Vection Technologies — Space travel in the metaverse

Vection Technologies (ASX: VR1)

Last close As at 13/04/2024

AUD0.03

0.00 (3.70%)

Market capitalisation

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Research: TMT

Vection Technologies — Space travel in the metaverse

Vection Technologies (VR1) reported A$4.6m in Q223 receipts, up A$0.2m q-o-q. Recent announcements of the company’s selection to develop virtual reality (VR) and metaverse technologies to promote space travel underpin the vital role partnerships play in the company’s strategy. VR1 also reported progress in commercial opportunities in defence, aerospace and service agencies, among others, all expected to bear fruit in the latter half of the current fiscal year. As such, management reiterated its FY23 revenue guidance of A$24–26m. We are encouraged by the Q223 results and maintain our FY23 forecasts.

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TMT

Vection Technologies

Space travel in the metaverse

Quarterly activities update

Software and comp services

7 February 2023

Price

A$0.07

Market cap

A$73m

Estimated net cash (A$m) at

31 December 2022

9.4

Shares in issue

1,127m

Free float

54%

Code

VR1

Primary exchange

ASX

Secondary exchange

OTC (VCTNY)

Share price performance

%

1m

3m

12m

Abs

(6.0)

14.5

(47.5)

Rel (local)

(11.3)

4.8

(49.7)

52-week high/low

A$0.13

A$0.05

Business description

Vection Technologies (VR1), an Australia-based software company, operates in the field of extended reality (XR), 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. VR1 partners with companies to build out the foundational elements that enable them to engage with the metaverse.

Next events

H123 interim results

February 2023

Edison TV interview

February 2023

Analysts

Ken Mestemacher, CFA

+44 (0)20 3077 5700

Dan Ridsdale

+44 (0)20 3077 5700

Vection Technologies is a research client of Edison Investment Research Limited

Vection Technologies (VR1) reported A$4.6m in Q223 receipts, up A$0.2m q-o-q. Recent announcements of the company’s selection to develop virtual reality (VR) and metaverse technologies to promote space travel underpin the vital role partnerships play in the company’s strategy. VR1 also reported progress in commercial opportunities in defence, aerospace and service agencies, among others, all expected to bear fruit in the latter half of the current fiscal year. As such, management reiterated its FY23 revenue guidance of A$24–26m. We are encouraged by the Q223 results and maintain our FY23 forecasts.

Year end

Revenue

(A$m)

Adj EBITDA*

(A$m)

PBT**
(A$m)

EPS**
(c)

EV/revenue

(x)

P/revenue

(x)

Net cash***

(A$m)

6/21

3.5

(0.4)

(2.5)

(0.27)

18.5

21.1

2.2

6/22

18.9

0.9

(7.0)

(0.67)

3.4

3.9

10.8

6/23e

26.1

3.7

1.3

0.08

2.5

2.8

10.6

Note: *Adjusted EBITDA is normalised, excluding non-cash payments, exceptional items and interest revenue. **PBT and EPS are normalised, excluding exceptional items and interest revenue. ***Includes debt and financial leases.

Q223: Cash position remains strong

VR1 reported A$4.6m in cash receipts in Q223, a slight increase versus Q123’s A$4.4m, while net cash used in operations fell slightly to A$1.5m. Net cash used was A$0.6m versus Q123’s A$1.0m. The company’s cash position remains strong to support continued investments in infrastructure, sales and R&D, with A$13.5m in cash and cash equivalents as of 31 December 2022. We do not expect the need for any significant capital raises in FY23, absent any major mergers or acquisitions.

Partnerships remain key growth lever

Partnerships remain a vital lever for growth and a way to expand VR1’s distribution network. Management recently announced a memorandum of understanding to develop the first VR metaverse platform to promote space travel. Soon after, it announced a related A$0.4m agreement with Next One Film Group to develop VR gaming, scientific and educational content to support the space travel market. The company was chosen for these in part due to its expertise in VR and metaverse technologies. We await further details on these opportunities as well as existing partnerships, such as Webex by Cisco.

Valuation: Execution remains key to reducing gap

VR1 trades at 2.5x FY23e revenue, a 53% discount to its small-cap peers. A peer multiple of 5.2x implies a share price of A$0.13, nearly double the current value. We believe that the successful execution of VR1’s strategic plan and aforementioned commercial opportunities, especially in H223, and further advancements in the company’s existing partnerships could reduce the valuation gap.

Exhibit 1: Financial summary

A$000s

2021 restated

2022

2023e

Year end 30 June

AAS

AAS

AAS

PROFIT & LOSS

Revenue

 

3,471

18,894

26,056

Variable Cost of Sales

(849)

(11,454)

(13,127)

Gross Profit

2,622

7,440

12,929

Operating Expenses*

(3,993)

(10,453)

(9,230)

Adjusted EBITDA

 

(424)

881

3,699

Non-Cash Payments

(230)

(1,892)

(1,400)

EBITDA

 

(654)

(1,011)

2,299

D&A

(658)

(958)

(1,000)

Operating Profit (Normalized)

 

(2,285)

(5,907)

1,255

Exceptionals/Other

(26)

(44)

(44)

Operating Profit/(Loss) (EBIT)

 

(2,259)

(5,863)

1,299

Net Interest and financial expense

(171)

(1,070)

-

Profit Before Tax (norm)

(2,456)

(6,977)

1,255

Profit Before Tax (AAS)

 

(2,430)

(6,933)

1,299

Tax

(77)

(168)

(312)

Profit After Tax (norm)

 

(2,533)

(7,144)

943

Profit After Tax (AAS)

 

(2,506)

(7,100)

987

P/(L) from discontinued operations

(36)

-

-

Minority interest

(137)

(419)

58

Net income (norm, to Vection Technologies equity holders)

(2,533)

(7,144)

943

Net income (AAS, to Vection Technologies equity holders)

 

(2,543)

(7,100)

987

Average Number of Shares Outstanding, basic (m)

931

1,071

1,124

EPS - normalised, basic (c)

 

(0.27)

(0.67)

0.08

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

(0.24)

(0.62)

0.08

Gross Margin (%)

75.5%

39.4%

49.6%

EBITDA Margin (%)

NA

NA

8.8%

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

NA

NA

4.8%

BALANCE SHEET

Fixed Assets

 

18,273

17,785

18,870

Intangible Assets

17,338

17,028

18,066

Tangible Assets

240

293

339

Right of Use Assets

632

424

424

Other

63

41

41

Current Assets

 

13,063

22,419

24,308

Cash

7,084

14,869

14,708

Receivables

4,879

6,208

8,000

Inventories

1,084

1,341

1,600

Other

17

-

-

Current Liabilities

 

11,272

8,475

8,672

Trade and other payables

3,615

6,974

7,200

Provisions and Other

6,405

30

-

Employee benefits

36

78

78

Lease liabilities

168

195

195

Borrowings

1,047

1,199

1,199

Long Term Liabilities

 

4,637

3,751

4,141

Provisions

-

-

-

Employee benefits

333

433

824

Lease liabilities

530

286

286

Borrowings

3,175

2,415

2,415

Other

599

616

616

Net Assets

 

15,428

27,977

30,365

Minority Interest

(117)

(479)

(898)

Shareholder's Equity

 

15,545

28,457

31,263

CASH FLOW

Operating Cash Flow (before interest, tax, etc.)

 

(2,251)

(1,092)

2,235

Net Interest

(50)

(50)

-

Tax

(24)

(104)

(312)

Capex

(66)

(164)

(246)

Purchase of intangibles

(1,330)

(1,838)

(1,838)

Acquisitions/disposals

2,305

(21)

-

Equity financing

7,221

12,127

-

Lease payments

(96)

(80)

-

Change in net cash

5,708

8,777

(161)

Opening net debt/(cash), not incl. leases

 

(735)

(2,862)

(11,255)

Exchange rate movements

(280)

(383)

-

Other

(3,301)

0

-

Closing net debt/(cash), not incl. leases

 

(2,862)

(11,255)

(11,094)

Closing net debt/(cash), incl. leases

 

(2,164)

(10,774)

(10,613)

Source: Vection Technologies, Edison Investment Research

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 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.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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 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.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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