Checkit’s FY24 trading update confirmed that revenue and year-end annual recurring revenue (ARR) were in line with our forecasts, up 17% and 16% respectively. Better cost control resulted in a smaller EBITDA loss than expected, highlighting good progress towards reaching profitability. Product development is focused on expanding into new verticals and enhancing the platform with tools to turn data into actionable insights.
Strong revenue and ARR growth in FY24
Checkit expects to report FY24 revenue of £12.0m (+17% y-o-y), in line with our forecast. Careful management of costs and operational efficiencies have nearly halved the adjusted EBITDA loss from £6.4m in FY23 to £3.4m in FY24, better than our £3.6m forecast. Year-end ARR of £13.3m was 16% higher y-o-y and 6% higher h-o-h, in line with our forecast. Net revenue retention of 111% is evidence of the company’s ability to cross-sell and upsell to existing customers. At year-end, the US made up 26% of ARR, up from 24% at end FY23. Net cash at year-end was £9.0m, below our £9.5m forecast, we believe due to higher inventory levels that should be worked down over the next 12–18 months. We maintain our forecasts pending FY24 results on 25 April.
Broadening the product offering
Checkit’s current focus is on developing its platform to enhance functionality and to expand into new verticals such as food manufacturing and biotech. Applying artificial intelligence and machine learning tools to data collected on its platform, Checkit has developed new functionality that can help identify opportunities for customers to reduce energy consumption and predict when assets might need maintenance or replacement. This is currently being trialled by one of the company’s largest customers.
Valuation: ARR growth the key driver
On an EV/sales multiple of 1.3x for FY24e and 1.1x for FY25e, Checkit trades at a material discount to the UK software sector (2.5x current year sales, 2.3x next year sales) and US SaaS peers (7.4x current year, 6.3x next year). If Checkit were to trade on the UK average for FY24e, it would be worth 37p per share and moving to trade in line with US SaaS peers would imply a valuation of 91p. Sustained ARR growth will be the key trigger for Checkit to attract a multiple more in line with SaaS peers, evidenced by customers signing up to use its software and existing customers expanding their usage. Faster movement towards break-even should also support the share price.
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