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Scout Security Limited - Material new purchase order from Zego

Jun 2018

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Summary - Material new purchase order from Zego

Scout Security (ASX:SCT) is at the forefront of the DIY home security industry, having developed both wireless home security hardware and a software/service platform. The company has released an announcement regarding a new purchase order from Zego, the premier digital amenity platform for US apartment-dwellers. Highlights of the announcement include the following.

  • Zego has issued Scout with another purchase order for 1,000 smart home security hubs.
  • It is the third material purchase order from Zego since the parties’ sales partnership commenced in October 2017.
  • The order represents more than AU$157,000 in upfront revenue and cash receipts for Scout and expands its scope in terms of additional security service sales and recurring revenue.

TSI’s view: while in isolation this purchase order may appear modest, it’s the third from Zego in the past year (3,000 units ordered to date). Importantly, it underlines Zego’s commitment to meeting its target purchase commitment of 5,000 to 10,000 systems from Scout within 12 months of the partnership agreement being implemented (in October 2017).

While not widely known in Australia, Zego is a leading digital amenity platform for apartment-dwellers in the US (apartments there currently number 18.8 million). Indeed, apartment dwellers as a group are one of the leading adopters of smart home technology, given the restrictions on more traditional ‘hardwired’ options.

With countless security hardware options available, the fact that Scout has established relationships with groups such as Zego early on, when they have the potential to grow significantly, helps ensure its longevity in a competitive growth industry.

And, while hardware sales remain important, we maintain our view that, for Scout, revenue derived from regular subscription fees (cellular backup or the company’s 24/7 police despatch plan) is still the long-term driver for the company, since hardware sales are essentially a conduit to increasing subscriptions to Scout’s software platform.

We look forward to further information from Scout on sales and cash receipts for the quarter as they are released in coming weeks.

The information in this email should not be the only trigger for your investment decision. We strongly recommend you seek professional financial advice whenever making financial investment decisions.

Valuation: we maintain our valuation for Scout of $0.92 /share (share price $0.18/share).