IPO - UUV Aquabotix Ltd, page-311

With the quarterly update imminent I thought it would be worth highlighting some of Pattos analysis of UUV. It's looking like the company may double last years revenue.

UUV is already generating income from the sale of its underwater vehicles, with A$1.1m in revenue reported for the year ended 31 December 2016. We note that this was achieved with a small sales and marketing team.

UUV has also stated that revenue for the month of January 2017 was cA$0.19m, or A$2.2m annualised, showing positive growth above market rates. In May 2017, UUV also announced the sale of an underwater drone to the US Navy for A$0.12m. We expect the funds raised from the IPO to bolster its sales, marketing and business development teams, and thus substantially increase its revenue.

We believe our forecast is conservative for 2017, predicting revenue of $2.2m, a gross profit margin of 70% and an EBITDA loss of $0.4m. We have then modelled significant growth in subsequent years: forecasting revenue of $4.9m, $8.7m and $14.1m; and forecasting EBITDA of $0.5m, $3.0m and $6.6m in 2018, 2019 and 2020 respectively. We maintain our gross profit margin assumption of 70%, despite the addition of software revenue.

Software revenue is defined as the revenue derived from the Aquabotix analytics platform and operating systems, which it hopes to implement in the medium-term to provide added value to its modular accessories, upgrades and sensors available. We have assumed 10% of revenue from 2018 (growing by 2.5% p.a.), is attributable to software.

Using a discount rate of 14.1% and the fully diluted share capital of 236.4m shares (135m ordinary shares and 101.4m options and performance rights), we have valued UUV at $94.0m, or $0.40/sh. Using a 2018 sales multiple of 10 times derives a value of $0.40/sh, which aligns with our current target price. We initiate with a Speculative Buy recommendation.

Our forecasts may prove to be conservative, as we have assumed UUV only captures 0.5% of the addressable market by 2025. If we were to assume UUV captures 1% market share, our valuation jumps to $1.08/sh. This highlights the blue-sky potential should UUV successfully deploy its sales and marketing teams and accelerate market penetration.

We also note that UUV may look in the medium term to introduce a cheaper consumer focussed UUV to market. This would be akin to DJI’s current offering for the aerial drone market. We believe this could substantially increase the Company’s market perspective and its total addressable market. Thus, we highlight this as a major medium term catalyst.

http://www.aquabotix.com/uploads/5/1/7/3/51732055/uuv_note_220517-2.pdf