The contract follows an earlier Saudi order for SEK 60m in 2018 – both for in-vehicle systems. This is yet another success for the competitive, stealth in-vehicle offering, which we assume is highly efficient in capturing violations. As the order is from direct sales and not via a distributor, we find it very likely that Sensys Gatso also will win the related TRaaS contract. We assume a TRaaS portion of the conract in line with other previous deals (20%).
Given the massive size of the order (two thirds of 2019 total sales), the delivery timing over the quarters will be an important factor for the reported growth during the quarters ahead. Delivery is scheduled from Q3’20 to H2’21. We have assumed a slow start with deliveries of SEK 11m in Q3’20 and SEK 41m in Q4, which is still enough for a strong H2’20 (see the table below). We have estimated that the remaining contract deliveries will be similarly distributed among the four quarters of 2021. In a historical context, Sensys Gatso in 2015 received another record order of SEK 165 in North Africa, which was subject to major delays, severely affecting the gross margin and in the end the profitability. However, the North African order was won precisely around the Gatso acquisition and the challenging integration of the two companies, which we think made delivery harder to solve. We see no risk for a rerun of the 2015 difficulties. The order is based on a standard solution and is business as usual (just a bit larger).
As a final general reflection, it seems deals are gradually getting larger, which could be a sign of an improved market.
A lot of other news
Since our last update, three months ago, there has been a lot of business news
Rabobank financing finalized
The Rabobank credit financing has finally been closed, taking care of the cash situation, which was important even though the orders have picked up the pace (from a working capital aspect). We assume the first batch of SEK 12.5m will come in December 2020. Even if Sensys Gatso is considerably better off with the Saudi contract in the bag and could very well continue to receive larger system orders, we assume it will use the Rabobank financing in its entirety, for working capital or other growth initiatives.
Safe haven in Corona times
As already mentioned in our August 3 note, we have changed our estimates and raised our base case valuation from SEK 1.8 to SEK 2.0 per share (you can find the note here). We view Sensys Gatso as a safe haven in these Corona times as its order intake has been completely unaffected by the pandemic. On the contrary, we think the company will report the strongest quarters ever from an order intake perspective during Q2 and Q3. With a strong growth for H2’20 and 2021, we argue that the case has a strong risk/reward profile. Consequently, we are a bit surprised by the lukewarm reception of the stock market. We think the irrationality stems from Sensys Gatso’s shareholder base, which consists of 18 500 retail owners and almost no institutional ownership at all, which causes major volatility. This condition is also a major option, as fund managers are prone to soon take note of the company’s high percentage of recurring revenue. We expect that the stock market will discount additional larger orders during the coming months. We also see a solid probability for announcements of more medium sized orders. Historically, one big order does not come alone in Sensys Gatso.
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