Big Technologies plc (LON:BIG) is the topic of conversation when Zeus Capital’s Technology Analyst Bob Liao caught up with DirectorsTalk for an exclusive interview.
Q1: Looking at Big Technologies’ results, the KPI’s look very impressive with 27% revenue growth and 55% EBITDA margins. Can you just give us a bit more detail around the fundamentals driving those figures?
A1: Yes, like you said, they did grow 27% in 2021 and actually, there was a one-off revenue related to COVID in 2020 and if you exclude that, the business grew 43% in 2021 so very very impressive, like you said.
The reason for that is the amazing technology that the company has is very differentiated from the market. The company makes systems and tags associated with tracking people in the criminal justice market and their tags are head and shoulders above the competition in terms of weight, in terms of security and installation times.
So, they’ve got this product that is head and shoulders above the market making criminal justice departments much more efficient in their roll out of these tagging programmes. So, as these contracts come up around the world, the company is consistently taking market share and that’s why you’re seeing the growth you saw in the results this morning.
If you look over a more extended period, the growth is equally impressive, it’s over 50% compound annual growth over the last three years so yes, this is definitely a technology play that’s still got a lot of wind behind it.
Q2: Just looking at your forecasts, you’re anticipating 21% revenue growth and 56% EBITDA margins. How confident are you in those figures?
A2: They look very impressive, obviously, in terms of the numbers but we’re very very confident that the company can hit or even exceed those expectations.
The reason for that is the business model that they have the company signs long-term, contracts, 3-5 years, some of which stretch much longer than that so they’ve got lots and lots of revenue visibility. So, they started the year with month recurring revenues of over £38 million and just based on the contracts they’ve already signed, they’ll be able to achieve our forecasts which really means if they shut up their sales shop now and continued with their annual recurring revenue, they would hit our numbers.
What they really means for us is that as they continue throughout the year, as they bid for more contracts, as those contracts land, those will all be incremental to our forecasts. We think the company is actually really well positioned to outperform our 2022 forecast.
Q3: Investors are looking for more than high growth in this market, how well is the company positioned in the current macroeconomic environment?
A3: Again, they’re very very resilient in this market, the reason for that is that they’re not exposure to tightening corporate budgets or tightening consumer budgets for that matter, nor to rising inflation. The reason is the company is exposed to the government’s department budgets which are non-cyclical and the majority of the revenue, like we said before, is committed under long-term contracts. So, they’ve got that visibility and they’ve got a market that’s not particularly volatile.
They should also be very resilient to supply chain bottlenecks, the reason for that is the company has accumulated a lot of inventory of semiconductors and critical components and they’ve got enough of that inventory to last them throughout this year without any problem whatsoever. Hopefully, by the end of this year, we should have some of those supply chain bottlenecks ease up.
So, I think the company is very very well positioned both in terms of any sort of economic volatility or any continued supply chain issues or high inflation issues, the company is very resilient in this market.
Q4: How is Big Technologies’ valuation?
A4: It really stands out as an asset in the tech world. The company, like I said, is growing much faster and with higher margins than most other tech companies, even when you compare it to the UK software market, it’s got double the growth rate and double the margins of the average company in that sector.
In terms of where it’s valued, it’s valued at a slight premium to that market but we think it’s very much worth it considering that’s it’s delivering on such strong growth and margin multiples. So, we think there’s an under valuation story in there.