Contact Us

Email

simon.turner@dmxcorporation.com.au

Address

PO Box 916,
Milsons Point, NSW 1565

Online Enquiry

Please call me back
* Required fields
A fresh approach to value investing in
undiscovered, quality businesses.

4Q19  NANO-CAP UPDATE

 

With reporting for the 4th quarter of FY19 (April to June) now concluded, we look at four companies that had interesting 4C (Quarterly) Reports. These companies would appear to have some good momentum heading into FY20, and their progress could be worth keeping an eye on. 

 

Aeeris Limited (ASX:AER) Market cap: $10m  

 

We highlighted AER, the geospatial data aggregator, and provider of hazard alerts, in our previous nano-cap update, following its third quarter result.  Pleasingly, in 4Q19, AER reported another cash flow positive quarter, with receipts strongly up at $0.55m, and with year to date receipts of $1.8m. 

 

In our 3Q update we noted how AER had entered into a distribution arrangement with  channel partners Esri Australia Pty Ltd (ESRI) and its subsidiary MapData Services Pty Ltd (MDS), opening a large new distribution channel for AER. This opportunity is starting to take shape for AER, which enters FY20 with a potentially powerful new growth driver. In particular, AER noted that MDS had scheduled a marketing campaign to its clients in 2Q20 highlighting AER’s weather and lightning data services. Local governments across Australia will be targeted ahead of the extreme weather and fire season in Australia. In the meantime, AER continues to win new direct business for its Early Warning Network services in a variety of sectors.  

 

In FY19, AER has proven it can operate at breakeven with low double digit organic revenue growth, as it develops capabilities to grow and scale. In FY20, we will be looking for these initiatives to generate stronger revenue growth and for operating leverage to emerge. We continue to hold.   

 

Betmakers (ASX:BET) Market cap: $24m 

 

Betmakers provide racing data, analytics and trading solutions to racing industry participants. It has an attractive B2B model, however it has had a troubled past with their Global Tote initiative failing to get traction. Last year the company sold its retail betting brands and made two major acquisitions leaving the company heavily indebted and still loss-making. The company successfully recapitalised earlier this year, taking the pressure off the balance sheet while moving into profitability during the April quarter.   

 

The recent quarterly report saw the company EBITDA positive again with guidance of between $3.4mil and $3.7mil in EBITDA for FY20. The market took this news positively with the share price nearly double the 3c capital raise price earlier in the year. We were surprised given this is a downgrade from the $4m EBIT announced back in November 2018. We suspect the downgrade is due to the continued low activity on the Global Tote platform. 

 

We don’t own Betmakers but will monitor closely as we like the high quality B2B earnings and see real potential for growth from the company’s products. Given the poor track record, we are keen to see more runs on the board before investing.

 

Vault Intelligence (ASX:VLT) Market cap: $36m 

 

VLT, which designs software solutions in the risk and safety sector to manage and protect workforces, had an eventful month.   

At the start of the month, VLT confirmed it would meet its earlier guidance of $6m annual recurring revenues for FY19. This was achieved on the back of an exceptionally strong 4Q with a record $1.25m in annualised recurring revenue added in the quarter. VLT had been on our radar for some time, and we were somewhat surprised that it was able to meet its guidance. The fact that they did suggested some strong business momentum, and we took a small position on the back of this confirmation, with VLT trading on 3x ARR at the time of our entry. 

 

When VLT released its 4C later in the month, it reported a number of very encouraging metrics. Guidance for ARR for FY20 was given as a minimum of $10m (+67%), highlighting the acceleration in momentum in Q4 and significant pipeline growth.    Cash receipts were the highest level for any quarter with receipts totalling $1.62m.  Customer retention was particularly impressive - in excess of 98% for the quarter. 

 

The market responded well to this progress, with the VLT share price up ~100% for the month. We continue to hold.

 

                                              

Connexion Telematics (ASX:CXZ) Market cap: $20m

 

 

Connexion is a technology company specialising in developing and commercialising software apps and services for the web-connected car market.  

 

The company earned 100% of their revenue from a single customer (General Motors) in 2018. From what we can tell, this is still the case in 2019. We would like to see a broader customer base, but acknowledge that CXZ are embedding their software in GM’s vehicles and dealer business processes, so it will be hard for GM to extract themselves.   

With perhaps one of the best reports for the June Quarter, the company generated $910k in cashflows. Impressively, this has come from a backdrop of fast growing revenues, highlighting the capital-lite nature of the business. This growth is being driven by the rollout of their software to dealers for their dealer automation product, CTP, and the fleet management product, Commercial link. 

 

Even with the share price doubling on the 4C announcement, the company is valued below $20m and on the face of it still appears good value given the strong cashflow performance.  We don’t own CXZ, but the result has certainly given us a cue to look deeper.