There’s still a bit of a waiting game on INEO Tech Corp (INEO Tech Stock Quote, Charts, News, Analysts, Financials TSXV:INEO), according to Beacon Securities analyst Gabriel Leung who updated clients in a report on Monday. But the results look to be just as sweet, as Leung reiterated both his “Speculative Buy” rating and $1.00 target, which at press time represented a projected one-year return of 285 per cent.
INEO Tech is a provider of patented, location-based and targeted digital advertising and analytics solutions that are integrated with its INEO Welcoming System being integrated with retail theft protection systems. The Vancouver-based company reported second quarter fiscal 2022 earnings on Monday for the period ended December 31, 2021. The results showed sales of $257,000, which was up 37 per cent year-over-year, and EBITDA of negative $681,000. Free Cash flow was negative $737,000 and the company ended the quarter with $3.7 million in cash.
Last year, INEO nabbed a global agreement with Prosegur, a Spanish security company with many retail and shopping centre clients globally, to manufacture, distribute and install Welcoming Systems under its own brand Prosegur EVO, with INEO to be responsible for funding, manufacturing, distribution, in-store setup and in-store maintenance of the systems along with managing the INEO Media Network that powers the Welcoming System screens.
While the pandemic has been rough on retail and thus on INEO, the Prosegur deal was a big one for the company.
“Finalizing the definitive agreement with Prosegur has accelerated our sales and marketing efforts, which we believe will increase the pace of deployments and sets the Company up for rapid expansion in the coming year,” said INEO CEO Kyle Hall in a press release.
“Prosegur is creating a groundswell of interest and is introducing INEO’s products to the retail market faster and in more places than INEO could have achieved on its own. Meanwhile, retailers emerging from the trough of the pandemic are coming back with a strong commitment to invest in technology and improving the customer experience,” Hall said.
“Data and analytics are becoming increasingly more important to be successful in business, while Digital Out-of-Home advertising is surging. INEO is well positioned to take advantage of these industry trends, with market leading technology and products which will enhance the Company’s future growth,” he said.
Looking at the fiscal Q2, Leung said INEO’s quarterly numbers aren’t the main catalyst for the stock at this point, arguing that progress in signing new customers and the Prosegur partnership are the key catalysts. Leung reminded investors that Prosegur has already launched its own marketing campaigns on the EVO brand systems and its sales team is presently securing customer trials with “several large retailers” around the world.
“INEO has already shipped numerous Welcoming Systems which are destined for customer trials with Prosegur’s retail clients. INEO expects to convert these trials to customer wins in the coming quarters,” Leung wrote.
“The company noted that between Prosegur and its direct sales efforts it has shipped over 20 units (to North and Central America) with some retailers installed in multi-store locations. Key data points that retailers will be watching for prior to larger roll-outs, include whether INEO’s systems perform loss prevention well, whether the systems can co-exist in the store environment (i.e. not interfere with corporate/in-store networks), and whether the retailer’s marketing team can leverage the systems’ advertising capabilities,” he said.
Leung said Prosegur is ready to assume production of the EVO units at a facility in the Czech Republic, while manufacturing of trial systems for Prosegur’s North and Central America-based customers is taking place at INEO’s Surrey, BC, facility.
“INEO continues to build its own pipeline of opportunities through its direct sales efforts including several small to mid-size Canadian retail chains and one large North American retail chain. The company’s liquor store network is now over 140 locations,” he said.
By the numbers, Leung has INEO generated full fiscal 2022, 2023 and 2024 net revenue of $1.3 million, $4.9 million and $13.7 million, respectively, and adjusted EBITDA for those three years of negative $2.8 million, negative $1.5 million and $2.7 million, respectively.
The analyst has INEO’s EV/Net Revenue going from 9.6x in fiscal 2022 to 2.5x in 2023 to 0.9x in 2024, while on EV/adjusted EBITDA, the fiscal 2024 multiple is 4.5x.
“We have adjusted our estimates to reflect a six-month push-out of larger scale deployments within the Prosegur sales pipeline due to the longer-than-expected time it took to finalize the partnership agreement. We have also pushed our valuation to 4x FY24 EV/Sales (was FY23). The net impact is that our target remains unchanged at $1.00,” Leung wrote.
INEO said industry trends are moving in its favour, including growth in the digital out-of-home advertising market, a resurgence in retail, a growing use of data and analytics and Prosegur’s own growth into becoming a dominant player in the retail loss prevention sector.
“To this end, INEO will continue to devote resources to R&D and deployment to expand its INEO Media Network. INEO plans on continuing to innovate in the areas of integrated digital screen and loss prevention technology, improving data analytics with machine learning algorithms, adding retailer self-serve capabilities, incorporating retail cash register data into its systems and optimizing its cloud based digital advertising network,” INEO said in the press release.
Disclosure: INEO Tech Corp is an annual sponsor of Cantech Letter.