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THRUVISION - EYEING UP THE FUTURE - 07/10/20

Thruvision is a very interesting technology company that I covered a few months back and which today announced a Trading Update to the market. I have summarised that release ahead of speaking again with the CEO at the time of the Interim Results. Firstly though, I thought it worth posting my article from the summer which provides for some insight into the company.  

Thruvision - June 2020 The times they are a-changin', so said Bob Dylan, and as we all know, they certainly are. And as part of that process, as investors or watchers of companies and stocks we too are changing, in as much as attempting to identify not only bombed out recovery plays, but new or novel products and systems that will fit into this sudden changing and evolving world. One company that has recently caught my looks absolutely ripe for potentially serious growth and although in the short term the Covid19 situation has had a possible detrimental effect on its revenues, paradoxically, as we move forwards it could be the making of the business. Thruvision is a technology company based in Oxford that specialises in developing and providing specialist people-screening systems that span areas from weapons, explosives and numerous types of contraband. These are already being used and could in the future prove most applicable at Airports, Railway Stations, Ports and increasingly large Distribution/ Warehouse operations. A closer look at the company reveals that THRU has a specific product that is ideal for a post Covid climate and which if adopted across the board of aviation alone, would see the current touch and search or close up scans become a thing of the past.

Indeed, Airports and the like are now and will be faced with surmountable problems with the vast flow of people and the ensuring that various aspects of security are undertaken at a safe distance. The video clip below provides for a quick glimpse of THRU's system in action against the existing method as shown on the left. https://www.youtube.com/watch?v=dLUEoctTz7U As can be seen, the technology appears tailor made for the way forward in terms of maintaining a safe distance for all concerned and would appear to have the ideal USP to meet what is and will be required and can be used in numerous situations where there is an abundance of through people traffic. Unlike many businesses which come to market and years down the line are still looking to build revenue, THRU is already actively generating sales and has now penetrated into at least twenty countries across the world where it has now reached a point where would-be customers seek it out, as opposed to the company having to constantly put itself on the map. Having been spun out of the Governments highly regarded Rutherford Labs in 2002 the company has patented its tech and seen $50m of research funding pumped into the operation over the years, its foundations being clearly well rooted.. However, as with many of these start ups that emerge from academia, there is often a case of a distinct lack of commercial savy, so key management experience is something of a prerequisite for success and to this end the company scores. Thruvision was, in its form of a private business eventually acquired by Digital Barriers in 2012, a buy and build operation in the tech space before that business took on the THRU name in 2017 and concentrated on the latter's technology. What we now have, is a more concentrated and focused business in the technology security space with a very strong and growing presence in the Americas which now accounts for more than half of total revenues. As a loss maker at present which is the rub therefore falling well into the blue sky speculative bracket, it is as with other recent such prospects something of a small interest play for me. That said, THRU doesn't need to go shaking the investor money tree, as it is well funded with a decent £8.4m net cash position which appears ample to see it through to profitability. For the year ended March 2020 it delivered £8m in revenues which was a substantial increase on 2019 at £6m, whilst 2017 came out at £3m. As revenue has increased, losses have reduced moving from a £2.9m deficit in 2017 to last years £1.2m, so these are moving in the right direction as sales gather momentum, thus boding well for the future. Although it is clearly frustrating for the company that it has seemingly been curtailed by Covid, as mentioned at the outset, this looks to be a temporary set back that should lead to a clear acceleration in its products moving forward, as operators look at new ways of undertaking various aspects of security. What is clear, is that as it entered the Covid challenges it was already on a very positive trajectory with a rapidly-growing market acceptance of its leading product range and that is now likely to prove resurgent as we tentatively recover and embrace enforced changes. Looking at what is regarded as a ground breaking lead product as shown in the video, this operates at what is a substantial distance, removing that need for pat-downs or the use of the detection wands and is clearly highly regarded as evidenced by the likes of the US Homeland Security's adoption. The company has also and encouragingly more recently stated that that the pandemic has lead to a number of new potential customers considering taking up the Thruvision system which sits well for the medium to longer term. It is also now at a more mature stage of its evolution in that it has a greater range of products in its portfolio with margins improving and which also carry with them servicing contracts once adopted and embedded, although the real value is in the hardware provided.

Importantly, there has been some strong progress made with US Federal Government agencies and with that nation becoming increasingly insular and security concious, it is perhaps not surprising that management has expressed confidence in building on recent momentum. Aviation is actually a relatively new target market for THRU, only being developed/targeted over the last year and the company has now secured US Transport Security Adminstration approval for screening empoyees at US Airports. Los Angeles, Seattle and LaGuardia are already on board as customers in this area, but perhaps much more exciting and meaningful is the approval process for the company's system for passenger screening which is already underway. A successful outcome for this, could prove transformational for the business, effectively opening up the market for mass adoption right across the International Aviation security market. The company is already active and growing across customs where its systems have been deployed at cross border checkpoints as it identifies specific objects. Reassuringly Its customers are already big and well known names including Hong kong customs and the US State Dept Bureau of Narcotics and Law enforcement amongst others. Also of interest and an established arm is that of loss prevention for businesses, where in a distribution centre or other large setting items can disappear proving costly and disruptive to businesses. Customers here include Sony, Hermes, JD Sports, Next and Morrisons and encompasses any area from fashion retail, to food, healthcare and engineering. With more and more retail shifting to the online format such large distribution centres are on the increase or seeing expansion which provides for further growth opportunities for the company. At the current 25.5p THRU is valued at £37m which may or may not be appealing, dependent on what your risk appetite is and aspirations/ timescale are. The 52 share price week range is a 12p low-31.5p high and over the last three years the shares have traded between that range, so nothing much seemingly happening on that front as yet! It is perhaps tempting to say that the shares will drift downwards again and anyone interested in a punt may well find a cheaper entry point. But, the virus impact (short term) is already out there, guidance for 2021 as with many has been suspended, so much of the downside risk is already out  in the market.. On the other side of the coin, positive news on contracts from a strong pipeline of opportunities could come any time and there is also the very real prospect now of both a wider adoption and media awareness as THRU seems somewhat off the investment radar. That said, there are some very well known and respected Institutional holders of the shares including Schroders, Herald, Henderson and Invesco amongst others whilst Exec Directors have skin in the game. The shares are it seems very tightly held so one would expect that should some really positive news break on orders/deals then the price would move pretty swiftly. Speculative as I say, but interesting and a disruptive tech that could pay off. THRU TRADING UPDATE 7 OCTOBER 2020 Thruvision announced what were pretty positive numbers today in a Trading Update ahead of its interim results, which saw the company achieving break-even EBITDA for the first time, which is a real positive given the background of Covid as mentioned in my first piece. Although the company had been impacted early on around the various lockdown situations as it was unable to conduct trials or physically demonstrate, as things opened up, so too did business move forward. The last quarter in particular was said to have been strong which saw an excellent $4.9m contract award from the US Customs and Border Protection (CBP) won  which was actually a follow-on contract, therefore providing for a further solid endorsement of the technology. In total, the company received orders from eight new and six existing customers during the half year with the customs and profit protection sectors both holding up well.   That isn't a bad result given that sales openings and demonstrations to customers have been impacted by enforced restrictions on travel etc, whilst it is also a positive that sales teams have apparently been strengthened and are said to be making good progress with pre-sales work which the company believes will now shorten sales cycles following trials.

Net cash although reducing for the period to £5m will return to the £8m plus position, as this month payment should be received from the US CBP maintaining a strong and solid position. Although the aviation sector has been in and remains in an extremely difficult space THRU says it is making good progress with regulatory approvals which is a potential game changer for the company. When I spoke with the CEO a couple of  months back he was understandably unable to comment on this specific area, so holders of the shares will have to wait a little longer yet.  But, given that it already works with other key US agency's and is becoming firmly recognised and established, then the odds of approval do look positive, where any news of which could provide for a real boost for the business. The shares moved up a touch to 28p and will no doubt continue to flatline until further news is announced.

Virus-free. www.avg.com

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