board expectations, and is confident it will meet FY23 market expectations. While the conflict in Ukraine has no direct impact on Checkit’s activities, the board is cautious on the indirect impact and the potential for inflationary cost pressures.
We note that increasing labour costs and the tight labour market make it all the more important for customers to manage their existing workforces well. Checkit’s software helps improve the efficiency of existing staff, prevents process knowledge from disappearing when staff leave and helps with training new joiners.
We maintain our revenue, EBITDA and operating loss forecasts for FY23. We factor in slightly higher capitalised development costs, which reduces our net cash forecast at end FY23 by £0.3m. We also note the company has reclassified some costs between operational expenditures and cost of sales, reducing our gross margin forecast, but having no impact at the EBITDA level. We introduce forecasts for FY24 that factor in ARR growth of 32%, revenue growth of 24% and a reduction in the normalised operating loss to £6.6m from £8.8m in FY23.
Exhibit 3: Changes to forecasts
£'m |
FY23e |
FY23e |
FY24e |
|||||
Old |
New |
Change |
y-o-y |
New |
y-o-y |
|||
ARR |
12.0 |
12.0 |
0.0% |
46.4% |
15.9 |
32.3% |
||
Revenues |
11.2 |
11.2 |
0.2% |
-15.4% |
14.0 |
24.4% |
||
Gross profit |
8.4 |
6.5 |
-22.3% |
5.5% |
8.9 |
35.5% |
||
Gross margin |
75.0% |
58.1% |
-16.9% |
11.5% |
63.4% |
5.2% |
||
EBITDA |
(7.8) |
(7.8) |
-0.3% |
85.1% |
(5.1) |
-34.5% |
||
EBITDA margin |
-69.4% |
-69.1% |
0.3% |
-37.5% |
-36.4% |
32.7% |
||
Normalised operating profit |
(8.8) |
(8.8) |
-0.2% |
86.6% |
(6.6) |
-24.9% |
||
Normalised operating profit margin |
-78.3% |
-78.0% |
0.3% |
-42.7% |
-47.1% |
30.9% |
||
Reported operating profit |
(9.4) |
(9.4) |
-0.2% |
32.0% |
(6.7) |
-28.6% |
||
Reported operating margin |
-83.7% |
-83.3% |
0.3% |
-30.0% |
-47.8% |
35.5% |
||
Normalised PBT |
(8.8) |
(8.8) |
-0.2% |
86.6% |
(6.6) |
-24.9% |
||
Reported PBT |
(9.4) |
(9.4) |
-0.2% |
32.0% |
(6.7) |
-28.6% |
||
Normalised net income |
(8.8) |
(8.8) |
-0.2% |
86.6% |
(6.6) |
-24.9% |
||
Reported net income |
(9.4) |
(9.4) |
-0.2% |
37.8% |
(6.7) |
-28.6% |
||
Normalised basic & diluted EPS (p) |
(8.1) |
(8.1) |
-0.2% |
16.0% |
(6.1) |
-24.9% |
||
Reported basic EPS (p) |
(8.7) |
(8.7) |
-0.2% |
-13.1% |
(6.2) |
-28.6% |
||
Net debt/(cash) |
(15.3) |
(15.0) |
-1.8% |
-37.8% |
(8.5) |
-43.4% |
||
Source: Edison Investment Research
Exhibit 4: Financial summary
£'m |
2019 |
2020 |
2021 |
2022 |
2023e |
2024e |
||
31-January |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
INCOME STATEMENT |
||||||||
Revenue |
|
|
1.0 |
9.8 |
13.2 |
13.3 |
11.2 |
14.0 |
Cost of Sales |
(1.0) |
(7.2) |
(6.7) |
(7.1) |
(4.7) |
(5.1) |
||
Gross Profit |
0.0 |
2.6 |
6.5 |
6.2 |
6.5 |
8.9 |
||
EBITDA |
|
|
(2.3) |
(4.9) |
(2.5) |
(4.2) |
(7.8) |
(5.1) |
Normalised operating profit |
|
|
(4.4) |
(6.5) |
(3.1) |
(4.7) |
(8.8) |
(6.6) |
Amortisation of acquired intangibles |
(0.1) |
(1.0) |
(1.3) |
(1.4) |
(0.5) |
(0.1) |
||
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) |
(9.4) |
(6.7) |
||
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) |
(8.8) |
(6.6) |
Profit Before Tax (reported) |
|
|
(4.5) |
(9.1) |
(5.3) |
(7.1) |
(9.4) |
(6.7) |
Reported tax |
0.0 |
0.1 |
0.3 |
0.3 |
0.0 |
0.0 |
||
Profit After Tax (norm) |
(4.4) |
(6.4) |
(3.1) |
(4.7) |
(8.8) |
(6.6) |
||
Profit After Tax (reported) |
(4.5) |
(9.0) |
(5.0) |
(6.8) |
(9.4) |
(6.7) |
||
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) |
(8.8) |
(6.6) |
||
Net income (reported) |
4.1 |
80.8 |
(4.4) |
(6.8) |
(9.4) |
(6.7) |
||
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) |
(8.1) |
(6.1) |
EPS - diluted normalised (p) |
|
|
(2.5) |
(4.0) |
(5.2) |
(7.0) |
(8.1) |
(6.1) |
EPS - basic reported (p) |
|
|
2.3 |
50.2 |
(7.2) |
(10.0) |
(8.7) |
(6.2) |
Dividend (p) |
0.00 |
0.00 |
0.00 |
0.00 |
0.00 |
0.00 |
||
Revenue growth (%) |
N/A |
880.0 |
34.7 |
0.8 |
(15.4) |
24.4 |
||
Gross Margin (%) |
0.0 |
26.5 |
49.2 |
46.6 |
58.1 |
63.4 |
||
EBITDA Margin (%) |
(230.0) |
(50.0) |
(18.9) |
(31.6) |
(69.1) |
(36.4) |
||
Normalised Operating Margin |
(440.0) |
(66.3) |
(23.5) |
(35.3) |
(78.0) |
(47.1) |
||
BALANCE SHEET |
||||||||
Fixed Assets |
|
|
5.0 |
8.5 |
6.8 |
8.3 |
9.8 |
10.4 |
Intangible Assets |
2.9 |
7.3 |
6.0 |
7.3 |
8.6 |
9.0 |
||
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 |
18.7 |
12.3 |
Stocks |
4.3 |
1.7 |
1.1 |
1.8 |
1.2 |
0.8 |
||
Debtors |
5.1 |
3.4 |
4.4 |
2.6 |
2.5 |
2.9 |
||
Cash & cash equivalents |
10.1 |
14.3 |
11.5 |
24.2 |
15.0 |
8.5 |
||
Other |
0.0 |
0.4 |
0.5 |
0.1 |
0.0 |
0.0 |
||
Current Liabilities |
|
|
(7.9) |
(5.6) |
(5.9) |
(5.4) |
(6.2) |
(7.0) |
Creditors |
(7.6) |
(5.1) |
(5.6) |
(4.9) |
(5.7) |
(6.5) |
||
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 |
21.7 |
15.0 |
Minority interests |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Shareholders' equity |
|
|
16.3 |
21.4 |
17.6 |
31.0 |
21.7 |
15.0 |
CASH FLOW |
||||||||
Op Cash Flow before WC and tax |
(2.3) |
(4.9) |
(2.5) |
(4.2) |
(7.8) |
(5.1) |
||
Working capital |
(0.5) |
(1.0) |
0.3 |
0.2 |
1.5 |
0.8 |
||
Exceptional & other |
9.1 |
5.3 |
(0.7) |
(1.0) |
0.0 |
0.0 |
||
Tax |
(0.5) |
(0.5) |
0.0 |
0.1 |
0.0 |
0.0 |
||
Net operating cash flow |
|
|
5.8 |
(1.1) |
(2.9) |
(4.9) |
(6.3) |
(4.3) |
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 |
(9.2) |
(6.5) |
||
Opening net debt/(cash) |
|
|
(5.2) |
(10.1) |
(14.3) |
(11.5) |
(24.2) |
(15.0) |
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) |
(15.0) |
(8.5) |
Source: Checkit, Edison Investment Research
|
|
Tortilla Mexican Grill’s (Tortilla’s) continued ‘massive’ outperformance of the UK restaurant market despite, and because of, COVID-19 is further endorsement of the company’s difference to most UK hospitality businesses. Tortilla’s ‘transformational’ 2021 saw 24% like-for-like sales growth versus 2019 (adj. pre-IFRS 16 EBITDA more than trebled) followed by similar momentum in Q122 and heightened optimism about growth opportunities accelerated by the pandemic, which echoes that of big brother Chipotle (NYSE: CMG) in the US. With its popular value offering in tune with the times and scalability shown by burgeoning partnerships with SSP Group, Compass Group and Merlin, Tortilla is on track for 45+ company-run openings by end 2026 (c nine this year) backed by a cash-generative model, low site capex and c £14m liquidity at December 2021.
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