CV Check Ltd (ASX:CV1) has retained its forecasts from RaaS Advisory, with the research house estimating $30.5 million in revenue (16% growth), $2.4 million EBITDA and $0.2 million free cashflow in FY23.
RaaS noted that CV1 is trading at a 53% discount to its average 2.9x CY22f EV/revenue relative to other US-listed SaV (Screening and Verification) pure plays (First Advantage, Sterling and HireRight).
While buy-backs should underpin the share price in FY23, key re-rating catalysts according to RaaS are: (1) Securing material new SaaS contracts; and (2) Evidence of automation-related gross/EBITDA margin expansion and operating leverage.
The following is an extract from the research update:
CV Check Ltd is a RegTech company providing workforce compliance monitoring and management technology and services (i.e. ‘Know Your People’ services). CV1 has released its FY22 results (which were in-line with our forecasts), annual report and results presentation revealing the following key new information: (1) FY22 P&L: $1.1m EBITDA (vs. $0.2m in pcp), $1.5m reported net loss, and $0.3m adjusted net loss*; (2) Revenue by product: 59% criminal history checks, 32% other checks and 9% Software-as-a-Service (SaaS); (3) Composition of Bright People Technologies (‘Bright’) $5.9m revenue: $4.2m from the legacy ‘Enable’ platform (54% SaaS/46% transactional) and $1.7m from the ‘Cited’ workforce compliance offering (11% SaaS/89% transactional); and (4) FY23 roadmap: “Continuing to Grow and Innovate at Scale” strategy with significant emphasis on growing SaaS revenue from Cited whilst also delivering enhanced product offerings and technology upgrades focused on automation and biometric identification (to reduce costs of current levels of manual processes and facilitate scalability). Our forecasts are unchanged and incorporate $30.5m FY23 revenue (16% growth with H2 skew), $2.4m EBITDA and $0.2m free cashflow (post $2.3m capitalised development). Nearer term (i.e. for Q1 FY23), we anticipate 8-10% revenue growth (vs. 6% in Q4 FY22), modest operating cashflow and ~$0.6m free cash outflow.
Business model
CV1 has two core offerings: (1) Screening and verification (SaV) services primarily via its CVCheck platform (91% FY22 revenue); and (2) SaaS (9% FY22 revenue) encompassing realtime workforce compliance monitoring and management delivered via its ‘Cited’ platform and workforce logistics solutions via its legacy ‘Enable’ platform. SaV services generate transactional revenue with fees charged per check on a PAYG basis. They are targeted at business, skewed to police checks, and somewhat leveraged to the employment market. For SaaS, customers (employers) pay a fixed monthly fee (plus transactional fees for SaV and other services). CV1 is now moving its Cited SaaS pricing to a simple monthly all-in fee per worker of $15-$30 (inclusive of transactional services, minimum 12-month subscription).
FY22 result: $1.1m EBITDA from $26.4m revenue
CV1’s FY22 results were in-line with our forecasts with key metrics of: (1) $26.4m revenue (up 51% on pcp with 27% organic/24% Bright acquisition split); (2) 63.6% gross margin (up 4.8 points on pcp); (3) $1.1m EBITDA and $3.1m operating cashflow; (4) $0.3m free cashflow; and (5) $12.2m cash (and net cash) balance. Bright delivered $5.9m revenue with 71% from its legacy Enable platform and 29% ($1.7m) from Cited. CV1’s FY23 focus lies in significantly growing Cited’s SaaS revenues, while concurrently delivering enhanced product offerings and technology upgrades with an emphasis on automation and biometric identity validation to remove manual process inefficiencies and provide scalability. CV1 has also activated its share buy-back which should serve to underpin the share price (with 961k shares bought back to date for $108k [of maximum $2m outlay/~4% issued shares]).
DCF valuation of $0.26/share or $113m market cap
Our CV1 DCF valuation remains unchanged at $0.26 per share (11.6% WACC). This implies EV/Revenue multiples of 3.8x for FY22 and 3.3x for FY23f. As a cross-check, CV1 is currently trading at a 63% discount to its ASX-listed peers on FY22 EV/Revenue (1.3x vs. 3.7x) including its closest peers [Xref (Xref Ltd (ASX:XF1)) at 3.1x and IntelliHR (intelliHR Ltd (ASX:IHR)) at 3.3x]. Relative to the USlisted SaV pureplays (First Advantage, Sterling and HireRight), CV1 is trading at a 53% discount to their average 2.9x CY22f EV/Revenue. While the buy-back should underpin the share price in FY23, key re-rating catalysts are: (1) Securing material new SaaS contracts; and (2) Evidence of automation-related gross/EBITDA margin expansion and operating leverage.