SenSen Networks Ltd (ASX:SNS, OTCQB:SNNSF) reported another quarter of record cash receipts, growing 109% year-on-year to A$1.7 million in the third quarter of 2022, which leads Edison Investment Research to expect an increase in the company’s value.
The artificial intelligence company’s 'land and expand' strategy generated contract wins with significant portions of higher-margin recurring revenues, resulting from its transition to a ‘pragmatic software as a service (SaaS)’ model.
“Reduction of valuation gap”
Monthly recurring revenue (MRR) remains on track to reach A$650,000 to A$700,000 by the end of the financial year and Edison maintains its current forecasts, saying in a report: “If SenSen can sustain this recent momentum of contract wins across geographies and verticals, we expect that it could lead to a reduction of the valuation gap.”
Record cash receipts for quarter
SenSen reported another quarter of record cash receipts, bringing in A$1.7 million in the March quarter and growing 109% year-on-year and 12% on the December quarter.
The company is also trimming its expenditure, with net cash used in operations improved to A$2.1 million versus the previous quarter’s A$3.2 million.
This was targeted, with SenSen implementing cost-saving initiatives with the goal of reducing operating expenses by 10%. The cash balance fell by A$2.4 million as SenSen continued investing in sales and marketing.
'Land and expand' rolls on
SNS’s 'land and expand' strategy continued to generate contract wins, including with Brisbane City Council and Toowoomba Regional Council.
Brisbane City Council ordered four additional vehicles for automated parking enforcement using SenSen’s AI solutions, bringing the client’s total to 11 systems.
This contract was for A$278,000 upfront and a minimum of A$280,000 per annum in recurring fees.
These contract wins contributed to SNS’s continuing growth in MRR.
Back on schedule after flood delays
The recent floods in Australia delayed the rollout of projects and contracts, leading SNS to revise its guidance for the 2022 financial year. Management now reports that revenues are picking up and project rollouts are back on track, as they continue to recover from the floods.
No expected orders or contracts were lost, with only the timing of revenue recognition delayed to the 2023 financial year.
Still undervalued compared to peers
“SenSen is trading at 3.2 times price/revenue for FY23e, a significant discount to its peers despite SNS’s higher forecasted growth rates,” said Edison’s report. “Using the average peer multiple of 7.4xFY23e price/revenue implies a share price of A$0.19 or upside of 132%.”
“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.”