BIG brother is watching you

Big Technologies (BIG) produces tags to track people, and demand for human tracking seems to be growing. Currently, 98 per cent of revenue comes from the criminal justice system, but Big also has a remote care product that sends a message when people fall.

In the six months to June, revenue increased 27 per cent while the gross margin stayed flat at an impressive 71.4 per cent. Increased scale meant that the cash profit margin rose 3.4 percentage points to 60.1 per cent. To protect against supply chain disruption, the company boosted inventories which meant operating cash conversion dropped from 89 per cent to 82 per cent. Adjusted cash inflow was still up 24 per cent to £11.3mn.

Big margins and strong cash generation shows this is a high-quality business. We could also see growing end markets for its products. As populations age, there will be more need for devices to track older people living alone. On the criminal justice side, it is clearly cheaper to have criminals tagged but outside the prison system, while in the US the number of incarcerated people offers a large market opportunity. Based on monthly recurring revenues, the board expects full-year revenue to be at least £48mn, which would be 28 per cent ahead of last year. The cash profit margin is expected to stay above 58 per cent.  

This is presumably why Big is trading on a forward price/earnings ratio of 37. These are a strong set of results, but the price still looks expensive to us given it seems possible that larger tech companies could easily sell tracking technology. This is a possibility, given the fat margins that Big is generating. Sell.

Last IC View: Sell, 224p, 24 Mar 2022