CV Check Ltd (ASX:CV1) continues the financial year with strong growth, outlined in a flash quarterly update to market on its revenues and the outlook for its employment screening and software-as-a-service (SaaS) products. This has led to its latest 'Buy' recommendation.
Robust demand
In its recent valuation report, Shaw and Partners pointed to healthy tailwinds for the company, which the broker attributed to increased regulatory factors in pre-employment screening, including COVID-19 vaccination checks.
Also positive for the company is an unprecedented demand for Cited, the company’s SaaS-based real-time compliance monitoring product.
With A$1.2 million in SaaS revenues for the first half of the financial year, the company is set for fairly flat half-on-half revenues, but its significant pipeline for Cited gives Shaw and Partners considerable confidence of strong growth on the other side.
Recommendation
CV1 continues to deliver significant growth and demonstrates robust demand for its core pre-employment screening and SaaS products. The group continues to trade at a significant discount – around 60% – to its peers, with upside potential on SaaS penetration, ongoing acceleration in pre-employment screening revenues and further merger and acquisition activity. On these grounds, the broker backs a continued ‘buy’ recommendation.
Revenue
Revenue looks roughly as expected – at A$6.5 million, up 83% year-on-year and 3% quarter-on-quarter – in line with Shaw and Partners’ estimate of $6.8 million. Quarters three and four are seasonally stronger for the group and represent 60% of total revenue in the 2021 financial year.
“We forecast revenues of A$13.9 million in the second half of 2022, which would translate to 52% of total 2022 revenue,” the report said. "On this basis and notwithstanding COVID related impacts and employment activity, we see upside risk to our estimates if seasonality trends hold in the 2022 financial year.”
Cross-sell and SaaS opportunity
In December 2021, the broker noted that CV1 has an opportunity to cross-sell its Cited workforce management modules to relevant enterprise and business customers, which represented an estimated A$3 million to $9 million annual SaaS opportunity based on up to 10% market penetration.
Since then, the company has indicated there is 'unprecedented demand' for the product, so the forecast could be for stronger-than-anticipated growth.
Robust cash collection and cash balance
Cash receipts for the quarter tracked ahead of revenues at A$8.3 million (up 35% year-on-year), which implies strong cash collections at 128% of revenues. This translated to a final cash balance of A$12.2 million for the calendar year – healthy considering the group is now cashflow positive – and included A$1 million for a one-off payment related to the finalisation of its acquisition of Bright People Technologies.
Significant discount compared to peers
The company is trading on 2.3x sales for the current financial year, which is around a 60% discount to peers. “We expect CV1 to deliver outperformance in 2022 driven by increased penetration in its SaaS compliance monitoring products, which are becoming increasingly relevant given regulatory scrutiny and complexity in the Covid environment," the report said.