Damstra Shaping Up For Post-Pandemic World

This story features DAMSTRA HOLDINGS LIMITED. For more info SHARE ANALYSIS: DTC

Damstra is ideally placed in a post-pandemic world, given its suite of products for site management, health and safety.

-Softness in FY20 earnings attributed to a timing issue
-Vault likely to lead to further expansion in North America
-Consumption/recurring revenue model working in Damstra's favour
 

By Eva Brocklehurst

Monitoring, asset management and employee health are more important than ever and in its first year as a listed entity on the ASX, Damstra Holdings ((DTC)) has impressed on that front. Shaw and Partners points out opportunities across a range of industries exist and Damstra is ideally placed with a suite of products for site management, health and safety.

The business has been growing by 20-30% per annum within a market that is growing more than 6% per annum. Currently 25% of the company's revenues are generated internationally, with a client base that includes large mining, construction and telecommunications organisations.

Hence, international is expected to overtake domestic income and drive a step change in growth in the next 1-2 years. Moreover, Shaw and Partners points out disclosure is improving, and greater clarity on what is driving the business has spurred investor confidence.

FY20 earnings were clearly affected by disruptions caused by the pandemic frustrating the conversion of several new opportunities as well as the commencement of contracts. Yet FY21 guidance for revenue of $33-35m signals to Morgan Stanley that the softness experienced in FY20 was genuinely a timing issue, and the broker maintains an Overweight rating and $2.00 target.

Vault

Vault, a US data management software business that helps organise and track data creation as well as documentation processes, is increasingly likely to be acquired by Damstra.

This is an important lever to US expansion, Shaw suggests, and the company needs to "bulk up" geographically. The broker anticipates an additional $8m or more in pro forma revenue and calculates $50m in revenue by FY22 for the combined businesses.

The company is also expected be an active consolidator in both the US and Europe and Shaw reiterates a Buy rating with a $2.05 target, expecting continued traction internationally could mean further strategic interest.

Large Product Suite

Damstra has a wide product suite across multiple industries covering workforce management, access control, e-learning and risk assessment. For example the company provides an innovative mobile fever detection product across a range of terminals and uses, particularly relevant during the current pandemic.

Moelis flags more than 20 clients that have already ordered the fever detection units with 140 units already delivered or en route. This is well ahead of expectations and supports a robust outlook for FY21, with the broker upgrading to Buy and $2.09 target. Moelis notes cross selling opportunities from Velpic e-learning also appear to be playing out.

Hardware and software are designed in house with management having significant experience across technology, finance and site management. Shaw and Partners finds the consumption/recurring model works in Damstra's favour, as new business can be gained post the pandemic. Around 90% of revenue is recurring and gross margins are high at over 65%.

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