Beacon Securities launches coverage of INEO with a $1.00 target

Targeted digital advertising and analytics company INEO Tech (INEO Tech Stock Quote, Chart, News, Analysts, Financials TSXV:INEO) is poised to steal market share with its disruptive technology, says Beacon Securities analyst Gabriel Leung, who launched coverage of the company on Monday.

INEO’s flagship “Welcoming System” is a patented retail loss-prevention (anti-theft) system which is integrated with a digital display. Deployed at the entrances of retail stores, the devices greet customers with targeted brand-positive messaging while capturing meaningful analytics information while providing loss-prevention capabilities.

Founded in 2016, INEO went public via reverse takeover in January 2020, raising $2.8 million at $0.35 per share. The company’s platform has already been deployed through a network of about 75 liquor stores in Western Canada and has what Leung called a landmark partnership (currently in LOI phase with a definitive agreement expected shortly) with Spain-based Prosegur, a large multi-national security company. Leung said INEO has two large pilot opportunities in the Prosegur partnership pipeline and a third currently in direct negotiations, giving INEO a line-of-sight into about $15 to $20 million in potential recurring revenues over the next 24 months.

“There are about 2.38 million loss-prevention systems in North America across 528,000 retail locations spanning a variety of industry verticals, which provides INEO with a massive market to potentially distribute and install its products,” Leung wrote.

On the industry, Leung said there are two large companies currently operating in the loss prevention space, Johnson Controls’ Sensormatic division and Checkpoint Systems, where Sensormatic has said its loss prevention division sells over $1 billion in hardware, tags and labels annually while Checkpoint sells about $850 million of a similar product line annually. The two companies offer a proxy for the size of the potential market opportunity for INEO, Leung said.

Leung believes INEO’s system has much richer features in analytics and digital signage than Sensormatic and Checkpoint, along with having the ability to remotely manage its systems and offer a lower cost of ownership.

“Two large incumbents currently dominate this space, although we believe INEO is positioned to disrupt this market with its cheaper, more powerful and (most importantly) patented offering,” he said.

INEO currently has two primary revenue models, one by which the company offers its Welcoming System free of charge along with allocation of 15 per cent of the system’s screen time, leaving INEO to sell advertising space on the remaining 85 per cent at an anticipated net monthly income of about $500 per location. The company expects its predictive analytics services will also be sold to retailers for a monthly fee of between $19 and $49 per retail location.

For its other model, INEO will employ more of a SaaS-based approach where the retailer will control 100 per cent of advertising on the Welcoming System, while INEO or a partner such as Prosegur will fund the hardware and installation. Revenue here would come from a monthly SaaS license fee of $150-$250 per retail location while INEO or its partner would collect an additional $150-$250 per month per location depending on who supplies the hardware. Predictive analytics would also be available at $19-$49 per month per location.

INEO recently reported its second quarter fiscal 2021 financials, showing $187,239 in sales for the three months ended December 31, 2020, and an EBITDA loss of $421,000. The company finished the quarter with cash and equivalents of $508,000 compared to $1.3 million as of June 30, 2020, while last week on March 10 INEO closed on a $7-million upsized public offering.

On December 17, 2020, INEO announced an advertising contract with one of the world’s largest brewing companies, with advertising having begun across select retail locations on INEO’s Welcoming Network in January. INEO said it is currently seeing increasing advertising fill rates on the Welcoming Network.

“It’s been a busy start to the new year,” said CEO Kyle Hall in a March 2, 2021, press release. “We are focused on the business fundamentals to make sure we are ready to scale and rapidly grow. The success of INEO’s Welcoming Network in independent liquor stores has been a validation of our technology and business opportunity. INEO is now entering the next stage of the Company’s planned expansion into large national and international retailers. We are building a great company which we believe will meet the needs of retailers, brands and advertisers around the world.”

Since its debut in January 2020, INEO’s stock has been up and down and is currently even for its now thirteen months of trading.

But Leung thinks there’s upside to be had over the upcoming year, starting off INEO with a “Speculative Buy” rating and $1.00 per share target price. At the time of publication, the $1.00 target represented a projected return of 178 per cent.

Leung thinks INEO will generate fiscal 2021 revenue of $0.8 million and an EBITDA loss of $1.7 million, followed by fiscal 2022 revenue and EBITDA of $1.9 million and negative $2.6 million, respectively, and fiscal 2023 revenue and EBITDA of $10.0 million and $1.6 million, respectively.

Disclosure: INEO is a sponsor of Cantech Letter and Editor Nick Waddell owns shares of the company.