Equity research Risk Intelligence, Q2 2023: A strong quarter throughout

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In Q2 2023, the important recurring system revenue increased by 14.7% to DKK 17.1m, which exceeded our expectations. Net sales grew by 13.6% to DKK 4.9m. EBITDA improved to minus DKK 1.5m, better than our expectations. With new loans, the short-term financing risk has come down. We estimate a fair value per share of DKK 3.9 (3.8). The valuation assumes increasing growth in the coming years.

Good quarter and financing in place

In Q2 2023, Risk Intelligence’s net sales increased by 13,6% to DKK 4,9m. Our forecast was DKK 4.8m. Increased recurring revenues from system licenses and other services drove the growth, partly explained by new customers and partly that revenues from existing customers continue to grow, as demonstrated by a high NRR of 116%.

Important recurring system revenue (system ARR) amounted to DKK 17.1m and increased annually by 14.7% and sequentially (compared to Q1 2023) by 7.9%. The average revenue per customer (ARPU) amounted to DKK 151,000 and increased year-on-year by 9.4% and sequentially by 4.1%. The company’s estimate of ARPU over time for LandRisk Logistics customers remains at DKK 425,000. Thus, total system ARR and ARPU should continue to grow rapidly as more customers are added to the LandRisk solution. That is crucial for improving both growth and profitability.

On an annual basis, the cost base was almost unchanged, and the reported EBITDA result came in at minus DKK 1.5m. We had expected an EBITDA result of minus DKK 2.0m. With investments of about DKK 0.7m, the free cash flow ended up at minus DKK 1.7m and at the end of Q2 2023, the cash amounted to DKK 0.0m. However, in early July 2023, the company received a loan-based financing package of DKK 6.5 million, which reduced the financing risk in the short term.

In anticipation of profitability

The company’s target for System ARR remains DKK 18.5-20.9m by the end of 2023. That means that System ARR must continue to increase relatively quickly. For now, we leave our revenue and profitability forecasts close to unchanged: By the end of 2023, System ARR will rise to DKK 18.6m and ARPU to DKK 161,000. For the full year 2023, we expect net sales of 20.6 MDKK. Over 2023-2027 we expect a strong CAGR of 26.0%. We expect positive EBITDA to be reached in 2025, and by 2027 we have assumed that the EBITDA margin will rise towards 21.7%.

Fair value with good potential upside remains

In a base case scenario, we estimate a fair value per share of DKK 3.9 (3.8). Our valuation corresponds to an EV/Sales NTM of 3.9x. That corresponds to a discount of 32% to the peer group (info systems and SaaS companies) due to lacking profitability, among others. Today, the stock trades at a valuation of 2.5x our revenue forecast NTM and 3.2x last reported System ARR.

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