SenSen Networks — Multiple contract wins across all four verticals

SenSen Networks (ASX: SNS)

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Research: TMT

SenSen Networks — Multiple contract wins across all four verticals

SenSen continued its run of record quarterly cash receipts, which rose 128% y-o-y and 117% q-o-q to A$3.7m. Notably, the company secured contracts worth at least A$3.8m across all four business verticals and multiple geographies. These wins provide recurring, higher-margin revenues, boosting annualised recurring revenue (ARR) towards c $8m as it made solid progress in transitioning to a ‘pragmatic SaaS’ model. The results support our estimates and if SenSen continues this trend of growing ARR and winning contracts across multiple verticals and geographies, we believe it could reduce the valuation gap versus peers.

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TMT

SenSen Networks

Multiple contract wins across all four verticals

Q422 cash flow update

Software and comp services

25 July 2022

Price

A$0.08

Market cap

A$52m

US$0.69/A$

Net cash (A$m) at 30 June 2022 (estimated, including leases)

3.5

Shares in issue

650.3m

Free float

45%

Code

SNS

Primary exchange

ASX

Secondary exchange

OTCQB

Share price performance

%

1m

3m

12m

Abs

8.3

(32.2)

(40.0)

Rel (local)

3.2

(24.9)

(34.5)

52-week high/low

A$0.2

A$0.1

Business description

SenSen Networks, an Australian-based technology company, operates in the field of sensor artificial intelligence. By applying its SenDISA AI platform to physical space monitoring, it extracts real-time insights for customers. It provides solutions to customers in the smart city, gaming, retail and surveillance verticals.

Next events

FY22 results

September 2022

Analysts

Ken Mestemacher, CFA

+44 (0)20 3077 5700

Dan Ridsdale

+44 (0)20 3077 5700

SenSen Networks is a research client of Edison Investment Research Limited

SenSen continued its run of record quarterly cash receipts, which rose 128% y-o-y and 117% q-o-q to A$3.7m. Notably, the company secured contracts worth at least A$3.8m across all four business verticals and multiple geographies. These wins provide recurring, higher-margin revenues, boosting annualised recurring revenue (ARR) towards c $8m as it made solid progress in transitioning to a ‘pragmatic SaaS’ model. The results support our estimates and if SenSen continues this trend of growing ARR and winning contracts across multiple verticals and geographies, we believe it could reduce the valuation gap versus peers.

Year end

Revenue (A$m)

Adj EBITDA*
(A$m)

PBT**
(A$m)

EPS**
(c)

P/sales
(x)

Net cash/
(debt)*** (A$m)

06/20

3.8

(2.8)

(3.7)

(0.85)

13.5

0.7

06/21

5.5

(2.2)

(2.9)

(0.61)

9.2

3.9

06/22e

9.3

(8.1)

(11.6)

(1.99)

5.4

3.5

06/23e

16.4

(3.3)

(5.6)

(0.85)

3.1

(0.7)

Note: *Adjusted EBITDA excludes non-cash share-based payments. **PBT and EPS are normalised, excluding amortisation of acquired intangibles, other income and exceptional items. ***Net cash/(debt) is cash less debt and leases.

Q422: Another record quarter of cash receipts

SenSen reported yet another quarter of record cash receipts of A$3.7m, growing 128% y-o-y and 117% q-o-q. Net cash used in operating activities was A$1.3m, down from Q322’s A$2.1m, as the higher cash receipts offset ongoing investments. We estimate that SenSen will end FY22 with A$3.5m in net cash (including leases), due to cash receipts, ongoing cost reduction efforts and a A$1.5m draw on the working capital facility, expected by management to be paid back in October 2022.

Contracts worth at least A$3.8m across all verticals

The company’s successful ‘land and expand’ strategy continued driving growth, with contract wins in Q422 worth a minimum of A$3.8m from FY23 across all four of its business verticals and multiple geographies. The wins include a new five-year contract with City of Adelaide for mobile parking enforcement, rolling out its SenGAME solution to an additional 135 tables at Solaire Casino, and a three-year contract with Vibe Petroleum at an initial 26 sites for its fuel theft reduction solution. Notably, these contract wins grew SenSen’s ARR towards A$8m.

Valuation: Undervalued versus slower-growing peers

We have adjusted our forecasts to account for the increased short-term borrowings, likely higher COGS and opex due to inflation, and quarterly cash flows, moving the FY22e EBIT from A$10.2m loss to A$12.0m loss, and FY22e normalised EPS from a 1.67 cent loss to a 1.99 cent loss. SenSen trades at 3.1x price/sales for FY23e, a significant discount to its peers despite the company’s higher expected growth rates. Using the average peer price/sales multiple of 4.9x FY23e suggests a share price of A$0.12, a potential upside of 55%. If SenSen can maintain its momentum in new customer wins and success across geographies and verticals, we expect there could be a reduction in the gap.

Exhibit 1: Financial summary

A$000s

2020

2021

2022e

2023e

2024e

Year end 30 June

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

3,764

5,533

9,338

16,417

24,940

Cost of Sales

(997)

(2,030)

(3,600)

(4,763)

(5,907)

Gross Profit

2,766

3,503

5,738

11,654

19,034

Other Income

1,539

2,807

3,000

3,300

3,630

Oper. Expense (not incl. share-based payments)

(7,567)

(9,112)

(18,006)

(19,626)

(21,558)

Share-based payments (non-cash)

(290)

(72)

(2,800)

(1,500)

(1,000)

EBITDA

(2,807)

(2,243)

(8,140)

(3,267)

2,520

Operating Profit (before amort. and except.)

(3,534)

(2,785)

(11,390)

(5,495)

783

Intangible Amortisation*

-

(83)

(675)

(675)

(675)

Exceptionals

(18)

(6)

(3)

(2)

(2)

Operating Profit (EBIT)

(3,552)

(2,874)

(12,068)

(6,172)

106

Net Interest

(138)

(142)

(163)

(98)

(98)

Other

-

-

-

-

-

Profit Before Tax (norm)

(3,672)

(2,927)

(11,553)

(5,594)

684

Profit Before Tax (reported)

(3,690)

(3,016)

(12,231)

(6,270)

8

Tax

(15)

(6)

(73)

(38)

(2)

Other

-

-

-

-

-

Profit After Tax (norm)

(3,687)

(2,933)

(11,626)

(5,631)

683

Profit After Tax (reported)

(3,705)

(3,022)

(12,305)

(6,308)

6

Average Number of Shares Outstanding (m)

436

484

584

664

683

EPS - normalised (c)

(0.85)

(0.61)

(1.99)

(0.85)

0.10

EPS - reported (c)

(0.85)

(0.62)

(2.11)

(0.95)

0.00

Dividend per share (c)

-

-

-

-

-

Gross Margin (%)

73.5%

63.3%

61.4%

71.0%

76.3%

EBITDA Margin (%)

N/A

N/A

N/A

N/A

10.1%

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

N/A

N/A

N/A

N/A

3.1%

BALANCE SHEET

Fixed Assets

790

2,168

9,284

8,444

7,595

Intangible Assets

-

1,300

8,303

7,628

6,953

Tangible Assets

353

391

505

340

166

Other

437

477

476

476

476

Current Assets

4,706

8,022

9,871

6,160

7,526

Stocks

803

241

875

875

875

Debtors

744

979

960

960

960

Cash & cash equivalents

2,463

5,176

5,840

2,129

3,495

Other

696

1,625

2,196

2,196

2,196

Current Liabilities

(4,498)

(3,640)

(7,244)

(10,924)

(10,516)

Creditors

(1,095)

(750)

(1,500)

(2,500)

(2,700)

Short term borrowings

(1,313)

(861)

(1,894)

(2,394)

(1,394)

Lease Liabs

(235)

(306)

(300)

(300)

(300)

Other

(1,856)

(1,723)

(3,550)

(5,730)

(6,122)

Long Term Liabilities

(276)

(244)

(1,977)

(1,426)

(879)

Long term borrowings

-

-

-

-

-

Lease Liabs

(197)

(138)

(138)

(138)

(138)

Other long term liabilities

(79)

(106)

(1,839)

(1,288)

(741)

Net Assets

721

6,305

9,933

2,254

3,725

Minority Interests

-

-

-

-

-

Shareholder equity

721

6,305

4,745

2,254

3,725

CASH FLOW

Operating Cash Flow

(2,884)

(3,250)

(7,793)

(6,049)

3,030

Net Interest

(42)

(127)

(72)

(98)

(98)

Tax

(101)

(31)

(247)

(38)

(2)

Capex

(100)

(253)

(300)

(300)

(300)

Acquisitions/disposals

-

-

(1,127)

-

-

Equity financing

3,329

7,043

9,644

2,538

-

Dividends

-

-

-

-

-

Other**

288

(667)

559

236

(1,264)

Net Cash Flow

490

2,714

664

(3,711)

1,366

Opening net debt/(cash) w/o Leases

(648)

(1,150)

(4,315)

(3,946)

265

HP finance leases initiated

-

-

-

-

-

Exchange rate movements

-

-

-

-

-

Other

12

451

(1,033)

(500)

1,000

Closing net debt/(cash)

(1,150)

(4,315)

(3,946)

265

(2,101)

Closing net debt/(cash) w/ Leases

(718)

(3,871)

(3,508)

703

(1,663)

Source: SenSen, Edison Investment Research. Note: *Amortisation of acquired intangibles (patents). **Includes repayment of leases, proceeds from/repayment of borrowings, etc.

General disclaimer and copyright

This report has been commissioned by SenSen Networks and prepared and issued by Edison, in consideration of a fee payable by SenSen Networks. 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 2022 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 SenSen Networks and prepared and issued by Edison, in consideration of a fee payable by SenSen Networks. 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 2022 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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