Research update Risk Intelligence, Q4 2021: Initiatives seem to be bearing fruit

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Research update Risk Intelligence, 28 Feb 2022

Equity Research, Risk Intelligence

Risk Intelligence reported net sales of DKK 7.5 million for the fourth quarter, corresponding to growth of 12.7 per cent. Also, total recurring system revenue increased by 14.9 per cent. Sales activity is high. The company expects to sign 3-4 new clients on LandRisk Logistics during the first half of the year. This bodes well for the coming quarters. However, the company has lowered the average expected revenue for LandRisk Logistics clients. In a base case scenario, a fair value of DKK 9.3 (11.7) is calculated.

Well-established provider of risk systems expands its potential

Through its risk system, Risk Intelligence provides processed, analysed, and actionable risk intelligence with associated advisory services. The company is a well established supplier to the shipping as well as the oil and gas industry with prominent clients such as Maersk and the US Navy. In August 2021, the LandRisk Logistics application will be launched. The application covers the risk situation along roads, parking lots, cities, and hot spots (special exposed areas). This increases the market potential considerably, estimated by a factor of 40x.

The company has several revenue streams, the largest of which comes from recurring system revenue with long contracts and high scalability. The average annual growth rate over the last five years has been 13.5 per cent. This compares to an annual growth rate of 19.2 per cent over the last three years. In other words, growth is accelerating. In the coming years, we expect the maritime solution to continue to grow at a rate of over ten per cent per year. However, we expect that the new application, LandRisk Logistics, will take growth rates to an even higher level and lift the average revenue per customer. Thus, the company can grow at a high rate to improved profitability.

Strong growth in revenue and profitability

The past quarter was characterised by good growth in both revenue and profitability. Net sales came in at DKK 7.5 million, in line with expectations, and grew by 12.7 per cent. System ARR grew even faster, by 14.9 per cent to DKK 14.6 million, reflecting good growth in average revenue per customer. The EBITDA result landed at DKK 2.4 million, slightly above our expectation of DKK 1.8 million. Although the levels are low, the EBITDA result increased by a full 113 per cent, which is clearly impressive.

Lowered valued reference group reduces fair value

The quarterly report states that the company expects several new clients to be signed during the first half of the year, including 3-4 at Land-Risk Logistics. This signals that the company’s efforts are beginning to bear fruit, which is important for the investment case. On the other side, the company has lowered its assumption for LandRisk ARPU which also lowers our revenue forecasts.

To calculate a fair value per share, we have combined a multiple valuation with a DCF model. Using this method, a fair value per share is calculated at DKK 9.3 (DKK 11.7) for the next 6-12 months. The downward adjustment is explained by adjusted forecasts, lowered valuation of the peer group and a higher interest rate.

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