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Research: TMT
Vection Technologies’ H124 activity report shows sustained momentum, with the group delivering 37% y-o-y revenue growth to A$11.9m. Total contract value (TCV) of A$16.7m was up 67% y-o-y, providing strong revenue visibility for the rest of FY24. As with Q1, we believe growth has been driven by the expansion of existing low-margin, one-off transactions into large multi-year deals. Expanding deals, rather than relying on new wins, underpin the opportunity for operationally geared growth, with management expecting to see the benefits of recent cost reduction measures in H2.
Written by
Vection Technologies |
Record half and strong H2 visibility |
Q224 activity report |
Software and comp services |
2 February 2024 |
Share price performance
Business description
Analysts
Vection Technologies is a research client of Edison Investment Research Limited |
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Vection Technologies’ H124 activity report shows sustained momentum, with the group delivering 37% y-o-y revenue growth to A$11.9m. Total contract value (TCV) of A$16.7m was up 67% y-o-y, providing strong revenue visibility for the rest of FY24. As with Q1, we believe growth has been driven by the expansion of existing low-margin, one-off transactions into large multi-year deals. Expanding deals, rather than relying on new wins, underpin the opportunity for operationally geared growth, with management expecting to see the benefits of recent cost reduction measures in H2.
Year end |
Revenue (A$m) |
Adj EBITDA* |
PBT** |
EPS** |
EV/Sales |
P/sales |
Net cash*** |
06/21 |
3.5 |
(0.2) |
(2.5) |
(0.27) |
10.2 |
9.4 |
2.2 |
06/22 |
18.9 |
1.4 |
(7.0) |
(0.67) |
1.9 |
1.7 |
10.8 |
06/23 |
26.3 |
1.5 |
(11.2) |
(1.05) |
1.3 |
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.
In the Q224 update, Vection introduced forward contracted revenue, the difference between TCV and reported revenue. Forward contracted revenue rose 182% y-o-y to A$4.8m, underpinning H2 momentum after a record first half. Although there is no current market consensus, we note Vection's record of converting 100% of TCV to revenue by year-end, instilling confidence in further FY24 growth.
We believe H2 TCV expansion will be supported by its established partner strategy, leveraging multi-year relationships with advisors, tech leaders and notable vertical players to gain access to large, multi-year opportunities, which may be inaccessible via a direct approach. Additionally, Vection has identified pipeline opportunities in Europe and recently in the Middle East, as well as across diverse verticals.
The group has adjusted the way it presents TCV, now breaking down contracts solely by vertical, rather than a blend of partner and direct contracts shown in Q1. The new breakdown chart shows that the Sports, Betting, Media & Telco sector dominates TCV at 43%, followed by Defence, Space, Military & Law Enforcement at 31%.
Sports and Media TCV expansion was driven by contracts won through partners in H1, with upcoming events like the Summer Olympics providing H2 momentum. We believe progress in Defence and Space continues to stem from its current Lunar City joint venture, which is transitioning into an operational phase, and buoyed by recent demand from the cyber security market.
Q224 operating cash outflow fell by 66% q-o-q to A$1.2m on higher revenue. Management expects the benefits from recent cost reduction measures to be realised in H2, which should help reduce cash burn.
In the short term, we believe the key milestones will be delivering on forward contracted revenue and signing deals for delivery in the remainder of 2024 (most likely through expansion of existing contracts), with the signing of deals with new customers crucial to drive longer-term TCV growth.
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