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Scout Security Limited (SCT:ASX)

Material new purchase order from Zego

1 Video - Jun 18

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).

Improved sales results as corporate activity in IoT sector heats up

1 Video - Mar 18

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 a positive February sale update whilst in the wider Internet of Things (IoT) sector, Amazon announced the acquisition of Ring for around US$1bn.  Highlights of the February sales announcement include the following. 

  • Sales of $136k (unaudited) of connected home security products and home monitoring services in February.

  • Sales grew by more than 11% month-on-month (daily run rate).

  • Annualised recurring revenue stood at AU$878k at the end of the month, up more than 34% year-on-year.

Analyst comment: this is a good result for Scout, as the re-stocking of inventory that has occurred over the past number of months has quickly translated into increased sales once product is available. This indicates a clear demand and market for Scout’s hardware offering, and this is likely to increase further once the Company’s 1080p camera and verified video solution are launched later this quarter.

Potentially more important, however, is the fact that recurring revenue has also increased and is now just under AU$1 million per annum. We maintain our view that, for Scout, revenue derived from regular subscription fees (cellular backup or the company’s 24/7 police dispatch plan) remains the long-term driver for the company, since hardware sales are essentially a conduit to increasing subscriptions to Scout’s software platform.

M&A activity: continues in the ‘Internet of Things’ sector, with Amazon – Scout’s major distribution partner and one of its largest shareholders – recently acquiring video-doorbell maker Ring, reportedly for more than US$1 billion.

This is just one in a series of recent purchases by major players in the technology sector, which highlights the willingness of larger companies to pay up if what they buy is seen to increase their market presence and/or can be ‘bolted on to their existing suite of products. We expect this trend to continue in coming years, as the industry remains in the early adoption/rapid growth phase.

While Scout is at an earlier stage of development than Ring, Amazon’s acquisition of the latter highlights the potential for rapid growth in the industry right now (Ring was founded in 2011), provided a company’s business strategy is well executed.  

Conference Call: in addition to this strong sales result, Scout recently provided a business update via conference call. Key takeaways from that call were as follows.

  • From the initial purchase inventory, it takes about six months for Scout to break even on the initial amount invested.
  • Within 12 months of the purchase order, Scout expects to double the original amount invested in hardware and software sales while a customer remains on the software platform.
  • Scout expects to be cash-flow positive before the end of the calendar year.
  • The Company is considering a credit facility exclusively for inventory purchases, which will smooth cash-flow movements.

Valuation: we maintain our valuation for Scout at $0.94 /share (share price $0.18/share).  

 

Conference Call

1 Video - Feb 18

Solid quarter as sales grow

1 Video - Jan 18

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 a positive quarterly report, highlights of which include the following.

  • Quarterly revenue – $0.70 million (increasing 124% Q-o-Q).
  • Cash receipts – $0.32 million (increasing 11% Q-o-Q (normalised)).
  • Zego (formerly CasaIQ) orders another 1,000 smart-home security hubs, bringing total orders from that company to 2,000 plus.
  • First purchase orders from Amazon processed since IPO completion.
  • Deal signed with retail growth consultant Scale2Shelf.
  • Partnership agreed with Yale Real Living to offer integration and add to hardware sales.

Analyst comment: this was a productive quarter for Scout, with the company continuing to expand its distribution network through multiple channels in the US.

Importantly, the quality of those distribution partnerships has remained high and continues to translate into more sales, with Zego – a leading US provider of smart-home device and service packages – ordering another 1,000 units.  Zego has previously indicated they intend to order between 5,000 and 10,000 systems during the first 12 months of its sales partnership with Scout, which was announced in October 2017.

Meanwhile Amazon, one of Scout’s largest shareholders, received its first shipment of hardware since the IPO, allowing it to restock Scout products. Since that restocking, and despite a limited marketing campaign that will be enhanced moving forward, purchase orders are reportedly strong.

That said, given its stage of development and the terms in place with its distribution partners, as well as the nature of the industry itself, Scout has to produce and sell its suite of security products (inventory) prior to revenue being received. This has led to clustering rather than normalising of cash flow, meaning that right now more is going out than coming in.

We estimate that Scout’s product development has resulted in between 2,000 and 4,000 units in inventory and expect product development will be reduced in the coming quarters, while sales and – more importantly – cash receipts will rise compared to the last quarter.

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 at $0.94 /share (share price $0.28/share).

Valuation Analysis

1 Video - Dec 17
  • We currently value Scout at $0.94 / share.
  • This video reviews the key assumptions, including our sale, revenue costing as well as discount rates.

Security market overview – USA

1 Video - Dec 17

Review of the current USA security market.  Details current size, trends and the revolution of DIY products.

What is the Internet of Things?

1 Video - Dec 17

Review of the Internet of Things (IOT) and how it is changing the home security industry.

Software and service platform – Police Dispatch

1 Video - Dec 17
  • Scouts has two software and service platform options, either the Always on or always on plus plans.
  • The always on plus option has the additional major benefit of notifying the local police department.  We discuss how the police are notified as well as the associated cost for Scout in further detail

Initiation Report

8 Videos - Dec 17

Scout Security (SCT.ASX), is an ASX listed company at the forefront of the DIY home security sector.  We initiate coverage of Scout with a valuation of $0.94 / share.  This report includes:

  • A detailed valuation analysis;
  • A review of the company’s strategy and technology;
  • A review of the the security industry in the USA
  • A review of the IOT market.

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