Initial coverage Risk Intelligence: Accelerated growth, scalability, and profitability

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Initial coverage report Risk Intelligence, 7 Dec 2021

Risk Intelligence is a well-established provider of actionable security intelligence to the shipping and oil-and-gas industry. The average growth over the last two years has been 18.8 per cent. Recently the LandRisk Logistics application was added to the product portfolio. A successful launch will take growth rates to even higher levels. It will also improve average revenue per client, enabling the company to benefit from scalability and reach profitability. In our base case, we calculate a fair value per share of DKK 11.7.

A well-established intelligence provider extending its potential

Risk Intelligence is a well-established provider of actionable risk intelligence to the shipping and oil-and-gas industry. Clients use the company’s risk intelligence solution to manage risk exposure (e.g., piracy, terrorism, or insurgency) when planning and executing operations at sea. Current clients include well-known names such as Maersk and the US Navy. That, along with a low number of terminated contracts, is proof of the strength in the offer and the company’s capabilities.

In August 2021, the LandRisk Logistics application was launched as a new product. The application covers the risk situation along roads and parking, cities, and hotspots. Thus, the target clients are road freight carrying companies. The initiative substantially increases the market potential by a factor of 40x. Sony is the first client on the application.

Good historical growth to be taken to the next level

Risk Intelligence has three types of revenue streams, out of which the largest stems recurring system revenues on long contracts with high scalability. The average historical growth rate of net sales since 2018 has been 20 per cent. The historical growth has been driven by adding new clients, migrating new clients from the competition and upselling by adding new functionality and more user licenses.

Going forward, we expect the maritime solution to continue to grow at a pace above ten per cent per year. That as the company continues to add new clients and increase the average revenue per client. However, we expect the LandRisk Logistics application the be key in taking growth rates to an even higher level. LandRisk Logistics is priced higher than the maritime solution. Given the expected growth of the application, there will be a natural shift upwards of the total average revenue per client. That should, in turn, enable the company to benefit from the scalability and, over time, reach profitability. Additional use of AI will further increase efficiency.

Low valued compared to growth potential and reference group

In our base case, we model with an average annual growth rate of 35.0 per cent over the projected period, 2021-2026. In 2026, an EBITDA margin of 35.8 per cent is reached. That can be compared to the reference group with an expected median EBITDA margin of 42.4 per cent in 2021. We calculate a fair value per share of DKK 11.7 after fully financed and dilution. Our valuation corresponds to an EV/Sales 2022 of 7.0x. The reference group is trading at 10.7x. The rebate is motivated by differences and profitability outlook given the size differences.

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