Gatekeeper Systems is a double, this investor says

Here’s a name that fits with the IoT and Smart Cities movement: Gatekeeper Systems (Gatekeeper Systems Stock Quote, Chart, News TSXV:GSI), which if all goes according to plan should be worth at least twice as much by this time next year.

So says portfolio manager Robert McWhirter who has followed the company for a couple of years now.

“Gatekeeper provides cameras for security for both school buses and transit buses and trains and their largest single client is the Philadelphia SEPTA system. They basically are working with them,” said McWhirter, president of Selective Asset Management, who spoke on BNN Bloomberg on Friday.

“They’re expecting if they can get a $6.2 million contract booked and finished by the end of August, their sales would be somewhere in the range of $17 to $19 million. That would push up approximately $1 to $2 million worth of earnings against the current market cap and stock price, which means the stock is trading somewhere in the range of 18 times to potentially as low as nine times trailing earnings,” McWhirter said.

Abbotsford, BC-based Gatekeeper saw its share price rise this past fall due to two contracts announced with the Southeastern Pennsylvania Transportation Authority (SEPTA) for installation and ongoing maintenance of digital video recorders on its fleet.

Gatekeeper’s share price has returned to where it was pre-COVID-19’s market drop, around the $0.20 mark, while the company reported strong financials last month. GSI had revenue growth for the eighth consecutive quarter, hitting a top line of $3.6 million, with net income of $90,551 compared to a net loss of $455,525 a year earlier.

Management said Gatekeeper’s business hasn’t been materially impacted by COVID-19, as its SEPTA business has been deemed essential. Over the quarter, Gatekeeper introduced its Platform-as-a-Service model as central to its business strategy going forward, saying, “The Company is evaluating solutions that interface with its PaaS platform, including new innovations that may be desired by transit authorities and Smart Cities during and following the COVID-19 pandemic.”

McWhirter said there’s a $30-million government grant that’s coming up within the next 12 months on which Gatekeeper is bidding.

“It’s a great opportunity,” McWhirter said. “They’re also looking at lane infraction indications so that if you’re driving a streetcar or a bus and someone goes whizzing past the open doors as you’re trying to load or unload passengers, it’ll take a picture of the offender’s license plate and send a ticket.”

“That’s the artificial intelligence portion of it. So they’re working towards smart transit as well as a smart city solution,” he said.

“We there’s upside on the stock of roughly 20 cents. If it turns out that they’re successful in getting all this business done I think the stock should be trading at roughly double where it is,” McWhirter said. “If it turns out they’re really lucky and they get the $30 million contract from SEPTA with a grant then you’d expect the target will be well north of 50 cents within the coming 12 months.”