Envirosuite Limited
EVS Details
Envirosuite Limited (ASX: EVS) is an environmental technology company offering Software as a Service (SaaS) and solution as a service in managing and mitigating environmental impacts.
Material Business Update
- Q1FY21 Operational Update: Total new sales were registered over $4 million. ARR increased by 42% PcP and added $1.7 million. Total ARR for the period stood at $48.6 million. EVS Water has made a significant market entry with SeweX, one of Australia’s largest water utilities. Churn rate stands at ~2% on TTM basis.
FY21 Financial Performance
- Significant Uprise in Top-Line: In FY21, statutory revenue inclined to $48.6 million, up by 104% YoY and client sites increased to 13.4% YoY and stood at over 373. ARR jumped 8.1% YoY and was registered at $46.5 million. Momentum was built by new product launches and successful capital raising programs.
- Bottom-Line Approaching Positive Territory: Adjusted EBITDA stood at a loss of $4.5 million, manifesting a recovery of 56% YoY. Gross profit margins improved to 42.4% relative to 36.8% in prior year. NPAT stood at a loss of $12.497 million, a positive movement of 32% YoY. Improved operating matrices were primarily driven by significantly reduced operating expenses to 66% of revenue (107% PcP) and 104% incline in top-line.
- Financial Position: As of 30 June 2021, cash position stood at $17.640 million relative to $24.385 million as of 30 June 2020, primarily driven by eased financing activities. Trade and other payables and provisions decreased to satisfy the final settlement of EMS acquisition and payment terminations connected with cost-out initiatives.
Improving Operating Metrices; Analysis by Kalkine Group
Key Risks and Challenges
The company is exposed to variety of financial risks, mainly related to credit, liquidity, and currency risk. The time horizon and severity of COVID-19 infection primarily in the airport industry also remains a challenge. Further, working in technology space, EVS holds high risk of obsoletion and potential cyber-attacks.
Outlook
Currently EVS is focusing on sales development, ramping of resources, and market opportunities in the US where the company expects strong upside potential. Further, EVS is focused on scaling up business horizon by utilizing cloud infrastructure.
Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)
Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group
*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.
Stock Recommendation
The stock of EVS gave a positive return of ~25.684% in the past six months. The stock is currently trading higher than the 52-weeks’ average price level band of $0.087 - $0.237. The stock has been valued using the EV/Sales multiple-based illustrative relative valuation method and arrived at a target price low single-digit downside (in percentage terms). The company might trade at a slight discount to its peers, considering niche market operations and potential threat of COVID-19 uncertainties. For valuation, few peers like Urbanise com Ltd. (ASX: UBN), Nearmap Ltd (ASX: NEA), Iress Ltd (ASX: Iress Ltd) have been considered. Considering the current market conditions, potential competition, comparatively high losses, risk of niche markets and frequently changing technologies, current trading levels, key risks associated with the business, and downside indicated by valuation, we suggest investors to book profit and give a “Sell” recommendation on the stock at the market price of $0.1875, as of 08 October 2021, 10:54 AM (GMT+10), Sydney, Eastern Australia.
EVS Weekly Technical Chart, Data Source: REFINITIV
Note 1: The reference data in this report has been partly sourced from REFINITIV.
Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above.
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