Disclaimer: This newsletter is not financial advice this is for educational purposes only so please DO NOT take this newsletter as a buy or sell signal.
Big Technologies PLC Fundamentals:
Below is a checklist I normally use in my process when I look at the fundamental health of a company. If the company meets my criteria it will be colour-coded in green and if the company fails to meet my criteria it will be colour-coded in red which means I need to investigate further and ask myself why this is the case.
As you can see below there are 4 red boxes and I am going to explain each one:
Current PE Ratio and Current Price To Free Cash Flow Ratio- Big Technologies currently has a PE Ratio of 22x and a Price To Free Cash Flow Ratio of 22x which might be an indicator that this company is currently trading at a premium to the market since the average stock market PE Ratio is 15x. One thing to remember is if a company can grow 22% from now until judgment day and it can sustain that growth then the current valuation will look cheap. This goes for the opposite side of the spectrum where if a company was trading at 15x earnings and they are only growing 3% a year that might seem expensive because the company can’t justify its valuation.
Shares Outstanding- When analysing a company I ideally want their shares outstanding to be the same or to decrease over time. As you can see, Big Technologies PLC’s shares outstanding have gone up by 0.73% in the last 3 years. This is minuscule and it is something I am not too concerned about.
Free Cash Flow Yield-Free Cash Flow Yield gives investors another way to assess the value of a company. Free cash flow yield provides a better measure of a company's performance than the PE ratio because earnings can be manipulated based on accounting rules. The most common way to calculate free cash flow yield is free cash flow divided by the company market cap. Generally, the lower the ratio, the less attractive a company is as an investment because it means investors are putting money into the company but not receiving a very good return in exchange. A high free cash flow yield result means a company is generating enough cash to easily satisfy its debt and other obligations including dividend payout. Currently, Big Technologies’ free cash flow yield is 5% which is lower than my 7% threshold but slightly higher than the risk-free rate which currently sits at 4%. It is important to remember when the treasury yield is yielding lower than a company’s earnings/cash flow, according to the intelligent investor this means you are being compensated for the extra risk you are taking with an individual business.
Business Overview:
Founded in 2005 by Sara Murray, Big Technologies engages in the development and delivery of remote monitoring technologies and services to the offender and remote personal monitoring industry under the Buddi brand name in the Americas, Europe, and the Asia-Pacific. Sara Murray established the Company following an initial idea to create a GPS device small enough for a child to carry. Following a series of investments and development over an initial three-year period, the first product was launched a small device that could be carried by a person to track their location. By monitoring the online demand for the product, Sara identified that a large number of customers had purchased the device as a monitoring tool to locate elderly relatives as well as to provide reassurance against the risks of a fall at home(a major cause of hospitalisation and loss of independence). Over subsequent years, several local authorities started to recommend the product as an affordable alternative to placing elderly family members in residential care particularly where monitoring movements had become the primary issue.
In 2009, Big Technologies was approached by a UK NHS Foundation Trust to adapt the technology to help support community leave for forensic mental health patients. The patients under this pilot were individuals who had been sanctioned to a mental health institution following a serious crime. Under European law, the patients were obliged to begin rehabilitation in the community after a set period of time. The obvious solution at the time was to use the existing monitoring technology bought by the Ministry Of Justice from two big public companies however that technology was so basic that it did not provide location tracking and could be removed with a simple tool such as a pair of scissors.
Big Technologies created the first version of its “Smart Tag”, which could be securely attached to the person and provide live location tracking. The twelve-month pilot resulted in a strong positive response from clinicians who recognised the rehabilitative benefits coupled with the reduction of risk and increased flexibility. Big Technologies continues to supply updated versions of this solution to several mental health hospitals across the UK.
Big Technologies’ entry into the criminal justice market came in 2010 following a pilot with a UK police force which had been using the Buddi products to safely support victims of domestic violence, victim protection and witness protection. The UK police force was eager to explore whether an application of the Company’s technology could provide evidence that previous repeat offenders who had been participating in a rehabilitative programme were no longer committing crimes by mapping out their location against known crimes. This generated both economic and social benefits with reduced police time and resources spent eliminating false enquiries and enabling any innocent and rehabilitating offender to avoid unnecessary contact with the authorities. The Company’s technology is now used within the mainstream business of 80% of UK police forces.
Business Segments:
Buddi Smart Tag- The Buddi Smart Tag is an intelligent, one-piece secure ankle tag that integrates multiple technologies to deliver accurate minute-by-minute location information with extended battery life. The device is smaller and lighter than competitors’ products and provides several functional benefits.
Buddi Smart Tag Buddi Clip And Wristband Set- The Buddi Connect Wristband pairs with the Buddi Connect smartphone application. The Buddi Connect app allows users to add connections who will be notified of an alert and message wearers directly through the app. The Buddi Clip & Wristband is an alternative for those who do not have a smartphone.
Buddi Clip And Wristband Set Buddi Connect- The Buddi Wristband detects falls automatically and has built-in panic buttons that you can press if you need help. Alerts are shared instantly from the Buddi Wristband to connections through the Buddi Connect smartphone app.
Connections are the people who you would like to be notified of an alert and you can add, edit or delete them in the app. You can also share private, secure messages or call them directly through the app. The Buddi Wristband uses Bluetooth to connect to your smartphone but you can also connect your Buddi Wristband to the Wi-Fi in your home. This will ensure the alert is sent, even if you are out of Bluetooth range (10 metres). You must carry your smartphone with you when out of the house or alerts will not be sent.
Buddi Connect Buddi Secure Band- The Buddi Secure Band is a wrist-worn device for home curfew applications and uses RF technology to give a long battery life of more than 24 months.
Buddi Secure Band Buddi Clip- The Buddi Clip has built-in panic buttons that you can press if you need help. Alerts raised by the Buddi Clip are sent immediately to the Buddi 24/7 Support team who will call the Buddi Clip and attempt to speak with you.
Like a phone, you can speak through the Buddi Clip. This means that the Buddi 24/7 Support team can talk to you directly and find out if you require assistance. They will also get in touch with your emergency contacts when alerts are raised so that you can receive help even if you are incapacitated. The Buddi Clip must be worn or carried when outside, and if needed it can locate you using GPS mobile technology.
Buddi Clip
Management:
When looking at management I like to judge the CEO in several different ways such as experience, capital allocation skills and Incentives. In this section, I will cover whether management incentives are aligned with shareholders.
Experience- Sara Murray is the Founder and Chief Executive Officer of Big Technologies. Sara Murray is a serial entrepreneur who founded Ninah Consulting and Inspop. Sarah Murray also had previous roles where she was appointed SME Advisor to the Government Procurement Service, Director of Buddi Limited, Electronic Medical Solutions Limited, White Ensign Association Limited and TFM Developments Limited. Sara Murray was also a Non-Executive Director of Boohoo Group from 2016 until 2020 and also served as its Senior Independent Director from 2018 until 2020. In 2009 Sara Murray won the National Business Awards Entrepreneur Of The Year. In the Queen's Birthday Honours List 2012, she was awarded an OBE in recognition of her services to entrepreneurship and innovation.
Below is an image illustrating the current experience of Big Technologies board members:
Capital Allocation-When it comes to judging management I think capital allocation skill is very important because I want management to create shareholder value and not destroy it. So far Big Technologies’ capital allocation has been spot on because they are giving value back to shareholders by reinvesting back into the business at a higher rate.
Incentive- This is important because if the current board is actively purchasing stock of their own business this is a positive indicator that shows that management believes the stock is undervalued and they believe in the long-term prospect of the company.
As you can see below we have 6 buy orders and 3 sell orders. Daren Morris (CFO) and Sara Murray(Founder) are the only insiders buying Big Technologies shares. As for selling Charles Lewinton(COO) and Daren Morris (CFO) are the only insiders selling Big Technologies shares but I am not going to put too much weight into this because there are so many reasons why someone might sell their stock.
Bull And Bear Case:
Bull Case
Bull Case- The first bull case is Big Technologies’ long runway for growth. Big Technologies has a strong position and is underpenetrated in large addressable markets. The market for remote monitoring solutions within the criminal justice sector has many favourable tailwinds driving uptake such as prison overcrowding, high and rising incarceration costs, tighter government budget constraints and a general shift to rehabilitative community-based sentencing for minor offences all contribute towards this trend. Most recently, the additional challenge presented by the pandemic has led to additional demand to manage individuals safely and robustly in communities as opposed to secure establishments. There are a range of estimates as to the size of the total addressable market, but the company conservatively estimate that the size of the worldwide criminal justice market is worth over £2 billion. The electronic monitoring market for criminal justice is forecast to grow at 12% per annum by 2025, providing further opportunities for the company to explore.
Bull Case- The second bull case is recurring revenue. Big Technologies leases software and electronic monitoring devices to customers on a SaaS-like basis, typically at a daily or monthly rate. The company have tens of thousands of devices generating revenue every day, all over the world.
Bull Base- The Third bull case is a diverse income stream. The company’s long-term contracts provide a high level of future revenue visibility. The ten largest customers account for more than 80% of total revenues and the company has more than 230 active customers as of the end of 2022.
Bear Case
Bear Case- The first bear case is innovation. Big Technologies operates in markets where technology, industry standards, product offerings and customer demand can evolve over time. The company needs to ensure that it continues to develop new products to maintain its competitive advantage in the market. Failure to achieve this could result in reduced revenues or a loss of key customers.
Bear Case- The second Bear care is customer retention. A proportion of Big Technologies revenue continues to be derived from a small number of large customers. The loss of any of these key customer relationships could have a material adverse effect on the company’s business, financial condition and results of operations.
Valuation:
In this section, I am going to talk about valuation. Using some basic metrics I am going to compare Big Technologies against its industry rivals and see if the company is cheap relative to its peers then I will value Big Technologies using a discounted cash flow model to come up with a price I am willing to pay based on expected growth rate and my desired return of 15%. Since Big Technologies hasn’t got a like-for-like competitor that is publicly traded, there won’t be any industry comparison.
As you can see based on my conservative assumption, Big Technologies is looking to grow 8% over the long run so I went conservative and assumed a 6% growth in the first 1-3 years then the growth will slow down to 3% 4-6 years out. In my assumption, I also went with an exit multiple of 15x earnings which is below the historical average that Big Technologies has traded at. Based on my assumption I have come to a buy price of £1.01 compared to the current stock price of £1.30 which means right now Big Technologies is trading above intrinsic value.
Thanks for reading my newsletter on Big Technologies. Disclaimer This newsletter is not financial advice This is for educational purposes only so please DO NOT take this as a buy or sell signal.
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Just announced that they will lose a big contract.
i wouldn’t count on police budgets shrinking anytime soon and that’s why i’m going to read an annual report lol