Company Overview: EnviroSuite Limited, formerly Pacific Environment Limited, is engaged in environmental consulting and technology services. The Company focuses on providing environmental consulting, monitoring, predictive management and automated reporting solutions from Australasia to the Americas and Europe. The Company's EnviroSuite is a proactive environmental management system that combines real-time monitoring and predictive modelling with high-resolution weather forecasting and automated data analysis. EnviroSuite gathers real-time data from multiple sources into a single repository, providing display, instant analysis, automated reporting and alerts. The Company's services include Air Quality and Meteorology, Ambient and Fugitive Monitoring, Auditing Services and Carbon Management, Groundwater Monitoring and Assessment, Landfill Gas Monitoring and Assessment, Acoustic Consulting, Odour Assessment, Phytocapping Landfill Technology, Solid Waste Management, Contaminated Land Assessment.


EVS Details

Envirosuite Ltd (ASX: EVS), formerly known as Pacific Environment Limited, is engaged in providing environmental consulting and technology services through an array of software suites for risk management, incident intelligence, impact modelling, environmental compliance, source identification, blast management, and environmental intelligence. The group is known to engage with big players such as port operators, oil refineries, etc. and has been gearing up for an expanding footprint across Australia, New Zealand, North America, Latin America, Europe, the Middle East, and Asia. With higher Annualised Recurring Revenue (ARR) and improvements in other financials over the next couple of years, EVS is targeting to be cash flow positive within next 24 months. The ROE is expected to improve from current levels. The sales strategy is reaping benefits and the group further aims to double ARR again over the next 12 months with focus on growing its partner sales channel. There can be a boost from the projects that may emanate through its association with the National Aeronautics and Space Administration (NASA) in the U.S. Group’s earnings are thus expected to touch positive zone in next 2 years and this gives an upside to the prevailing price.


Key Metrics (Source: Company Reports and Thomson Reuters)

Secured a significant upgrade order from Carbones del Cerrejon: EVS stock moved up after securing a significant upgrade order from Carbones del Cerrejon (‘Cerrejon’), which is a joint venture owned by BHP Billiton, Glencore and Anglo American. Cerrejon mine is the biggest coal mine in Latin America and the 10^th largest coal mine in the world. EVS has received a purchase order (PO) for two additional solutions (Blasting solution and Water Monitoring solution) along with associated equipment and installation and maintenance services. The total purchase order value is approximately $600,000, that includes an incremental recurring revenue fee of approximately $160,000. During the past two years, EVS had supplied the JV’s mine and port facilities with environmental compliance and risk management solutions. These systems have helped Cerrejon manage the compliance performance and the risk of dusk and air pollution at the mine and the port it transports coal to for export.

Cerrejon operates as an integrated facility that comprise of a large, open cut coal mine, a railway to transport coal to its port, and a port for exporting coal. Through the water management system, EVS will help to manage water quality and mine run-off in real time. EVS’ blasting solution Cerrejon commissioning will help the miner simulate and manage the environmental impact of blasting activities, as it focuses on ground vibration, flyrock and airblast overpressure. Moreover, EVS has established a Colombian entity and is investing in a local office to offer better service to Cerrejon and other local mining companies. The company will address the Latin American mining market from both its Chilean and Colombian offices. Additionally, through EVS’ cutting-edge environmental solutions, Cerrejon will be able to meet its increasing regulatory commitments and will improve its relationship with the community through improved management processes. Through the EVS platform, the mining operations will be able to use predictive models to underpin the planning of blasting activities, as well as monitoring equipment to measure any potential impacts during the blasting events. This will ultimately assist the mine to meet its new regulatory requirement for its operational licence which mandates that blast monitoring equipment and a management system be adopted.


Key Capital Raise Statistics (Source: Company Reports)

Fund raising for growth:  EVS is raising $10m in two tranches at $0.075 per share from the issue of a total of 133,333,334 fully paid ordinary shares. The funds raised will be used for operating and building on the sales teams for the company, appointments of key management personnel, for the marketing activities in key target geographic markets and industry verticals, development of the indirect sales channels, ongoing technology development associated with the Envirosuite platform, for making a provision for special opportunities that may include major new client wins and acquisitions and the costs associated with the capital raise and for general working capital purposes. EVS is targeting to be cash flow positive within 24 months. A portion of the funds raised will be used for International Expansion (about $1.6m), $1.1m for Key Employee appointments,  $3.8m for Software Dev & R&D, for Sales & Marketing $1.2m will be used, $1.8m will be allocated for Working Capital and $0.5m for Costs of Offer. Meanwhile, apart from the capital raise, Managing Director Robin Ormerod had agreed to sell a total of 4,800,000 of his existing ordinary shares at $0.075 per share to two other Directors of the Company. The Directors that have agreed to purchase the shares are the Chairman David Johnstone and Director Adam Gallagher.


FY 18 Financial Performance (Source: Company Reports)

Strong Performance in terms of Annualised Recurring Revenue in FY18: During FY18, the company has achieved the goal of doubling the Annualised Recurring Revenue (ARR) from $1.5 million to $3.0 million. In FY 18, Licence revenue rose 72% YoY, trading revenue for 2HY18 grew 197% on 1HY18 and majority of FY18 ARR was won in fourth quarter. This is expected to result in revenues in first quarter FY19.The number of Envirosuite Platform Subscriptions grew more than 100% in FY18. The company has cash at end of June 2018 of $3.65m. Moreover, during FY 18, EVS acquired Odotech, who was a competitor of Envirosuite in the wastewater sector. Further, the rate of wins had accelerated in the latter half of the FY 18, on the back of both the newly hired salespeople and the migration of clients acquired through Odotech. The company had ended the year with some very strong wins, including the biggest ever project, that comprises of a city-wide odour network for a Middle Eastern citystate, and migrations of two Chilean agricultural clients to the Envirosuite platform. The above in a way are expected to improve the group’s financials going forward.

Retirement of Key Personnel: EVS Group Co-Founder Mr Robin Ormerod has retired as Managing Director at the Company’s Annual General Meeting held on 28 September 2018. However, Mr Robin continues to be part of the executive team as the Chief Scientist with the aim to continue and strengthen the incorporation of relevant science into EVS’s platform. He is currently not having any  plans to sell any shares in the foreseeable future and, given the recent capital raise, any future sales would be to strategic investors or other members of the Envirosuite team. Meanwhile, now EVS board is looking for suitably qualified candidates to appoint at least one new nonexecutive Director in the near term.

Positive Outlook: EVS has a goal to double ARR from $3 million in FY19 to $6 million, and then double it again in FY20 to $12 million. In analysing the current Annualised Recurring Revenue (ARR), ANZ is still the biggest region by revenue, though the company expects this to change during FY19 and FY20, and expects that North America and Europe, the Middle East and Africa (EMEA) will be the biggest regions of the company’s growth and that they will become the regions for highest revenue. In the vertical sectors, the mining and waste & wastewater are having the most potential and the company expects this will continue with waste & wastewater growing considerably as the company is migrating the Odotech clients to the Envirosuite platform. Moreover, for FY 19, the company plans to secure a partnership with a multi-national supplier to the Wastewater sector. EVS has a goal to become established in at least two more major UK water utilities in 2019. The company is looking forward to win two major clients in the Oil and Gas sector, extend their platform functionality in the US Regulatory sector, gain traction in the Latin American mining sector, secure further city-wide clients in the Middle East and expand the existing client base in Australia and New Zealand.


Market Focus (Source: Company Reports)

Stock Recommendation: Meanwhile, EVS stock has risen 44.23% in three months as on October 11, 2018 to A$0.075. The stock has support at $0.061 level and resistance over $0.100. The gross proceeds of $10m raised across the two-tranche capital raising are projected to see the Group through to cash flow break-even over the next two years. The company now has active teams in Latin America, in both Santiago Chile and very recently established in Colombia to capitalise on the many mining opportunities in the region and assist in servicing existing clients. Together with the team members in Australia, Canada, USA, UK and Europe and the clients within these regions, EVS plans to become a global business with more people offshore than here in Australia. Based on the prospects and trading levels, we give a “Speculative Buy” recommendation on the stock at the current price of $ 0.076.
 

EVS Daily Chart (Source: Thomson Reuters)

 
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