Research update Risk Intelligence, Q2 2022: Strong development for KPIs will bear fruit

Read the full research update here:

Research update Risk Intelligence, Q2 2022

Equity Research Risk Intelligence

Despite a decline in consultancy revenue, Risk Intelligence grew net sales by 7.1 per cent to DKK 3.0 million in the past quarter. However, the outcome was below our expectations. At the same time, ARR and ARPU continue to grow at a high rate, which will bear fruit in the future. After adjustments, we calculate a fair value of DKK 6.8 (7.5) per share. Funding is secured for the year, and we see an attractive potential upside.

Reiterated sales target after a quarter below expectations

For the second quarter of 2022, total ARR (including intelligence reports) was reported at DKK 16.9 million, corresponding to strong year-on-year growth of 19.9 per cent and a sequential growth of 3.7 per cent. ARPU increased by 15.4 per cent year-on-year to DKK 142 000. Sequential growth was 2.2 per cent. NRR landed at a strong 111 per cent. These important KPIs aligned with our expectations, but net sales of DKK 3.0 million were below our estimate of DKK 3.7 million. The decline is explained by lower advisory-related revenues, which continue to hamper in the short term. At the same time, it should be noted that three new client contracts covering both systems and advisory services were signed during July and August. That bodes well for the coming quarters. The company also reiterates its full-year net sales target between DKK 21.5-23.5 million.

The EBITDA result was minus DKK 3.5 million. Our estimate was minus DKK 2.4 million. The deviation is due to lower revenues and a higher cost base than expected. Management believes the cost base is back to “normal” levels after the pandemic. With the opportunity to travel, the growth rate should also increase.

Lowered expectations on Land-Risk Logistics

We have high expectations on LandRisk Logistics. For the application, the company expects an average system-related ARPU of around DKK 300 000 – more than double the ARPU of the maritime solution. At the beginning of last quarter, a contract was signed with Monitoring Services ESOES, a Polish company that offers services to assist control centres and tailored risk assessments of routes for owners of high-value cargoes. The sales pipeline was at this time strong, but the sales processes appear to be longer than we initially anticipated as no additional clients were signed after that. Therefore, we lower the revenue expectations for LandRisk Logistics in 2023-2024, negatively impacting the margin assumptions. However, estimates for 2025-2026 are left unchanged.

Low valuation to recurring revenues

Combining a multiple valuation with a DCF valuation, a fair value of DKK 6.8 (7.5) per share is calculated. Adjustments in the estimates explain the downward revision. For the multiple valuation, we have also increased the discount to the reference group with increased uncertainty about the development of LandRisk Logistics. Our valuation corresponds to an EV/Sales NTM of 5.4x. The reference group trades at a median EV/Sales NTM of 9.8x. In parallel, the stock is currently trading at an unreasonably low 1.8x relative to our revenue forecast NTM and 2.7x last reported total ARR. At the same time, the short-term financing risk has come down with new loans of DKK 5.5m.

Disclaimer

Carlsquare AB, www.carlsquare.se, hereinafter referred to as Carlsquare, conducts business with regard to Corporate Finance and Equity Research in which areas it, among other things, publishes information about companies including analyses. The information has been compiled from sources that Carlsquare considers to be reliable. However, Carlsquare cannot guarantee the accuracy of the information. Nothing written in the analysis should be regarded as a recommendation or invitation to invest in any financial instrument, option or the like. Opinions and conclusions expressed in the analysis are intended only for the recipient.

The content may not be copied, reproduced or distributed to another person without the written approval of Carlsquare. Carlsquare shall not be held responsible for any direct or indirect damage caused by decisions made on the basis of information contained in this analysis. Investments in financial instruments provide opportunities for value increases and profits. All such investments are also subject to risks. Risks vary between different types of financial instruments and combinations of these. Historical returns should not be considered as an indication of future returns.

The analysis is not directed to U.S. persons (as defined in Regulation S of the United States Securities Act and interpreted in the United States Investment Company Act 1940) nor may it be disseminated to such persons. The analysis is also not directed to such natural and legal persons where the distribution of the analysis to such persons would result in or entail a risk of a violation of Swedish or foreign law or constitution.

The analysis is a so-called Commissioned Research Report where the analysed Company has signed an agreement with Carlsquare for analysis coverage. The analyses are published on an ongoing basis during the contract period and for a usual fixed remuneration.

Carlsquare may or may not have a financial interest in the subject of this analysis. Carlsquare values the assurance of objectivity and independence and has established procedures for managing conflicts of interest for this purpose.

The analyst Markus Augustsson, Fredrik Nilsson, and Lars Johansen Öh does not own and is not allowed to own shares in the Company analysed.