- Sales pipeline soars more than 400 per cent in 12 months to 31 January 2022
- Annual recurring revenue (ARR) surges 43 per cent to £8.2mn
- Valuable contract awards in Australasia and North America
- Net cash of £24.2mn post £21mn placing, at 46p
Cambridge-based technology group Checkit’s (CKT:40p) transition to a Software-as-a-Service (Saas) business is accelerating across its key industry verticals: healthcare, retail, facilities management, restaurants and hospitality. The group is expanding its geographic footprint, too.
The Checkit workflow management software platform offers organisations data-driven remote monitoring and automated systems surveillance to manage their teams of deskless workers. By digitising the scheduling and reporting of workflows, it can automate manual processes, boost staff efficiency and deliver greater management insight. The inflationary environment and energy crisis places even greater importance for companies to make operational savings and improve the productivity of workers.
The technology is clearly gaining traction as chief executive Kit Kyte notes that the group’s sales pipeline of £2.6mn at the start of 2021 increased to a record £13.2mn by late November 2021 and has since kicked on again. Around two-thirds of the growth is coming from existing clients, with the US healthcare market being a key driver. This highlights the international expansion opportunity as the US market is five times larger than the UK, but the latter has historically accounted for 80 per cent of group revenue.
A good example is the post year-end contract win with Biomat, a US-subsidiary of Grifols SA, a global leader in the production of plasma-derived medicine and transfusion medicines across more than 100 countries. The contract has a minimum value of £2.8mn spread evenly over three years, and involves providing services to over 300 sites to five of Grifols’ US subsidiaries. Checkit is in advanced stages of discussion to cover Grifols' key countries of operations in Europe, too.
The UK group is also looking to leverage a valuable contract with BP, having developed an artificial intelligence driven algorithm to provide BP's Food to Go outlets with cooking recommendations. The aim is to increase revenues by ensuring sites have the correct cooked goods at the right times, reduce food wastage by accurately predicting the number of cooked items sold during the day, and provide data insights to improve decision making. Checkit has just commenced rolling out its platform across 441 BP forecourts in Australia and New Zealand, thus doubling its footprint within BP’s global network of 18,700 service stations. The plan is to scale up the contract to 4,900 locations within three years.
There is an even bigger opportunity to exploit with the NHS. The organisation accounted for £2mn of Checkit’s annual recurring revenue of £8.2mn in the 2021/22 financial year. Checkit's sensors and digital insights help the NHS to reduce drug wastage by monitoring storage temperatures, increase retention rates by boosting staff efficiency (so reducing workloads), and improve compliance though the monitoring of storage temperatures and time logs (so reducing costly failed audits). Checkit also supported the Covid-19 vaccine rollout by supplying technology to ensure safe storage and management of vaccines across immunisation centres and clinics.
The group currently assists 86 NHS trusts which have more than 350 sites, but mainly works with only one department. It will be a win-win for all parties including UK taxpayers who are footing the NHS bill if Checkit can crack the NHS nut and expand its roll-out.
As the business scales up it will incur losses. Edison expect operating loss to almost double to £8.8mn in the 2022/23 financial year based on ARR increasing 43 per cent again to £12mn. This explains why Checkit’s £19m enterprise valuation equates to only 1.5 times forecast ARR, a hefty discount to UK SaaS peer group average of four times. However, with £24mn (22p a share) cash in the bank the group is well funded to finance its accelerated growth phase, and ongoing momentum and increasing geographic reach of the sales pipeline suggests that management could surprise on the upside.
Admittedly, the heavily oversold shares have followed the FTSE Aim All-Share index down since my last buy call (‘A technology stock for the ‘new normal’, 20 September 2021), and are trading below the 46p placing price. That’s harsh and I view this as a buying opportunity ahead of what should be a well received robust trading update on 28 April. Buy.
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