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INEO has a 257 per cent upside, says Beacon

INEO

INEO INEO Tech (INEO Tech Stock Quote, Chart, News, Analysts, Financials TSXV:INEO) is getting closer to establishing a monthly recurring revenue base, according to Beacon Securities analyst Gabriel Leung, who reviewed the company’s latest quarter in an update to clients on Thursday. Leung is sticking with his “Speculative Buy” rating and $1.00 target price, which at the time of publication represented a projected 12-month return of 257 per cent.

Vancouver-based INEO provides location-based, targeted digital advertising and analytics solutions which are integrated with retail theft protection systems. The company, which began trading on the TSX Venture in January, 2020, released its fiscal third quarter 2021 results on May 27 for the three-month period ended March 31, 2021.

INEO had revenue of $195,518, up 144 per cent from $80,020 for the same period a year ago, with the company attributing the increase to a boost in online sales of loss prevention products and advertising revenue on its Welcoming Network systems due to retail stores opening up again with the onset of COVID-19 vaccines.

The company’s Q3 net loss was $576,400 or $0.01 per share versus a loss of $7.5 million or $0.23 per share a year earlier, where the greater loss a year ago was due to costs associated with its reverse takeover (RTO).

The quarter featured INEO’s announcing of a Letter of Intent with security company Prosegur EAS USA for the distribution and install of INEO’s Welcoming Pedestals in Prosegur’s retail customer locations in North America, Latin America and Europe, with initial Welcoming Pedestal units having been shipped in February to Prosegur for validation testing.

Also over the quarter, INEO closed on a brokered short-form prospectus offering at $0.36 per unit (one share and one-half a warrant) for proceeds of about $7 million.

By the quarter’s end, INEO reported Welcoming Networks operating at over 90 locations with a healthy pipeline of independent liquor store retail locations ready for installations in upcoming months.

“INEO has now entered into the next phase of the Company’s life cycle with the commercialization and scalability of our technology being the key goals over the next 12 months,” said CEO Kyle Hall in a press release.

“We have invested in additional head count for our development and our operations teams to take advantage of the opportunities in front of us and we expect these additional costs to remain close to the current level over the next few quarters. Our technology has been proven out through the independent liquor store network and has now been validated by a large multi-national company such as Prosegur. INEO is well positioned to expand into large national and international retailers in the coming quarters,” he said.

The Q3 numbers were in line with Leung’s forecast, with the realized $196,000 and negative $494,000 in revenue and EBITDA, respectively, compared to Leung’s $229,000 and negative $413,000, respectively.

In his report, Leung noted INEO’s direct sales opportunities including its deployment of several pilot units at a Western Canadian discount retailer chain (with over 60 locations) and direct discussions to launch a pilot with a Western Canadian grocer with over 175 locations.

But it’s the Prosegur LOI that’s of particular focus, Leung believes.

“While we are buoyed by the company’s direct sales initiatives, we continue to believe that the key growth and valuation catalyst for this story remains adoption of INEO’s Welcoming Pedestals amongst large retailers. Specifically retailers from the Prosegur channel with which INEO is expected to earn a monthly recurring revenue fee,” Leung wrote.

The analyst said he was expecting a definitive agreement with Prosegur shortly after the LOI was announced in January but that through a recent conversation with management, Leung said the delay has concerned finalizing economics between Prosegur and its retailer customer.

“Despite the delay, we are comforted by the fact that the two companies continue to work closely, with INEO successfully integrating Prosegur’s tag detection technology, designing and manufacturing new circuit boards to support Prosegur’s specifications, modifying its platform to support European power requirements and designing a self-serve retail portal so that Prosegur’s retail customers can upload and manage their own marketing campaigns. Pilot units have also been sent to two of Prosegur’s large retailers for acceptance testing,” Leung wrote.

Looking ahead, Leung is calling for INEO to generate full fiscal 2021 (year end June) revenue and EBITDA of $0.8 million and negative $1.8 million, respectively, and fiscal 2022 revenue and EBITDA of $2.0 million and negative $2.7 million, respectively. Leung said the third quarter 2021 results support his maintaining of his current rating and target, which is based on a 5x multiple of his fiscal 2023 EV/Sales estimate.

“Our target multiple represents a significant discount to SaaS comparables at 10.6x given the early stage nature of INEO’s growth ramp,” Leung said.

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About The Author /

Jayson is a writer, researcher and educator with a PhD in political philosophy from the University of Ottawa. His interests range from bioethics and innovations in the health sciences to governance, social justice and the history of ideas.

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