Vection Technologies — Moving from niche to mainstream markets

Vection Technologies (ASX: VR1)

Last close As at 18/06/2024

AUD0.02

0.00 (5.00%)

Market capitalisation

AUD24m

More on this equity

Research: TMT

Vection Technologies — Moving from niche to mainstream markets

Vection’s Q324 update showed strong double-digit growth in revenue and cash receipts, driven by multiple contract wins, including its largest contract to date with an existing defence customer. A swing to positive operating cash flow in Q3 (A$4.1m), coupled with contract wins, validates the company’s streamlined sales structure, designed to bolster operational efficiency. Cash generated also supported a quarter-on-quarter reduction in debt. Management is seeing early positive signs by enhancing the platform’s compatibility with Apple Vision Pro, potentially unlocking a key growth avenue from rising enterprise adoption among large global players.

Max Hayes

Written by

Max Hayes

Associate Analyst

TMT

Vection Technologies

Moving from niche to mainstream markets

Q324 activities update

Software and comp services

30 April 2024

Price

A$0.027

Market cap

A$30m

Net debt (A$m) at 31 March 2024

0.3

Shares in issue

1,126.6m

Free float

49%

Code

VR1

Primary exchange

ASX

Secondary exchange

OTC (VCTNY)

Share price performance

%

1m

3m

12m

Abs

(7.4)

(3.8)

(44.4)

Rel (local)

(5.1)

(4.5)

(46.8)

52-week high/low

A$0.05

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

FY24 activities report

July 2024

Analysts

Max Hayes, CFA

+44 (0)20 3077 5700

Katherine Thompson

+44 (0)20 3077 5700

Vection Technologies is a research client of Edison Investment Research Limited

Vection’s Q324 update showed strong double-digit growth in revenue and cash receipts, driven by multiple contract wins, including its largest contract to date with an existing defence customer. A swing to positive operating cash flow in Q3 (A$4.1m), coupled with contract wins, validates the company’s streamlined sales structure, designed to bolster operational efficiency. Cash generated also supported a quarter-on-quarter reduction in debt. Management is seeing early positive signs by enhancing the platform’s compatibility with Apple Vision Pro, potentially unlocking a key growth avenue from rising enterprise adoption among large global players.

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)

8.8

8.8

2.2

06/22

18.9

1.4

(7.0)

(0.67)

1.6

1.6

10.8

06/23

26.3

1.5

(11.2)

(1.05)

1.2

1.2

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.

Diversified growth on a lower cost base

9M24 revenue was A$19.8m, up 82% from $10.9m in H124. Cash receipts were up 82% y-o-y to A$26.7m (Q3: A$11.8m, +107% y-o-y), supported by positive working capital movements. Forward contracted revenue of A$6.7m provides visibility for the year; if this entire contracted revenue were delivered in Q4, the total combined with 9M24 revenue would marginally exceed FY23 revenue of A$26.3m. Q324 growth was driven by a A$4.9m defence contract, an upsell to an existing customer, as well as several smaller contracts totalling A$971k across healthcare, real estate and retail. Integration of the Invrsion acquisition supported growth in the smaller fashion vertical, while also supporting the platform’s compatibility with Apple Vision Pro alongside Vection’s investments in spatial computing technology. Management sees spatial computing, in addition to developments in AI, as key to meeting customer demand for technologies that can help reduce costs and improve operational efficiencies. Spatial computing also underpins the company’s first extended reality naval solution contract signed in Q324 and valued at A$500k.

Swing to positive operating cash flow

A move to positive operating cash flow of A$4.1m in Q324 reflects the benefits from cost reduction measures implemented in H124 and top-line growth. Limited capex, despite the decision to capitalise some development costs, supported free cash flow of A$3.4m, driving a A$1.3m debt reduction to A$8m. Maintaining positive operating cash flow should allow the company to invest in its research and development initiatives, while supporting a move back to a net cash position.

Valuation: Share price up ytd, scope for more

Vection’s share price has reacted positively following the Q324 report, up 8% on the day and up 35% year to date – ahead of its peers. We believe continuing to demonstrate the ability to deliver top-line growth on a lower cost base in FY24, as well as providing greater mid-term visibility, could drive the stock price higher.

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 (normalised)

 

(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)

-

-

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 (c)

 

(0.27)

(0.67)

(1.05)

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

 

(0.24)

(0.62)

(0.98)

Gross Margin (%)

75.5%

39.4%

26.7%

EBITDA Margin (%)

NA

NA

NA

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

NA

NA

NA

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

-

-

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

Provisions

-

-

-

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

-

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

-

Closing net debt/(cash), excluding leases

 

(2,862)

(11,255)

(1,052)

Closing net debt/(cash), including 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 2024 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 2024 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

The Merchants Trust — Celebrating its 135th anniversary

The Merchants Trust’s (MRCH’s) manager, Simon Gergel at Allianz Global investors, is very excited about the number of reasonably priced opportunities available in the UK market. Also, good income generation from the trust’s portfolio of high-quality companies with robust fundamentals enabled MRCH to record another consecutive dividend increase in FY24; it now has a 42-year track record. The trust’s attractive 5.1% dividend yield is one of the highest in the 19-strong AIC UK Equity Income sector and its NAV total return over the last three, five and 10 years is superior versus the peers with a higher yield. MRCH could be seen as a good income play in a scenario of improving investor sentiment towards UK companies, which Gergel envisages given the more stable political environment (as the two main political parties’ policies are now less divergent) and signs of improvement in the UK economy.

Continue Reading

Subscribe to Edison

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

Sign up for free