SenSen Networks — Positioned to scale on a lower cost base

SenSen Networks (ASX: SNS)

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Research: TMT

SenSen Networks — Positioned to scale on a lower cost base

SenSen Networks (SNS) reported its ninth consecutive quarter of year-on-year record cash receipts in Q323, with growth across all key verticals and no customer churn. The company has also introduced further measures to achieve cash flow positivity and profitability from Q423, focusing on upselling to existing customers and introducing a salary sacrifice scheme for senior staff. We moderate our revenue growth forecasts to reflect these measures but upgrade our profitability and cash forecasts as a result. The short to medium term is likely to see greater focus on the smart cities segment, where the company has established a promising international market presence and where it has considerable scope to expand its engagements in its existing customer base. This positions SenSen well to scale more profitably in the mid-term.

Max Hayes

Written by

Max Hayes

Associate Analyst

TMT

SenSen Networks

Positioned to scale on a lower cost base

Q323 activity report

Software and comp services

11 May 2023

Price

A$0.04

Market cap

A$30m

US$0.66/A$

Net debt (A$m) at 31 March 2023 (includes H123 leases of A$0.9m)

0.8

Shares in issue

678.7m

Free float

67%

Code

SNS

Primary exchange

ASX

Secondary exchange

OTCQB

Share price performance

%

1m

3m

12m

Abs

2.2

(9.8)

(48.9)

Rel (local)

1.7

(7.6)

(50.0)

52-week high/low

A$0.10

A$0.04

Business description

SenSen Networks, an Australia-based technology company, operates in the field of sensor artificial intelligence. By applying its SenDISA AI platform to physical space monitoring, it extracts real-time insights for customers. It provides solutions to customers in the smart city, gaming, retail and surveillance verticals.

Next events

FY23 annual report

September 2023

Analysts

Max Hayes

+44 (0)20 3077 5721

Dan Ridsdale

+44 (0)7930 166512

SenSen Networks is a research client of Edison Investment Research Limited

SenSen Networks (SNS) reported its ninth consecutive quarter of yearonyear record cash receipts in Q323, with growth across all key verticals and no customer churn. The company has also introduced further measures to achieve cash flow positivity and profitability from Q423, focusing on upselling to existing customers and introducing a salary sacrifice scheme for senior staff. We moderate our revenue growth forecasts to reflect these measures but upgrade our profitability and cash forecasts as a result. The short to medium term is likely to see greater focus on the smart cities segment, where the company has established a promising international market presence and where it has considerable scope to expand its engagements in its existing customer base. This positions SenSen well to scale more profitably in the mid-term.

Year end

Revenue (A$m)

Adjusted EBITDA* (A$m)

PBT**
(A$m)

EPS**
(c)

P/sales
(x)

Net cash***
(A$m)

06/21

5.5

(2.2)

(3.0)

(0.59)

5.4

(3.9)

06/22

9.1

(7.8)

(12.5)

(1.42)

3.3

(3.9)

06/23e

11.1

(3.5)

(5.4)

(0.62)

2.7

(2.6)

06/24e

17.0

3.6

1.5

0.33

1.8

(4.3)

Note: *Adjusted EBITDA excludes non-cash share-based payments. **PBT and EPS are normalised, excluding amortisation of acquired intangibles and exceptional items. ***Net cash is cash less debt and including leases.

Positioned for profit and cash flow positivity

SenSen’s Q323 customer cash receipts increased by 69% y-o-y. Our forecasts indicate further q-o-q growth in Q4, although we have lowered our FY23 revenue expectations to reflect managements’ drive for margin expansion over top-line growth. The implementation of a salary sacrifice plan for senior staff is expected to have an annualised impact of A$0.5m. Management believes it is on track to move to profitability and cash flow positivity in Q423 and beyond. We slightly increase our FY23 EBITDA loss estimate but increase our FY24 EBITDA and net cash estimates (detailed below) to reflect the timing of these cost reduction measures. SenSen’s balance sheet remains robust, with A$1.7m undrawn in existing credit facilities.

Promising progress in smart cities

To optimise the use of resources, the group focused on upselling to drive growth, most notably delivering a three-year contract extension with the adoption of two additional products by the City of Las Vegas, one of the largest customers in its smart cities segment. It delivered additional upselling in smart cities across client sizes and secured contract wins, expanding its Canadian customers from two to nine in the year, highlighting its ability to rapidly scale in new regions. SenSen recently announced a proof of concept (POC) road condition monitoring contract with Transport for New South Wales, using its SenMAP technology. If successful, this contract is expected to convert into a recurring revenue stream, and the recent flooding problems in Australia provide significant scope for rapid expansion.

Valuation: Discount to peers remains

SenSen trades at 2.7x and 1.8x sales in FY23e and FY24e respectively, at an average 36% discount to peers. Delivering another record quarter and achieving our forecasts could act as a catalyst, helping to close this current discount.

Scope for SenMAP contract expansion

On 3 May, SenSen announced that it had won a A$145k initial POC contract with Transport for New South Wales for its new SenMAP, AI-based asset mapping technology (see video below). SenMAP will be trialled over 200km of road to showcase the software’s ability to complete asset audits such as detecting street signs, fire hydrants, meters etc, at a significantly lower cost that the high-cost sensors which are currently used throughout Australia. If successful, management anticipates that this should convert into a recurring revenue opportunity following the end of the trial in August.

Exhibit 1: SenMAP promotional video

Source: SenSen Networks.

SenMAP is currently being trialled across Brisbane, Sunshine Coast, Gold Coast, Vancouver, Chicago and Toronto, generating a total of A$150k to date. Recent high levels of flooding in Australia have increased the need for regular asset audits in cities, providing a strong catalyst for the adoption of a low-cost solution throughout the country, such as SenMAP.

Cash forecasts raised following cost-cutting measures

In addition to the A$2.5m annualised cost saving measures undertaken in the first half of the year (analysed in our previous note), which included role reductions and office relocations, management opened a salary sacrifice plan for its senior staff members on 1 May 2023. Selected staff will receive ordinary shares in lieu of 20% of their salary calculated on a 20-day volume-weighted average price. Management anticipates that this will result in an annualised A$0.5m of cost savings, which we have partially reflected in our FY23 net cash forecasts. The full benefit of the plan can be seen in FY24.

Exhibit 2: Changes to forecasts

A$m

FY23e

FY24e

Old

New

Change

y-o-y change

Old

New

Change

y-o-y change

Revenue

15.5

11.1

(28.4)%

21.4%

23.5

17.0

(27.7)%

53.2%

Gross profit

10.8

7.7

(28.8)%

36.8%

17.0

12.4

(27.0)%

61.5%

Gross margin

69.8%

69.4%

(0.4)%

7.8%

72.5%

73.2%

0.7%

3.8%

Adjusted EBITDA

(2.8)

(3.5)

(25.5)%

55.0%

3.2

3.6

13.8%

N/A

Normalised EBIT

(5.3)

(3.9)

26.2%

67.2%

0.6

3.2

431.5%

N/A

Normalised PBT

(5.6)

(4.2)

25.1%

66.0%

0.4

3.0

592.4%

N/A

EPS - normalised, diluted (c)

(0.83)

(0.62)

25.2%

69.4%

0.05

0.33

581.9%

N/A

Cash flow from operations

(2.5)

(2.3)

6.7%

69.4%

1.9

2.9

47.9%

N/A

Net cash/(debt) including leases

2.5

2.6

1.8%

34.3%

3.5

4.3

21.5%

66.8%

Source: Edison Investment Research

We have lowered our revenue expectations for FY23 and FY24, reflecting SenSen’s focus on delivering profits and positive cash flow from Q423 at the expense of some top-line growth. We understand that some opportunities, while still very much alive, may have been delayed, particularly within SenSen’s large government customer base, while the legal dispute with Angel Group (discussed below) is suppressing activity in the casino segment.

The group’s balance sheet remains robust, with virtually zero net debt excluding leases and an additional A$1.7m undrawn in its current credit facilities. Management also expects to add a further A$0.6m to its Rocking Horse capital facility (to be settled in June 2023), which should provide protection in the case of any unforeseen short-term shocks. Moving to profitability in FY24 should mitigate the need to raise further capital.

Update on the Angel dispute

On 7 March, SenSen announced that the first case management hearing for a patent dispute with Angel Group had taken place in the Federal Court of Australia. On 24 April, SenSen announced that it had been served with a similar claim in the Philippines regarding Angel’s Philippine patents. Management claims that this type of legal action is not uncommon in the gaming industry. The casino segment accounts for less than 10% of overall revenues, and the legal costs are covered by the company's IP insurance. Both underpin management’s confidence that this dispute should not have a material impact on the group.

Exhibit 3: Financial summary

A$'000s

2021

2022

2023e

2024e

31-December

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

5,533

9,145

11,100

17,000

Cost of Sales

(2,030)

(3,513)

(3,397)

(4,560)

Gross Profit

3,503

5,633

7,703

12,440

Other income

2,807

2,978

2,200

2,200

Operating expense (not including share-based payments)

(8,518)

(16,362)

(13,391)

(10,999)

EBITDA

 

 

(2,209)

(7,751)

(3,488)

3,641

Normalised operating profit

 

 

(2,685)

(8,337)

(3,947)

3,167

Amortisation of acquired intangibles

(83)

(536)

(500)

(500)

Exceptionals

0

0

0

0

Share-based payments

(72)

(3,173)

(750)

(1,000)

Reported operating profit

(2,840)

(12,046)

(5,197)

1,667

Net Interest

(176)

(254)

(237)

(162)

Joint ventures & associates (post tax)

0

0

0

0

Exceptionals

0

(154)

0

0

Profit Before Tax (norm)

 

 

(2,861)

(8,591)

(4,184)

3,005

Profit Before Tax (reported)

 

 

(3,016)

(12,454)

(5,434)

1,505

Reported tax

(6)

225

(33)

(301)

Profit After Tax (norm)

(2,878)

(8,641)

(4,208)

2,404

Profit After Tax (reported)

(3,022)

(12,229)

(5,467)

1,204

Minority interests

0

0

0

0

Discontinued operations

0

0

0

0

Net income (normalised)

(2,878)

(8,641)

(4,208)

2,404

Net income (reported)

(3,022)

(12,229)

(5,467)

1,204

Basic average number of shares outstanding (m)

484

608

679

729

EPS - basic normalised (c)

 

 

(0.59)

(1.42)

(0.62)

0.33

EPS - diluted normalised (c)

 

 

(0.59)

(1.42)

(0.62)

0.33

EPS - basic reported (c)

 

 

(0.62)

(2.01)

(0.80)

0.17

Dividend (c)

0.00

0.00

0.00

0.00

Revenue growth (%)

47.0

65.3

21.4

53.2

Gross Margin (%)

63.3

61.6

69.4

73.2

EBITDA Margin (%)

-39.9

-84.8

-31.4

21.4

Normalised Operating Margin

-48.5

-91.2

-35.6

18.6

BALANCE SHEET

Fixed Assets

 

 

2,168

9,127

8,852

8,577

Intangible Assets

1,300

8,281

7,781

7,281

Tangible Assets

800

770

995

1,220

Investments & other

68

75

75

75

Current Assets

 

 

8,022

11,391

10,483

11,474

Stocks

241

232

168

175

Debtors

979

1,943

1,825

2,655

Cash & cash equivalents

5,176

6,214

5,414

5,123

Other

1,625

3,002

3,076

3,521

Current Liabilities

 

 

3,946

8,185

9,663

7,675

Creditors

750

1,239

1,949

1,356

Tax and social security

0

0

0

0

Short term borrowings

861

1,954

2,488

488

Lease liabilities

306

185

185

185

Other

2,028

4,806

5,040

5,645

Long Term Liabilities

 

 

244

201

201

201

Long term borrowings

0

0

0

0

Lease liabilities

138

183

183

183

Other long term liabilities

106

19

19

19

Net Assets

 

 

6,000

12,132

9,470

12,174

Minority interests

0

0

0

0

Shareholders' equity

 

 

6,000

12,132

9,470

12,174

CASH FLOW

Op Cash Flow before interest and tax

(3,250)

(7,770)

(2,334)

2,862

Net interest

(127)

(117)

(237)

(162)

Tax

(31)

0

(33)

(301)

Net operating cash flow

 

 

(3,409)

(7,887)

(2,603)

2,399

Capex

(253)

(254)

(400)

(400)

Acquisitions/disposals

0

(1,080)

0

0

Equity financing

7,043

9,644

1,930

0

Borrowings

(414)

1,120

534

(2,000)

Dividends

0

0

0

0

Other

(253)

(506)

(260)

(290)

Net Cash Flow

2,714

1,037

(800)

(291)

Opening net debt/(cash)

 

 

(1,150)

(4,315)

(4,259)

(2,926)

FX

0

0

0

0

Movement in borrowings

451

(1,093)

(534)

2,000

Closing net debt/(cash)

 

 

(4,315)

(4,259)

(2,926)

(4,635)

Closing net debt/(cash) w/ leases

 

 

(3,871)

(3,891)

(2,558)

(4,266)

Source: SenSen Networks, Edison Investment Research

General disclaimer and copyright

This report has been commissioned by SenSen Networks and prepared and issued by Edison, in consideration of a fee payable by SenSen Networks. 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 SenSen Networks and prepared and issued by Edison, in consideration of a fee payable by SenSen Networks. 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

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