Big Technologies “well positioned to take market share in a large and growing market” says Zeus Capital

Big Technologies plc (LON:BIG) expects to deliver 2021 and 2022 results ahead of expectations and we believe the company’s expectations for 2022 are conservative. We believe BIG will continue to deliver strong growth, supported by disruptive technology and a proven management team. We also believe BIG can sustain high margins and deliver reliable earnings, supported by high operating leverage and long-term contracts.

2021 results slightly ahead: Revenue is expected to be at least £36.5m, slightly ahead of our original estimate of £36.2m. Adjusted EBITDA is expected to be slightly ahead of market expectations (£20.2m). Net cash is expected to be c. £48m, c. 4% ahead of our estimate of £46m. Strong net cash indicates cash conversion was strong and we estimate c. 79% cash conversion of EBITDA in H2 2022 (see overleaf).

Upgrade to 2022: Big Technologies expects to deliver yoy revenue growth in 2022 at a similar rate to that achieved in 2021 (over 23%) and further expand EBITDA margin in 2022. As a result, we lift our 2022 revenue forecast by 4% and Adjusted EBITDA by 5% to £45.5m and £25.0m (55.1% margin), respectively.

Conservative outlook: We believe BIG can achieve 2022 results based on its existing contract base and without any new customer signings. Run rate revenue at the end of 2021 was £38m and potential revenue from recently awarded contracts was £8m. This total contracted revenue of £46m is already in line with upgraded 2022 revenue estimates (£45.5m). In terms of EBITDA expectations, our revised estimate conservatively assumes only marginal increase in margins (+0.5%) despite the inherent operating leverage in BIG’s model on the 24% increase in revenue.

Investment case: We believe Big Technologies is well positioned to take market share in a large and growing market. The company has disruptive technology, proven management team, accretive acquisition opportunities and high revenue visibility. BIG is setting new standards in reliability, security, ease-of-use and accuracy, proving local authorities with fewer false alerts and lower operating costs. BIG believes its products are three years ahead of competitors, some of which remain services-focused, charging per call out. Our DCF analysis indicates a mid-point valuation of 334p. Longer term, we see a scenario where BIG could double 2021 Adjusted EBITDA and support an EV of 399p over time. In addition, we see highly accretive acquisition opportunities in the fragmented and technologically-lagging EM sector. We estimate each £100m investment in acquisitions could add £300m of net incremental value, taking potential intrinsic EV to 503p.

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