Sunday, 15 December 2019
SenSen Networks Ltd (ASX:SNS) recently executed a transformational global SenGAME 3.0 distribution agreement with Angel Japan Co., Ltd. SenGAME 3.0 is a software installed on casino gaming tables which can processes video images in real-time, to determine the number of players at the table and hands dealt per hour, as well as the number, type, and value of all bets placed. This information can be used for business intelligence purposes. SenSen is also undertaking a ~$3.3 million private placement to Angel for a total of about 22 million shares, equal to about 4.99% of the total post-placement issued shares of SenSen. BW Equities has increased its target price for Sensen by 32% to 25 cents following the Angel distribution agreement and private placement. BW Equities has also strongly reiterated its buy recommendation. Following is an extract from BW Equities’ research update: SNS hits the jackpot. This morning’s announcement is a game changer for SNS in our opinion, with key benefits of the deal including: (1) an exclusive, global distribution agreement with one of the world’s leading suppliers of table gaming equipment – a detailed overview of Angel and its achievements to-date is included within pg. 3 of this note, (2) an upfront equity investment of ~$3.3m, undertaken at a 68% premium to the most-recent closing price. This placement will see Angel own 4.99% of the total post-placement issued shares in SNS, and (3) a US$5m (~A$7.3m) stream of guaranteed revenues over the next five years, as a minimum, with quarterly payments stepping up to ~$2.3m/year by FY24/25 (Year 5) – noting the Angel/SNS agreement includes an option to be automatically extended for a further three years at the end of the initial term. $3.3m in cash + FCF positive = Balance Sheet risk removed. Following today’s announcement, we believe any questions re: SNS’s balance sheet position can be put to bed, given (1) the company has ~$5m in accessible, liquid funds ($4m cash + $1m credit line) and (2) will generate positive FCF (on our numbers) of ~$200k in 2H20 and ~$1.7m in FY21. This is an enviable position to be in, given the early-stage in SNS’s lifecycle and we suspect the company will likely re-invest its newfound capital to support sales and marketing efforts in pursuit of faster topline growth over time (an additional positive development). Valuation: Methodology change and 32% Price Target increase. Following today’s announcement we have altered our valuation methodology for SNS (from a multiple of forward revenues to DCF), given the company is now cash-flow generative, while the structure of Angel’s annual minimum payments (ie. back-end loaded) should be assessed on a discounted cash flow basis. Under our new DCF methodology, our 12-month forward Price Target rises to $0.25/Sh (from $0.19/Sh), which implies ~127% upside from the most-recent trading price ($0.11/Sh).