SenSen Networks Ltd (ASX:SNS, OTCQB:SNNSF) has delivered “accelerating growth” over the 2022 financial year, with operating results reflecting continued investments to support the company’s rapid, ongoing vertical and geographic expansion, according to a report by Edison Research.
The analyst forecasts substantial growth through FY2024, enhanced by the company’s growing annual recurring revenue (ARR) and recent contract wins.
Edison believes that SenSen’s shift to a ‘pragmatic SaaS’ model will boost margins and that the company’s growth potential is underappreciated in the market.
Following are excerpts from Edison’s research report:
FY22: Stabilising the operating cost base
SenSen reported accelerating growth in FY22, with revenues up 65% to A$9.1 million, topping a 47% increase in FY21.
All three segments rose year-on-year, including Smart Cities up 22% and Gaming climbing 14%.
The company’s investments contributed to an operational loss of A$11.9 million (versus A$2.8 million in FY21) with half (A$6.6 million) from non-cash or one-off expenses.
To offset this, management took several actions to rationalise expense levels and expects the cost base to be ‘now largely fixed and not expected to materially increase in the near term'.
SNS closed FY22 with A$3.9 million in net cash, supported by record cash collections and several
equity raises.
Higher-margin SaaS revenue underpins outlook
SenSen continued transitioning to a ‘pragmatic SaaS’ model that generates higher-margin recurring revenues.
SenSen reported ARR ‘closing in on A$8 million’, boosted by recent contract wins and almost doubling FY21’s A$4.1 million.
While we recognise that ongoing macro events and rising inflation could have an impact on SenSen’s growth trajectory (so we tweak our forecasts down slightly), growing ARR and recent contract wins should support significant revenue growth of 70% in FY23e and 50%+ in FY24e.
We foresee margin expansion as business won in FY22 shifts from initial low-margin hardware/setup to higher-margin, ongoing licence revenues.
Valuation: Not reflecting potential growth
SenSen’s shares are trading down 51% year-to-date and at a 2.0x FY24e price/revenue multiple.
Considering that revenues are forecasted to grow much faster than peers, the valuation does not seem to reflect SNS’s potential growth.
Using an average peer multiple of 4.2x FY24e price/revenue implies a A$0.15 share price, double SenSen’s trading level.
If SenSen continues its momentum of customer wins across multiple geographies and verticals, we expect there could be a reduction in the gap.