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Research: TMT
artec spent the 2016/17 period highly focused on modernising its software platform and, as a consequence, revenues dipped by 41% in FY17. However, in recent months, the company has won three prestigious new contracts with high-profile customers in Germany. These contracts provide a significant endorsement of the new platform, and the artec carried out a 10% capital increase to provide working capital to help deliver these contracts. If management can successfully scale the business, we believe there is significant upside in the shares.
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artec technologies |
Positioning for growth
Technology |
Scale research report - Update
6 June 2018 |
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artec spent the 2016/17 period highly focused on modernising its software platform and, as a consequence, revenues dipped by 41% in FY17. However, in recent months, the company has won three prestigious new contracts with high-profile customers in Germany. These contracts provide a significant endorsement of the new platform, and the artec carried out a 10% capital increase to provide working capital to help deliver these contracts. If management can successfully scale the business, we believe there is significant upside in the shares.
FY17 results
FY17 revenue dipped to €1.5m from €2.5m, while the loss before tax increased from €0.4m to €0.8m. The group slipped to a modest net debt position of €154k from net cash of €233k a year earlier. After the period end, artec raised €934k (gross) via a 10% capital increase at €3.95/share.
New strategy
Management has outlined a new strategy focused on targeting state agencies and public authorities in the DACH (German-speaking) countries, while also offering scalable cloud/SaaS offerings to the media and broadcast sector. artec seeks to build its sales through a partnering approach. With regard to technology, it offers a Buy, Build, Partner approach, ie as well as developing some of its own IP, it will partner other software vendors to take advantage of established solutions that can be bolted onto its MULTIEYE and XENTAURIX platforms, and will also consider acquiring small vendors with innovative solutions.
Guidance
The company says it expects to generate revenue of €3.0-3.2m in FY18 and to be profitable. The plan is to keep tight control on costs as the group accelerates revenues. However, the shift from an upfront licensing model to a recurring SaaS revenue model will hold back profits in the short term, and we estimate that the group will be modestly profitable at the targeted level of revenue.
Valuation: An option on a massive opportunity
The group’s target markets are huge and we see artec’s modest €10m market capitalisation as an option on management’s ability to leverage the company’s significant success stories into a more scalable and profitable business model.
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Trading history
Source: Company accounts |
Edison Investment Research provides qualitative research coverage on companies in the Deutsche Börse Scale segment in accordance with section 36 subsection 3 of the General Terms and Conditions of Deutsche Börse AG for the Regulated Unofficial Market (Freiverkehr) on Frankfurter Wertpapierbörse (as of 1 March 2017). Two to three research reports will be produced per year. Research reports do not contain Edison analyst financial forecasts.
New contracts boost the investment case
artec technologies is a specialist in the recording and storage of audiovisual information. The company operates in two market segments with two key products, which are based around the same core technology – video security (MULTIEYE) and media analysis systems (XENTAURIX). Its revenues are largely from customised projects and artec can deliver both onsite and hosted (cloud) solutions. Historically, video surveillance was the predominant target market, although the focus has been shifting to media analysis systems. This is due to the Chinese domination of video surveillance with commoditised products (although artec has found a new niche in public sector security after recent terror attacks), along with artec’s recent successes in the media analysis systems end-market.
In recent months artec has won three major contracts, including XENTAURIX contracts with a major German publishing house and a German state media office and a combined MULTIEYE/ XENTAURIX contract win with German Ministry of the Interior. These wins provide a strong endorsement of the company’s new platform, on which it has spent much of its energy developing over the last two years.
New strategy
Management has outlined a new strategy focusing on two markets using their complementary software platforms. It is targeting state agencies and public authorities in the DACH (German-speaking) countries with a law enforcement video surveillance management system and video intelligence applications. It is also offering scalable cloud/SaaS offerings to the media and broadcast sector.
Typical features of the complementary platforms XENTAURIX and MULTIEYE that can be used for these targeted markets:
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ultra-fast image data processing;
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seamless integration and management of nearly all available video cameras or signals;
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object-oriented and AI-based video analyses; and
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compliance recording, monitoring and live and time-shifted availability of all TV and IP video and audio content including search term-related video clip creation.
The technology has been developed during the past two years and artec believes that the combination of features gives it a distinct advantage over its competitors. artec is seeking to drive sales by increasing its own salesforce and through developing a partner ecosystem.
With regard to technology, it offers a Buy, Build, Partner approach, ie as well as developing some of its own IP, it will partner other software vendors to take advantage of established solutions that can be bolted onto its MULTIEYE and XENTAURIX platforms, and will also consider acquiring small vendors with innovative solutions.
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Research: Financials
Artificial intelligence (AI)-driven MyBucks (MBC) has made notable progress in recent months. The strategic partnership with NAGA is a key step in developing MBC’s digital banking business and builds on the H1 turnaround in banking results. These, along with improved cost ratios, partly countered the still burdensome level of financing costs, as the group swung into pre-tax profit from losses in the prior year. This takes the company a step closer to becoming net earnings positive. Debt refinancing costs are being reduced and a €11.7m gross private placing was undertaken in February. MBC is also well positioned for organic growth through the launch of new insurance and lending products and plans to integrate its TESS user experience product throughout its operations.