TraceSafe - Wearable tech here to stay

Proactive Published 01/06/2021

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TraceSafe is an emerging leader in the growing market for health and safety wearables and the software that enables enterprises to customize and deploy these technologies. The company recently reported revenues for the first quarter (ended March 2021) and an update on pending revenue recognition from sales already booked. Including those booked sales, the company is already exceeding the full-year (FY) 2020 revenue total.

In addition, the company has reported several other important developments in recent months:

A two-year contract to provide integrated wearables for Fred. Olsen CruiseLines, which will be used to enhance the overall guest experience and comply with long-term CDC guidelines for COVID-related contact tracing.
A pilot program for use of wearables as a time-and-attendance tool, with a Canadian medical center. This is an example of a customer group that was an early adopter (contact tracing in healthcare) now examining broader uses of the wearable technology.
An agreement with a Fortune 500 company for wearables to be deployed across their 60,000-strong global workforce.
The award for Internet of Things at the Singapore Business Review awards in April 2021 for the SafeSite system from TraceSafe, which has been deployed in Singapore at construction sites and other workplaces.

Based on the visible prospective revenue near term, and the overall commercial momentum during the first half, we have increased confidence in our FY 2021 revenue forecast (unchanged).

On track for strong revenue growth FY 2021

During H2 we believe there are many potential catalysts for a valuation re-rating for the stock price, including:

Further large orders building on the presence that has been established in key sectors including cruise lines and healthcare.
An increasing level of Software-as-a-Service (SaaS) revenue to follow through from hardware sales achieved during H1. We expect this to favourably affect the profitability of the company as well as driving additional revenue as one-time revenue transitions into recurring revenue.

Going forward, we believe it would also be logical for TraceSafe to consider evolving from SaaS to Platform-as-a-Service, effectively allowing clients to customize their own system using application program interfaces (APIs) provided by TraceSafe. This could serve to expand the addressable customer base and further accelerate revenue growth. An analogue for this would be the growth strategy used by Twilio (NYSE:TWLO) in the cloud-based communications space.

The current market cap represents a multiple of 1.1x revenues based on our 2021e forecast. We argue that this leaves substantial headroom for the shares to rerate during 2021e if TraceSafe continues to deliver on its growth strategy.

Outlook and stock price

Year end Dec 31 · 2020 · Current · 2022 · 2023

Revenue (US$M) · 3.6 · 18.0 · 44.5 · 49.0

EBITDA (US$M) · (4.7) · 1.6 · 6.9 · 7.5

The following tables summarize our financial forecasts for TraceSafe:

Financial forecasts

Income Statement