SenSen Networks Ltd (ASX:SNS, OTCQB:SNNSF) has received a valuation of A$0.18 from Edison Investment Research, implying an upside of 50% from the current share price of A$0.12.
Edison sees SenSen building on its momentum across multiple verticals and geographies, with revenues forecast to grow at a 65% CAGR from FY21 (A$5.5 million) to FY24e (A$25.0 million).
The following is an extract from Edison’s initiation report:
SenSen (SNS) is an Australian-based company that applies artificial intelligence (AI) to problems that involve monitoring physical spaces. Its SenDISA product platform fuses together data from multiple sensors in real time, extracts what is relevant and then uses AI to help customers reduce costs and increase revenues. SenSen’s ongoing transition to a ‘pragmatic SaaS’ model with higher-margin recurring revenues, the Scancam acquisition and Land Grab strategy should help maintain its recent momentum of contract wins across multiple geographies and verticals, which we expect could lead to a reduction of the valuation gap.
H122: Scancam acquisition and new contracts
SenSen reported A$3m revenues for H122, up 19% versus H121’s A$2.5m, primarily due to the Scancam acquisition. Annualised recurring revenue (ARR) rose to about A$5.3m in H122 from FY21’s A$4.1m. Notable were eight new contract wins with a minimum value of A$4.8m that will be recognised over the next few years. In its recent trading update, SenSen revised its FY22 revenue guidance to A$9.0–9.5m from A$11m, mainly due to the impact of flooding in Australia.
Fast-growing, global AI market: US$126bn by 2025
SenSen operates in the fast-growing, global AI market, which is expected to expand at about a 43% CAGR and reach US$126bn by 2025 (source: Tractica). As it executes its ‘Land Grab’ strategy, SNS should benefit as AI is increasingly used in verticals that involve monitoring physical spaces and as it expands its business across multiple geographies, including the Americas, Australia and New Zealand.
Building on its momentum across multiple verticals and geographies, we forecast SenSen revenues to grow at a 65% CAGR from FY21 (A$5.5m) to FY24e (A$25.0m). We forecast FY22 revenues to rise 69% to A$9.3m from FY21, then grow 76% in FY23 to A$16.4m. To fund its growth, SenSen raised A$10m via private placements in late 2021. We expect net income (reported) and free cash flow (including leases) to turn positive in FY24, reaching A$0.7m and A$3.1m, respectively.
Valuation: Higher growth should reduce the gap
SenSen is trading at 4.8x price/revenue for FY23e, a significant discount to its peers despite SNS’s higher forecasted growth rates. Using the average peer multiple of 7.2x price/revenue for FY23e implies a share price of A$0.18 or upside of 50%. If SenSen can maintain the momentum in new customer wins and success across geographies and verticals, we expect there could be a reduction in the gap.