Big Technologies' growth slows as it loses key surveillance contract

Surveillance software company Big Technologies (BIG) saw revenue growth slow from last year as it faces headwinds around contract timing.

Ironically, given the name, the problem with a company this small is that it is dependent on relatively few contracts. Last year, revenue grew 33 per cent due to an eight-year contract signed with the New Zealand department of correction. However, this wasn’t backed up with significantly larger contract wins this year.

The company is forecasting “short-term headwinds” to sales and profits in 2024 due to the ending of a contract in Colombia. This is a customer the company has been serving for a number of years, so it calls into question how essential the product offering is.

One strength of the company is its 70.7 per cent gross margin. However, this did fall from 72.5 per cent from the prior year due to more inventory provisioning. If the Colombia contract sets a precedent that the tracking product isn’t entirely essential, then other customers might start trying to negotiate down the prices.

Management did say it has a strong pipeline of future work and expects to return to growth in 2025. The concern is that Big is still trading on a FactSet consensus forward price/earnings (PE) ratio of 18, which is expensive for a company that is seeing growth slow quickly.

We have questioned how unique the technology is and whether Big would be able to protect its margins moving forward. The slowdown this year has backed up these concerns. It will take consecutive periods of accelerated growth to change our minds. Move back to sell.

Last IC View: Hold, 247p, 29 Mar 2023