Riding the wave of ‘Home Automation’
Sandal is a specialist developer & supplier of electronic products/solutions for smart home, IoT, energy saving and other applications. It joined NEX in March ’15 and operates 3 divisions: MiHome offers Smart Home devices and associated software solutions to remotely control heating, lighting, power and other internet enabled appliances; PowerConnections sells a range of patented electricity/converter plugs, line-cords, extension leads, cordsets and adaptors; Energenie is a leading supplier of energy saving products, eg LEDs, sockets, etc.Smart homes are transforming the way people live. Not only allowing almost any internet-enabled appliance, security alarm/camera, lock, light, thermostat et al to communicate automatically with each other and everyone. But also creating a huge market opportunity, with Strategy Analytics estimating that consumers will spend a staggering $96bn (+14%) globally in 2018, climbing to $155bn by 2023 (10% CAGR).
What’s more, this growth is likely to be much higher in Western economies. In fact, Voicebot believe that by 2022, 55% of all Americans will own at least one voice-activated smart-speaker (33% CAGR) and 48% in the UK (37%).
The tricky bit for investors, of course, is trying to figure out which horses to back. Internationally the major players include a long list of publicly quoted & privately-owned organisations. Nonetheless, one stock that stands-out, especially for risk-tolerant GARP investors, is micro-cap Sandal plc. It is listed on NEX and we like its growth trajectory, breadth of product range, experienced management team and favourable risk/reward profile.
At 26p, the stock is rated on a modest 1.0x CY EV/revenues vs MiHome peers at 2.5-3.0x and the S&P500 1.9x. Over the past two years MiHome’s success has been masked by Sandal’s two other divisions. However, today smart home devices account for ~28% of turnover, meaning that the business has reached a tipping point. In fact, we’re forecasting 30% and 42% top line expansion for this year and next – generating revenues of £4.8m and £6.8m respectively, alongside positive operating profits.
Taking all these factors into consideration, we conclude that on a sum of the parts (SOTP) basis, Sandal is worth 65p/share: split 12p PowerConnections, 55p MiHome, 2p Energenie and -4p net debt.
Elektron Technology is a global business that designs, manufactures and markets products that connect, monitor and control. Co. has three business segments: Bulgin, which products are sealed connectors for the demanding environments, and custom product and system development; Instrumentation, Monitoring and Control, which key products are ophthalmic instruments, nanopositioning and sensing equipment, and materials testing equipment; and Checkit, which key products are cloud-based work management software based on interactive checklists, and smart wireless sensors for continuous automated monitoring.
Concurrent Technologies designs, manufactures and supplies embedded computer products for customers within the telecommunication, defense, aerospace, transportation, scientific and industrial markerts. Co.'s products are based on long life cycle components supplied by companies such as Intel, and include a range of central processing unit boards and complementary accessory boards. Co.'s products support various operating systems including Windows®, Linux®, Solaris™, QNX® and VxWorks® used in the embedded markets.
CyanConnode Holdings is a holding company. Co. designs and develops narrowband Radio Frequency (RF) mesh networks that enable Internet of Things communications. Co. provides customers with networking solutions and applications that help them in service delivery, business and energy. Co.'s optimized solutions provide narrowband RF network technology, delivering exceptional performance and total cost of ownership. These solutions include hardware, software and network management. Co.'s IPv6 solution is a wireless Neighborhood Area Network, an IP-based machine-to-machine platform that uses narrowband radio mesh networks to create deployments for the implementation of third party applications.
LPA Group is a designer, manufacturer and supplier of LED based lighting and electro-mechanical systems and a distributor of engineered components focussed on the transportation (including rail, infrastructure and aviation) and aerospace and defence markets. Co. and its subsidiaries comprise three product groups within a single operating segment - electro-mechanical, lighting and distribution, which collectively design, manufacture and market industrial electrical and electronic accessories.
Solid State manufactures electronic equipment and distributes electronic components and materials. Co. has two divisions: Distribution, which is a distributor serving the needs of the electronics original equipment manufacturer community in the U.K. and products provided include those for the internet of things, embedded processing, control, wireless and wired communications, power management, and light-emitting diode lighting from manufacturers; and Manufacturing, which is engaged in the design, development and supply of rugged and industrial computers, portable power and energy storage solutions, communication systems, antennas and high bandwidth video transmission products.
Synectics is a holding company. Through its subsidiaries, Co. is engaged in the design, integration, control and management of surveillance technology and networked security systems. Co. serves its customers through two business models: Systems, which markets under the Synectics brand, securing contracts for the design, development, and deployment of security and surveillance solutions founded on its Synergy 3 platform; Integration & Managed Services, which trades under the Quadrant Security Group and SSS Management Services brands, serving customers by designing security, surveillance, and facilities management solutions, and then implementing, maintaining, and supporting them over time.
Telit Communications is a global enabler of the Internet of Things (IoT). IoT is the technologies that allow both wireless and wired systems to communicate, exchange data with a range of devices, typically in a vast number of locations. Co. provides a portfolio of integrated products and services for end-to-end IoT deployments. This includes cellular communication modules, global navigation satellite system, short-to-long range wireless modules, low power Wi-Fi and Bluetooth, IoT connectivity and IoT platform services. Co. sells its products and services directly, and through a network of distributors, to direct and indirect customers, in countries around the world.
Vianet Group is a provider of actionable management information and business insight created through combining data from its smart Internet of Things solutions and external information sources. Co. operates two business divisions: Smart Zones, which principally consists of beer monitoring business (including the U.S.) and gaming machine management services; and Smart Machines, which comprises vending machine telemetry and contactless payment solutions, as well as monitoring business primarily in the vending sector. Co. provides design, product development, sale and rental of fluid monitoring equipment and machine monitoring equipment, data insights and related services in these divisions.
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