Vection Technologies Ltd

Company Overview: Vection Technologies Ltd (ASX: VR1) develops real-time software for its client’s digital transformation by using 3D, Virtual Reality, Augmented Reality, Industrial IoT and CAD solutions. Its objective is to create values for its clients through innovation. It operates in the geographies of Europe, the Middle East, Africa, Asia-Pacific, and the Americas.

VR1 Details

Business Expansion & Synergies from Acquisitions to Drive Growth: The company has reported substantial growth in its partner distribution network from 2 in FY19 to 46 in FY20. It is focused on integrated XR solutions for companies looking to enhance their digital transformation.

Completion of Acquisition of JMC Group:

On 4 August 2021, the company has announced the completion of the acquisition of JMC Group Srl.

• The acquisition is expected to value accretive, and the combined Group would deliver revenues over $10 million, based on FY20 unaudited financials.
• The total purchase consideration has been pegged at ~$6.39 million at $0.10 per share.
• As per the management, the acquisition aligns with VR1’s strategy of growth in the global markets.

Q4FY21 Performance Update:

VR1 has delivered a decent performance in the quarter with robust growth in cash receipts.

• Cash receipts grew by over 215% in Q4FY21 when compared to the prior quarter. It has further received cash receipts of ~$1 million in the month of July 2021.
• The company has witnessed the continuation of its growth momentum at the onset of FY22 with $1.8 million in Total Contract Value.
• VR1 ended the period with a cash position of $6.3 million as of 30 June 2021.
• It has established an advisory board with Dr Haasis (former CIO R&D of Mercedes-Benz) as its first member and will be responsible for driving growth in the automotive sector.

The company reported a cash balance of $7.13 million as of 31 December 2020. It reported total debt at $1.42 million, comprising of $0.81 million in long-term debt and short-term debt of $0.61 million during the H1FY21 period end.

Debt-to-Equity Ratio Trend (Source: Analysis by Kalkine Group)

Expanding Presence in Diverse Sectors & Geographies:

The company has advanced and executed its strategy across diverse geographies and markets to pursue its growth objectives going forward.

• VR1 has established the AEC & Real Estate business vertical in April 2021 through the acquisition of Blank Canvas.
• It has established the Healthcare & Pharma vertical in March 2021 in collaboration with a talented team led by Dr. Carlo Centemeri.
• The acquisition of JMC is expected to accelerate the company’s expansion in Europe, Middle East and Africa.

Initial Sales in Healthcare & Pharma:

• The company has added ~$0.5 million in TCV for FY22 amongst the Healthcare & Pharma, Public Sector & Education sectors.
• Initial clients include Swedish Orphan Biovitrum (SOBI), Trenitalia, MUNER and the New York Institute of Technology (NYIT).
• It reported a decent pipeline of opportunities in the Healthcare & Pharma sector, including the likes of Cochlear Italia Srl, Postbiotica Srl, Bios Line Holding Srl, Damor Spa, to name a few.

Top 10 Shareholders: The top 10 shareholders together form around 62.90% of the total shareholding, while the top 4 constitute the maximum holding. Officine 8K S.r.l. and Merli (Jacopo)   are holding a maximum stake in the company at 35.33% and 6.61%, respectively, as also highlighted in the chart below:

Top 10 Shareholders (Source: Analysis by Kalkine Group)

Key Metrics: The company reported an uptick in the current ratio to 1.65x in H1FY21, from a level of 1.20x in H1FY20. The asset to equity ratio stood at 1.65x in H1FY21. It reported an uptick in the cash cycle to ~499 days in H1FY21, compared to 145.8 days in the previous corresponding period.

Growth Profile and Liquidity Profile (Source: Analysis by Kalkine Group)

Key Risks: The company is exposed to the following risk factors:

• Financial Risks: The company’s activities expose it to market risk, interest rate risk, credit risk and liquidity risk.
• Foreign Exchange Risk: VR1 has operations in multiple geographies, and as such, it is exposed to foreign currency risk.
• Stiff Competition: The company’s line of business makes it prone to stiff competition from peers in the space.

Outlook: The company is focused on cross-functional efficiencies and synergies to expand its global presence. In this regard, it has made some key strategic appointments of executives to further its growth strategy. It also plans to expand its sales and delivery teams in EMEA, AMER and APAC regions. VR1 believes that there is significant potential in the European market-driven by ~$1.2 trillion European-wide digital transformations in NextGen European recovery plan.

Technical Summary:

VR1 prices are catching good upside momentum with the stock prices trading above its 21-period SMA on a weekly chart. Volumes have increased drastically in the existing week along with surge in prices further indicating active buying participation in the stock. RSI (14-period) is hovering near to ~55 level on a weekly chart supporting the bullish momentum of the stock. Immediate support levels are $0.08 and $0.076 while immediate resistance levels are $0.11 and $0.14.

Stock Recommendation: As per a recent update, Mr Jacopo Merli has become an initial substantial shareholder in the company with a voting power of 6.20% on 03 August 2021. As per ASX, the stock of VR1 is trading below its average 52-weeks’ levels of $0.035-$0.240. The stock of VR1 gave a positive return of ~15% in the past three months and a negative return of ~31.85% in the past nine months. On a TTM basis, the stock of VR1 is trading at a P/BV multiple of 6.9x, lower than the industry average (Technology) of 8.2x.  Considering the current trading levels & valuation on TTM basis, increase in customer receipts, completion of acquisition of JMC Group, optimistic outlook, appointment of key executives and the key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.089, down by 2.20% (as on 06 August 2021, 10:33 AM (GMT+10), Sydney, Eastern Australia).

VR1 Daily Technical Chart, Data Source: REFINITIV

Note 1: The reference data in this report has been partly sourced from REFINITIV

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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