Great to see new director Mike McGeever coming out of retirement to help us all promote AVA. Note revenue forecast for first quarter of current FY $9.8-11.7 million.
Ava Risk Group Limited (ASX: AVA) is one of those companies that bats well above its weight as a developer of world class products that are primarily targeted towards high security applications and risk management services. They count some of the worlds most demanding end users as customers, and have built a global footprint that is now ready for exploiting.
Where they bat well below their weight is in their market valuation. As of the date of this article, the market cap is hovering just over A$31M. For a company that just reported a 54% increase in revenue, it’s well worth a closer look.
Whilst all of the recent ASX announcements are relevant reading, below is a summary to give you a flavour for why I recently joined the board and why I am a supportive shareholder.
The Business
The Ava Group is managed as two division.
The Technology Division develops and markets high security solutions for the large and growing access control, electromechanical locking and intrusion detection markets. These markets represent a combined opportunity of approximately US$17 billion and the company believes that their products can address US$1.6 billion to US$3.5 billion of these market segments. They have already exported their products to more than 65 countries and have thousands of systems in the field. Ava’s clients are blue chip; NATO, Exxon Mobil, Sydney Airport, UK Home Office, US, Singapore and Australian Departments of Defence, are just a few of clients that have deployed Ava technology.
Another segment of the security market that their technology is being applied to is for the protection of data, primarily to detect physical tapping or interference via the actual data cables. Whilst it’s difficult at this point in time to quantify the overall market size, it’s fair to say that governments and corporations are spending billions of dollars to protect their data from illegal theft or interference. Ava’s technology was recently selected for a major military project in India. This one project alone will generate up to US$11.1M in revenues spread across the current FY2019 and FY2020. Importantly, the revenue represents pure margin, as the manufacturing and working capital needs have all been contracted out to an in-country partner. With the recent launch of the groups CyberSecurity Centre of Excellence, this is a large and emerging opportunity for further rapid growth.
Gross Margins in the Technology Division range from 45% for medium security access readers to 65% for its perimeter security sensors.
The Services Division provides specialised risk management consulting and is a global provider of secure international logistics of high-risk valuables, precious metals and currency. After commencing operations in 2016, the Services Division has rapidly grown its global footprint of customers and fulfillment partners. In the last financial year, the Services Division achieved A$7.4m in revenue and A$1.5m in gross profit. Importantly Ava has agreements with customers whose current annual spend exceed US$60m. This provides a pathway for plenty of growth within their existing customer base in the current financial year. The Services Division is forecast to become profitable within the current quarter. Average gross margins should increase to 25-30%.
Shareholders & Board
During the past six months, you have seen a board renewal process, with David Cronin and myself joining the board of directors. We both share a very similar ethos to delivering returns for shareholders and both have substantial security industry experience. Importantly, we are both meaningful shareholders, having invested millions of dollars into the Ava Group.
The top 20 shareholders own 74.4% of the company. Members of the board and their related entities control around 25% of the company and the CEO and COO are both top 20 shareholders.
Broker Coverage & PR
It’s fair to say that the company might be the best kept secret on the ASX, having not invested heavily in PR or Investor Relations. Under new leadership, it has become an important focus. In early 2018, Canaccord Genuity commenced coverage of the Ava Group with a BUY rating and a A$0.25 target price (at a time when the shares were trading at A$0.12). The report highlighted that the company was trading on a FY2019 EV/EBITDA of 3.5X. No doubt this will be reviewed given the major military award mentioned above. The shares are currently trading at A$0.15. The Company is going to increase its focus on investor relations and will undertake an Australian investor roadshow in September 2018.
Strong Investment Fundamentals
• Net Assets A$23m+ (@30/06/18);
• No debt and cash at bank A$5.91m (@30/06/18);
• Q1 FY2019 revenues forecast at A$9.8m to A$11.7m;
• Large sales pipeline to underpin global growth.
This is a very exciting time for the company and one that convinced me retirement came a little too early. After a three year lull I am delighted to be back and assisting the Board with the company's progress towards realising its true potential
AVA Price at posting:
17.5¢ Sentiment: Buy Disclosure: Held
(20min delay)
