Huge upside potential from INEO Tech, says Beacon

Beacon Securities analyst Gabriel Leung is holding steady on INEO Tech (INEO Tech Stock Quote, Chart, News, Analysts, Financials TSXV:INEO), maintaining in an update to clients on Monday a “Speculative Buy” rating and $1.00/share target price for a potential return of 257 per cent at the time of publication.

Incorporated in 2008 and headquartered in Vancouver, INEO Tech provides location based digital advertising, analytics and loss prevention solutions for retailers, integrating and monetizing digital screens with theft detection sensor gates at the entrance of retail stores. The company delivers digital advertising to each retail location based on the demographic mix, such as age and gender, of customer traffic at each location.

Shares of INEO spiked on Tuesday after the company announced an agreement with Prosegur EAS, a wholly owned subsidiary of Madrid-based Prosegura, which provides security solutions to some of the world’s largest retailers, to manufacture, distribute and install INEO’s Welcoming Systems. INEO had in January signed a partnership letter of intent with Prosegur.

On the quarter, Leung said the results were in line with expectations.

“Ultimately, we believe that the key growth and valuation catalyst for this story remains adoption of INEO’s Welcoming Systems amongst large retailers, specifically retailers from the Prosegur channel, with which INEO is expected to earn a monthly recurring revenue fee,” Leung said.

The company’s financial results were headlined by revenue of $214,000 and an EBITDA loss of $700,000. Leung notes that the company also reported a free cash flow loss of $924,000, meaning the company has $5.2 million in cash available to go with $166,000 in debt.

“Fiscal 2021 was a tremendous year for INEO as we achieved record annual revenue with 41 per cent year-over-year growth,” said Greg Watkin, Chairman and Founder of INEO in the company’s October 28 press release. “We are very pleased with the progress we made with our independent retailer based Welcoming Network, which now exceeds over 125 locations and we’re experiencing an increasing number of advertisers at these locations from our direct sales efforts as well as our programmatic advertising partnership with Hivestack.”

On the new agreement, Prosegur has been granted distribution rights to sell, secure, place and install the INEO Welcoming System under their Prosegur EVO brand while being responsible for the funding, manufacturing, distribution, in-store setup and in-store maintenance of the systems. INEO will be responsible for online provisioning, operating, and managing of the Media Network which powers the screens inside of EVO.

“Prosegur is an ideal partner for INEO as it has a very strong brand name, significant financial means and an enormous distribution network,” Watkin commented. “We’ve already shipped several Welcoming System units to Prosegur, created a healthy sales pipeline with Prosegur’s retail customers and we’ve been assisting Prosegur with establishing the production of EVO at its manufacturing facilities in Europe. We look forward to working together with Prosegur to digitize and monetize retail entrances worldwide.”

INEO’s European inroads began with the successful installation of its first pilot system in Spain at Prosegur’s customer experience center located in its head office in Madrid, with the intent of serving as a demonstration for its European retail chain customers.

From there, INEO has also shipped five additional Welcoming Systems to Prosegur’s large retailers for acceptance testing with four more units expected to ship shortly, and Prosegur is also completing its manufacturing facilities in the Czech Republic, which should start producing 400 Welcoming System units by the end of the year, with the potential to scale up to 1,000 while the initial Surrey operation can scale from its present 75 unit per month output to 150, according to Leung.

Leung’s financial projections have INEO reaching revenue of $2 million in 2022 before increasing more than five-fold to a projected $10.2 million in 2023. He also expects the company’s EBITDA to turn positive in 2023 at $1.5 million after a loss of $2 million in 2021 and a projected loss of $2.8 million in 2022.

The company’s valuation data also comes into clearer focus for Leung in this report, as he projects INEO’s EV/Sales multiple to drop from the reported 16.1x in 2021 to a projected 6.1x in 2022, then to a projected 1.2x in 2023. Meanwhile, Leung’s EV/EBITDA multiples report for the first time in 2022 at a projected -4.3x before turning positive in 2023 at a projected 8.2x.

Overall, INEO’s stock price is down 35 per cent for the year to date, reaching a high point of $0.52/share on February 25 and bottoming out at $0.19/share on September 29.

Disclosure: INEO Tech is an annual sponsor of Cantech Letter.