- Annual cash loss slashed from £6.4mn to £3.4mn
- Forecast move into profit and positive cash flow during the 2026 calendar year
Cambridge-based workflow management software technology group Checkit (CKT:21p) is accelerating its move to profitability, reducing cash burn and expanding its software offering to exploit AI-driven capabilities and internet of things (IoT) automation.
By balancing growth ambitions with a greater emphasis on cost efficiency, the group increased its annual recurring revenue by 16 per cent to £13.3mn in the 12 months to 31 January 2024, while at the same time increasing gross profit margin from 63 to 67 per cent. Sales and marketing investment was reduced by 12 per cent to £2.6mn as Checkit focused on upselling and cross-selling to existing customers and identifying growth opportunities in adjacent markets to exploit.
A net revenue retention rate of 111 per cent highlights the benefit of this ‘land and grab’ strategy as annual recurring revenue (ARR) from existing customers continues to grow. It meant that the annual cash loss reduced from £6.4mn to £3.4mn and is forecast by Edison Investment Research to shrink to £2.3mn (2024-25) and £0.9mn (2025-26), before a move into cash profit and positive cash flow the following year. With cash burn markedly reduced, the directors are confident Checkit’s net cash of £9mn (8.3p) will see the business through to profit.
The US is an important market, delivering 21 per cent growth in ARR to £3.4mn, or a quarter of the exit run rate. Bearing this in mind, the directors highlight their new customer pipeline in the region, including several multi-site organisations across the group’s targeted healthcare, food retail, hospitality and biopharma sectors. They also highlight the important role of IoT automation and AI-driven analytics in the transformation of digital workflow systems.
That’s because the ability to analyse vast amounts of data in real time becomes even more valuable to clients when integrated with IoT sensors and digital workflows. For instance, Checkit has recently launched an asset intelligence module that applies machine learning and advanced analytics to analyse the condition of appliances to improve asset performance and predict operational issues before they escalate. Monitoring the temperature of fridges is an obvious target market for the software.
Admittedly, investors are taking a cautious stance, hence why the share price languishes below the 26p suggested buy-in price in my 2023 Bargain Share Portfolio. However, with Checkit’s enterprise valuation equating to one times ARR, and net cash forecast to trough out at £4mn (2025-26), the massive ratings discount to the UK software peer group average (2.5 times) and US software-as-a-service (SaaS) average (5.1 times) is worth exploiting. Buy.
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