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SenSen Networks recurring revenues continue to grow: BW Equities

BW Equities has reiterated its BUY recommendation on SenSen and has maintained a 25 cents per share price target.

SenSen Networks Ltd - Sensen Networks recurring revenues continue to grow: BW Equities
SenSen’s software is now incorporated in 591 cameras across Singapore

SenSen Networks Ltd (ASX:SNS) recently revealed a new $1.24 million, 5-year contract with leading systems integrator ATT Systems Group to assist the Singaporean Government with its efforts to deter illegal parking and prevent traffic congestion in the country.

The deal will deliver new, annual recurring revenues of $216,000, which is just the latest in a recent flurry of similar deals signed by the company as it quickly approaches a sustainable, cash flow break-even position.

Following the new deal announcement, BW Equities has reiterated its BUY recommendation on SenSen and has maintained a 25 cents per share price target.

Following is an extract from BW Equities’ research update:

SNS is becoming entrenched in the Singapore smart cities ecosystem. This newly signed deal will see SNS provide AI and video analytics software alongside its systems integrator partner ATT Systems Group, with the contract awarded following a successful multi-vendor tender process. Importantly, we believe numerous tender participants were using SNS technology for their AI and back-end functions – which speaks to the company’s high reputation within the region. Following the announcement, SNS’s software is now incorporated in 591 cameras across the country.

Recurring revenues continue to grow. The ATT deal will deliver $1.24m to SNS over a five-year period, structured as $150k in upfront fees and quarterly payments of $54k for the remainder of the contract. This quarterly payment structure is similar to the recent Angel deal (refer our note dated 16/12/19), which gives greater visibility and reliability to company earnings over time (an historical sore-point with SNS, which we have addressed repeatedly in the past – ie. ARR has been difficult to determine). Over time, we believe SNS will continue to provide greater visibility to its recurring cash earnings base, which should result in a higher multiple being applied to its earnings over time (we discuss SNS’s cash position and recent 4C release on Pgs. 3 & 4 of this note).

$5.7m in funds + cash burn moderating = Balance Sheet risk removed. Prior to yesterday’s announcement SNS’s trail 12-month average cash receipts were ~$1m, with quarterly outlays of ~$2m for the past two years (ie. annual burn of ~$4m). When factoring in ~$1m in annual R&D rebates, this falls to an annual cash burn of ~$3m. With each incremental contract that comes onboard (we have seen ~1 per month since April ‘19) + newly announced Singapore and Angel payments beginning this quarter, the potential funding gap is now contracting rapidly, pushing SNS toward a cash-flow positive position in the near-to-medium term.

Valuation: PT unchanged at $0.25/Sh, +108% TSR. While it was a very strong release, yesterday’s announcement fell comfortably within our forecast earnings methodology for SNS’s new contracts and thus hasn’t had a meaningful impact on our estimates. Nevertheless, we re-iterate our BUY recommendation with a $0.25/Sh PT (+108% TSR).

Quick facts: SenSen Networks Ltd

Price: 0.091 AUD

ASX:SNS
Market: ASX
Market Cap: $41.01 m
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