They say you should build when the market is down. One company taking that axiom to heart is Ondo InsurTech PLC (LSE:ONDO).
Ondo, if you didn’t guess by the name, is an insurance technology company and the creator of a cute little gadget called LeakBot.
LeakBot’s household leak-detection capabilities have opened the floodgates to a raft of commercial partnerships for Ondo, with insurance, and, increasingly, water utilities companies deploying the device to their extensive customer bases.
Since going public in March 2022, Ondo has inked major deals with leading insurance carriers, including Admiral and Hiscox in the UK, plus two prominent UK water companies, Southern Water and Portsmouth Water.
Southern Water is set to introduce LeakBot to over 1,000 customers in an upcoming pilot, aiming to replicate the impressive 60% reduction in water leaks achieved in the Portsmouth Water trial.
Ondo has also partnered with Waterwise, a leading water efficiency organisation, to promote leak-preventing technologies.
Internationally, Ondo has penned a five-year deal with Länsförsäkringar Trygghetstjänster, Sweden's largest non-life insurer, introducing LeakBot to its two million customers.
Additionally, a proof-of-concept pilot with Firemark Collective, the innovation arm of IAG, Australia's largest general insurer, is in the works.
LeakBot expanded its reach into US via a go-to-market partnership with global business process management company WNS in April.
Further expanding its reach, Ondo recently announced a strategic partnership with US-based PURE Insurance. This collaboration aims to distribute the LeakBot system to select PURE members, enhancing risk management and reducing preventable claims.
Quite a busy contract-signing schedule packed into the first seven months of 2023.
But why is LeakBot causing such a buzz?
Firstly, the scale of the problem Ondo wants to fix with LeakBot is formidable.
In the US, over one trillion gallons of water are lost to leaks every year. Water damage claims comprise 28% of insurance claims paid, topped only by weather incidents.
In the UK, that figure is closer to 30%, making water damage the number-one source of claims paid.
Independent research conducted by insurance benchmarking firm Consumer Intelligence on 43,000 LeakBot devices deployed by nine UK carriers showed a 39% reduction in water claims frequency and a 51% reduction in severity.
Claims cost per policy fell 70%, from US$209 to US$63, suggesting an average US$146 saving on homeowners’ policies.
LeakBot achieves these results through the use of highly sensitive heat sensors that detect when a house’s main pipe is delivering water when it shouldn’t.
There are other leak detectors on the market, but they are generally expensive and require professional installation. LeakBot, on the other hand, is relatively cheap to produce and user-friendly.
LeakBot makes educated guesses as to what are and aren’t leaks by deploying algorithms that track a household’s average usage throughout the day in order to detect anomalies.
This is primarily useful for detecting micro leaks that actually cause the vast majority of water damage to a home, for which Ondo sends out a team to find and fix the leak.
LeakBot: A short history
This novel, patented approach was developed through an innovation lab headed by Ondo’s chief executive Craig Foster during his time at home-maintenance corporation HomeServe.
When HomeServe agreed to be taken private by Brookfield Asset Management (TSX:BAM.A), the innovation lab was spun out into Ondo InsurTech.
“I never in a million years thought we’d end up as a listed entity,” Foster reflected.
Yet, through a reverse merger with special purpose acquisition company Spinnaker Acquisition, Ondo became one of the first insurtech groups to list on the London Stock Exchange.
It took Foster a lot of convincing to take his group public, and given the SPAC market effectively crashed right after Ondo’s IPO, Foster’s reservations seemed to be vindicated.
In his words: “We came on the market, the market crashed, and we lost 50% of the market cap(italisaion) immediately.
“I was a bit naive, I thought, ‘we have a great product with a massive addressable market and a really great pipeline of news’... But it was actually nine months of new things we were signing and literally, it was tumbleweed”.
The same cannot be said for Ondo’s share price in 2023.
Ondo pulls ahead in 2023
Ondo’s market cap has shot up fivefold in 2023, from just £5 million to more than £26 million today, due to the raft of new partnership announcements, in particular the WNS roll out.
Some may put Ondo’s shares in the overbought category given such a sharp rally, especially considering that, despite what are some pretty impressive-sounding partnerships, revenues in the last financial year ending 31 March 2023 were only around £2.1 million.
But, as sponsored research from Bloom Analytics notes, Ondo’s recent deal with Länsförsäkringar is estimated to bring in £30 million in revenues over the next five years on a 40% margin. And that’s just one customer.
Revenues are predicted to increase tenfold in the coming five years, though Bloom did concede that it will take a multi-year development timeline for Ondo to become cash flow positive.
If LeakBot continues to charm large-scale clients like it has this year, and if Ondo is able to convert its multitude of pilot programmes into healthy recurring revenue streams, then one gets a feeling that there is still time to buy into Ondo while the market is still down.