Price: A$0.040
Fully diluted shares outstanding: 804.3M
Market cap: A$32.2M
Enterprise value: A$32.7M
P/E: negative
SenSen Networks provides a software platform that combines real-time input from multiple sensors with internal customer data to automate processes such as curbside management, parking enforcement and surveillance.
Customers are city councils, government agencies and large enterprises. They continuously expand their use of Sensen’s solutions. This is reflected in a net retention rate of >100% in most years (FY21: 120%, FY22: 103%, FY23: 95%, FY24: 104%). Contracts average 3-5 years and typically include renewal options. According to management, the company has never lost a re-tender. For example, they won a parking enforcement contract in Singapore in 2014 and all subsequent re-tenders, each time partnering with a different systems integrator.
Despite growing revenues at a CAGR of 20% since 2018, the company has been losing money every year due to high development costs. Shareholders have been massively diluted along the way. In FY23, management undertook a strategic review that resulted in cost cuts and a refocusing of the business on its most promising use cases. The results have been good. In FY24, revenues grew by 22% (adjusted for the discontinuation of the gaming business). Net loss was reduced by A$4.9M to A$1.7M.
So why invest now?
The company achieved its second consecutive quarter of positive free cash flow in Q1/FY25 - although very small (~A$0.2M) - which reduces dilution risk.
Management is confident that the current cost structure will be able to support future growth. They are targeting 25% revenue growth p.a. and only 3% increase in fixed costs p.a. With 75% of total costs being fixed, this should result in strong operating leverage. I expect net income of A$0.6M in FY25 and A$2.8M in FY26.
Revenue growth should accelerate through new channel sales partnerships. In 2022, the company has partnered with Gtechna to provide parking enforcement solutions, primarily in Canada. This has led to successful bids in 12 cities including Ottawa, Calgary, and Toronto. At the end of 2023, the company accounced a partnership with Blue Systems (subsidiary of Bolloré) to accelerate growth in the US market. Importantly, they won a contract with Sourcewell, a cooperative purchasing agency for local governments, allowing members to purchase Blue Systems’ Curb and Mobility Management Data Solutions directly, making the conversion of the sales pipeline (currently 20 US cities) easier and faster. I expect the first successful bids to be announced in 2025.
Scancam, a theft prevention and debt recovery solution for fuel retailers, has significant growth potential with ~6,400 fuel stations in Australia. It is currently in over 600 fuel stations, up from 250 at the end of FY22 and is being rolled out by major fuel retailers like Ampol, Caltex and BP.
Scancam benefits from a network effect: when an offender is detected at one station, all others are alerted, preventing repeat offenses. Therefore, the value of the product increases as more fuel stations adopt it, making it increasingly difficult for competitors to gain a foothold. Additionally, Scancam now integrates with existing CCTV systems (as opposed to a dedicated camera system), enhancing market acceptance.
I believe the company is worth at least A$0.069 per share, which implies net income of A$2.8M (13% net margin) in FY26 and an earnings multiple of 20x. I think this multiple is justified by the company’s growth rate, recurring revenues and transaction multiples.
Risks:
Dilution, dilution, dilution - either through acquisitions or contracts that require large, upfront equipment purchases.
Management has a history of over-promising and under-delivering.
The company still relies on R&D grants from the Australian government.
I own shares in SenSen Networks. This is not investment advice, just my personal, biased opinion. Always do your own due diligence.
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