Vault Intelligence Limited

VLT Details

Damstra Holdings Offers to acquire Vault Intelligence: Vault Intelligence Limited (ASX: VLT) provides cloud based and mobile environmental, health and safety risk software. As on 08 July 2020, the market capitalization of the company stood at ~$43.52 million. The company recently announced that it has entered into an implementation agreement with Damstra Holdings Limited, wherein Damstra will acquire 100% of issued capital in Vault Intelligence by way of a scheme of arrangement. Under the scheme, Vault shareholders will receive 1 share in Damstra for every 2.9 Vault shares, valuing VLT at an implied 46.4 cents per share. This offer represents a 36.5% premium to undisturbed VLT closing price. On completion, existing Damstra shareholders will own approximately 75% of the merged group on completion.

Strategic Rationale: The Acquisition will create a more diversified company of greater scale with an expanded and complementary product range. The merged entity will accelerate product innovation, including fever detection, facial recognition, remote, mobile, and lone workforce solutions. This expanded product suite is likely to enable fast tracking of opportunities in the current uncertain environment, within Australia and in international markets.

Financial Update: During FY20, the company has seen a significant growth totaling to $5.1 million contracted annual recurring revenue (CARR). The company ensured the progress of key contracts which delivered cash & revenue through Q4. Despite the uncertain economic environment due to the global pandemic, the company saw a significant generation of opportunities with large volume-based demand.

Growth in CARR (Source: Company Reports)

Key Risks: The main financial risks that arise in the normal course of business are market risk, credit risk and liquidity risk. The company is also exposed to foreign exchange risk, arising from commercial transactions.

Future Expectations: Post the acquisition, client numbers are likely to increase to 850 from 500 and user numbers are expected to go up to 550k from 400k. The acquisition is likely to create an attractive financial profile with combined revenue guidance of $33 million to $35 million in FY21. The company also expects to generate $4 million of annual run-rate synergies and increased scale and market relevance. Based on Vault and Damstra’s current cash on balance sheet, cash after completion of the transaction is expected to be in the range of $13 million to $15 million. The Acquisition is expected to complete in November 2020.

Stock Recommendation: Vault has developed an exceptional product. However, the company is in a nascent stage with limited resources. Through the Scheme, Vault will become part of Damstra and will be able to utilize Damstra’s scale and channels to accelerate sales and revenue growth. As per ASX, the stock of VLT gave a return of 65.85% in the past one year and a return of 36% in the past one month. The stock is also trading close to its 52-weeks’ high level of $0.540. On Trailing Twelve Month basis (TTM), the stock of VLT is trading at a price to book value multiple of 6.3x, higher than the industry median (Healthcare Equipment & Supplies) of 3.5x, and thus, seems overvalued. Considering the current trading levels, attractive returns in the past one year, acquisition of the company by Damstra and outcome of economic impacts given the COVID-19 pandemic scenario, we suggest investors to book profit on the stock and recommend a ‘Sell’ rating at the current market price of $0.410, up by 20.588% on 8 July 2020, owing to the recent release of scheme of arrangement with Damstra.  

VLT Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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