Big Technologies plc (LON:BIG) 2021 full year results reveal high, technology-driven growth, margin benefits from scale and a strong and resilient outlook. We believe the recent share price decline is an opportunity to gain exposure to BIG’s unmatched combination of high growth and margins at moderate multiples.
¨ Results were in line, no changes to our forecasts: Revenue was £37.6m, 2% ahead of our estimate of £36.7m, and Adjusted EBITDA was £20.6m, very slightly ahead of our estimate of £20.4m. Adjusted diluted EPS was 5.5p, ahead of our forecast of 5.0p due to lower effective tax rate. Net cash was £48.0m, slightly ahead of our estimate of £47.6m.
¨ High growth company with a strong technology lead: BIG grew revenues 27% in 2021 (43% excluding one-off Covid related contract in 2020) and we conservatively forecast 21% growth in 2022. The company’s strong technology lead in the criminal justice market is driving large share gains in a growing market. Buddi Smart Tags are smaller, lighter (>23%), more tamper proof, >40% longer battery life and have shorter installation times than competitors. BIG believes its products are three years ahead of competitors.
¨ Scale and operating leverage: BIG’s rapid revenue growth translates to even faster profit growth. The company is benefiting from scale and operating leverage. Gross margins rose to 70.8% from 67.8% a year ago and 74% of the increase in gross profit fell to Adjusted EBITDA, resulting in 31% Adjusted EBITDA growth.
¨ Expect outperformance: ARR plus recently signed contract revenues already allow BIG to exceed our 2022 revenue forecast of £45.5m. ARR was £38.4m in December 2021 and recently signed contracts should contribute at least £7.5m to 2022 revenue. Further contract signings should lead to outperformance and the company has a strong pipeline of prospects. The IPO has strengthened its reputation and brand with government customers. In addition, the company has released innovative new products and upgrades that should further its competitive lead. The company has launched a 4G smart tag for the criminal justice market, released a new wristband for the care market and is planning to trial a new substance detection product this year. We believe the company is well positioned to outperform our forecasts in 2022.
¨ BIG resilience: Big Technologies is well positioned in the current macroeconomic environment. BIG is sheltered from tightening corporate and consumer budgets and rising inflation. BIG is exposed to non-cyclical government department budgets and the majority of BIG’s revenue is committed under multi-year long-term contracts with recurring, volume-based payments. BIG should also be resilient to rising input costs and supply chain bottlenecks. BIG has accumulated at least 12 months of critical component inventory and the company estimates that even in the case of doubling semiconductor costs EBITDA would fall only 2%. In addition, BIG has contract pricing in place that includes price escalations for inflation in labour costs.
¨ Valuation: Big Technologies offers higher growth and margins for moderate valuation. Assuming material outperformance against our 2022 EBITDA estimate, then BIG may be trading below 20x 2022 EV/EBITDA. In comparison, UK software peers are trading at 18x but offer much lower revenue growth (12% v 21%) and EBITDA margins (25% v 55%). We believe the company’s growth and market position are undervalued.
Summary Financials
| Price | 212p |
| Market Cap | £614m |
| Shares in issue | 290m |
| 12m Trading Range | 188p– 385p |
| Free float | 41% |
| Next Event | H1 2021 update – July |
Financial forecasts
| Yr end Dec (£’m) | 2021A | 2022E | 2023E | 2024E |
| Sales | 37.6 | 45.5 | 52.5 | 57.7 |
| growth (%) | 27.2 | 20.9 | 15.5 | 26.9 |
| Gross profit | 26.7 | 32.7 | 38.4 | 42.1 |
| Adj. EBITDA | 20.6 | 25 | 29.5 | 32.4 |
| Adj. EBIT | 17.9 | 21.9 | 26.2 | 28.9 |
| EPS (p) ful dil. Adj. | 5.5 | 6.4 | 7.7 | 8.2 |
| Net cash | 48 | 65 | 87.8 | 113 |
| EV/EBITDA (x) | 27.5 | 21.9 | 17.8 | 15.5 |
| EVEBIT (x) | 31.5 | 25 | 20.1 | 17.3 |
| P/E (x) | 38.4 | 33.1 | 27.5 | 25.8 |
