A technology stock for the new ‘normal’


  • First half recurring revenue up 31 per cent to £3.1m to account for 39 per cent of total revenue of £7.9m.
  • Operating loss of £1.7m reflects higher investment in sales, marketing and product development.
  • Net cash of £8.5m.

The accelerated pace of digital transformation brought on by the pandemic is not only validating Checkit’s (CKT:52p) value proposition in the new ‘normal’, but is accelerating the technology group’s transition to a Software-as-a-Service (Saas) business across its five industry verticals: healthcare, food and retail, facilities management, pharmaceutical and fast-food restaurants.

That’s because an increasing number of companies need to manage deskless workforces through data-driven remote monitoring, and automated systems surveillance. Checkit’s workflow management software addresses these demands by digitising the scheduling and reporting of operational workflows with a view to automating manual processes, increasing efficiency and delivering greater management insight.

New features being incorporated into Checkit’s monitoring technology platform include event-driven tasks that enable users to feed sensor alerts (from equipment or buildings) directly into a corrective workflow for frontline staff via their mobile device. This ensures a rapid response to preserve stored inventory, repair equipment and maintain safety, as well as creating an audit report of corrective action.

Checkit’s new job sharing tool is ideal for collaborative working. A specific set of activities, ranging from laboratory opening procedures, to cleaning and food safety checks, are assigned to one individual and can then be picked up by colleagues. This is particularly useful if a task is not completed before a shift handover, or if remote teams want to divide ad-hoc tasks between them to get work done faster.

Recurring revenue is rising sharply, highlighting the underlying demand for Checkit’s technology, so much so that annual recurring revenue of £6.6m at the end of July equates to almost 44 per cent of full-year revenue estimates. Also, the rising proportion of subscription-based revenue in the sales mix is boosting gross margin (up from 35.9 to 44.3 per cent).

True, the cost of ramping up investment in sales, marketing and new products resulted in a slightly higher first half operating loss of £1.7m, but is worth doing given that the pipeline of new business is four times higher than at the start of the year. Importantly, net cash of £8.5m helps supports Checkit’s growth through to cash profitability, while the acquisition of US-based Tutela Monitoring Systems is likely to be an important driver of revenue in North America.

Checkit’s enterprise valuation of £24m equates to 1.6 times annual revenue estimates, an unwarranted 70 per cent ratings discount to UK software peers, and I maintain my 75p target price (‘Operationally geared for outperformance’, 30 April 2021). Buy.

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