Why We think TraceSafe (TSF.CSE) is one of the most undervalued Tech stocks in Canada
CSE: TSF and OTCMKTS: UTOLF
Highlights of the Topic
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Government Contracts (Hong Kong, Singapore, Cayman)
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Venue Management (TD Gardens, IIHF World Junior Hockey Championships)
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Peer Group Analysis
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Summary/Conclusion
Introduction:
TraceSafe owns 100% of the rights and interests in the real-time location tracking technology known as TraceSafe. TraceSafe includes original hardware such as wearable products, like a bracelet band or an access card, which has an embedded chip that can track the wearer's location to provide exposure notification.
Over a 10-year period, TraceSafe has developed a robust and secure cloud-to-device platform that is designed to be highly flexible. This allows the technology to be tailored to many different applications, including contact tracing, quarantine management and real-time location services for company employees. This technology utilizes advanced low power Bluetooth beacons and ensures both user privacy and administrative control.
So far the company has successfully deployed its solutions across a variety of sectors.
Government Contracts - TraceSafe has won government contracts in Cayman Islands, Singapore, and Hong Kong. These government contracts are lucrative as all travelers going to these destinations are required to self Quarantine with TraceSafe devices. So far, TraceSafe has been working together with the government of Hong Kong since March 2020, and more than 150,000 TraceSafe solutions have been deployed. Additionally, contracts have been signed with hospitals in Singapore to track patients and beds, and a SE Asian Conglomerate (the customer has not disclosed for privacy reasons, but many people say that this client is Singapore Health Ministry). The Company is in active discussions with over 20 governments and is likely to announce a new deal with another government in Asia or North America.
TraceSafe and Hong Kong contract:https://www.bloomberg.com/press-releases/2020-09-10/tracesafe-secures-new-order-in-hong-kong-for-quarantine-management-wristbands
TraceSafe Hong Kong Case Study:https://www.youtube.com/watch?v=IUmyKaytCZc
Hong Kong deal a ‘catalyst’ for future deals:https://ca.paidpromotionalmessages.com/companies/news/930200/tracesafe--pandemic-has-become-a-catalyst--for-contact-tracing-bracelets-after-hong-kong-contract-930200.html
TraceSafe order with Southeast Asian conglomerate:https://www.accesswire.com/607388/TraceSafe-Awarded-Large-Scale-Order-from-Southeast-Asian-Conglomerate
Venue Management - Venues were hard hit by Covid with many sports teams experiencing significant financial distress as they mainly had to cease operations, and can no longer have fans at games. TraceSafe has inked contracts with the IIHF World Junior Hockey Tournament in Edmonton, Canada TD Gardens in Boston and Lampert Stadium in Toronto (Toronto Wolfpack rugby team). Getting approved for both TD Gardens and the World Juniors is a big deal as it was approved by Hockey Canada and likely points to potentially working with teams from the NBA or NHL in 2021. In addition to the covid use case, TraceSafe bracelets can be outfitted with payment capabilities to use for Concession stands. Privately held Delaware North owns TD Gardens, and is one of the biggest private hospitality and restaurant companies in the world (as per Forbes). If all of these deals are successful, it sets the stage for TraceSafe to work with some of the biggest sports and venue companies in the world. The deal with Hockey Canada involves a partnership with one of Canada’s biggest telecommunications providers, Telus. Powered by Telus’ world-class wireless network, Tracesafe technology is deployed across the tournament bubble to provide quarantine management and monitoring of exposures. There are no other contact tracing companies in Canada that have partnered with a company of Telus’ magnitude, and it is expected that this partnership will continue as TraceSafe solutions are deployed among Telus’ corporate clients and employees. Hockey Canada, IIHF, Telus, TD Gardens (Delaware North)...the clients don’t get much bigger and better than this.
TraceSafe and Telus IoT marketplace:https://www.marketwatch.com/press-release/tracesafe-approved-for-nationwide-corporate-sales-in-telus-iot-marketplace-2020-12-07
TraceSafe and IIHF World Junior Hockey Championships:https://ca.sports.yahoo.com/news/tracesafe-contact-tracing-2021-iihf-120000807.htmlTraceSafe partnership with Telus for IIHF World Juniors:https://www.telus.com/en/about/news-and-events/media-releases/tracesafe-and-telus-iot-solutions-are-safeguarding-the-iihf-world-junior-championship-bubble
TraceSafe and TD Gardens:https://www.sporttechie.com/tracesafe-contact-tracing-deployed-at-bostons-td-garden
Enterprise Management: Enterprise in the biggest opportunity as the Private Sector dwarfs the public for cases. TraceSafe has begun to work with one of Singapore’s biggest construction companies, Boustead Construction. This sets the stage for further deals in Asia within the construction or office segment. TraceSafe technology can be used within this segment to provide location tracking, and greater insights into workplace habits and the safety of workers. It becomes a big data play at this point.
Market Size
The markets TraceSafe operates in are massive with Enterprise Contract Tracing & Wearable Tech being by far the biggest markets.
On the enterprise front, TraceSafe signed a deal with UKG which is a company built by the merger of Kronos and a Florida-based software provider called Ultimate Software. The company is one of the biggest cloud computing companies in the world with top-tier clients that include Tesla, Marriott, Samsung, Yamaha, Sony Music, The Salvation Army, Miami Dolphins, Phoenix Suns, Revlon. Given the huge number of employees that these companies employ. We anticipate significant revenues to start showing up in Q1 from these customers and more deals in the Enterprise Space as a result of this partnership.
Airbeam Stake
TraceSafe currently owns a 13.5% stake in a company called Airbeam that is a 5G smart cities enabler built by former Qualcomm execs. Airbeam is due to IPO in Q1 2021 and the company is currently valued between 200-400M. This puts TraceSafe ownership around 27-54M. Wayne Lloyd announced a decision to issue Airbeam shares via Special Dividend to TraceSafe shareholders once the company goes public.
Below is a calculation of how big this dividend will be given a few different Airbeam Valuation scenarios.
Airbeam Valuation & Expected $TSF Special Dividend
150M Valuation = $0.57 per TSF Share
200M Valuation = $0.76 per TSF Share
300M Valuation = $1.14 per TSF Share
400M Valuation = $1.52 per TSF Share
Comparison of the CompetitorsNow let’s compare the Valuations of TraceSafe’s closest competitors (FaceDrive, Loop Insights)*TraceSafe (TSF)*Market Cap: 22 MillionQ3 Revenues: $1.1 Million (100% growth over Q2 with revenue only partly recognized for Hong Kong contract)Shares Out: 35 million
FaceDrive (FD)
Market Cap: 1.55 Billion
Q3 Revenues: $266,460Shares Out: 94 million
Loop Insights (MTRX)
Market Cap: 230 Million
Q3 Revenues: $0Shares Out: 106 million
As you can see from the comparison, the contrast in valuations is quite large. Although it speaks to the bloated overvaluation in both $FD and $MTRX, it also underscores how grossly undervalued TraceSafe is as compared to Loop and FaceDrive, which have spent millions of marketing. Facedrive in particular spent over $8million on marketing in June 2020.
Summary/Conclusion: Growing Revenues and Bargain Valuation of Tracesafe
So far, TraceSafe has advanced from the Proof of Concept phase and is growing revenues rapidly. Q3 saw Revenues increase 100% with Q4 Revenues expected to be around 2 Million, which is another 100% Increase. Based on this impressive growth, the market currently is giving TraceSafe around a 4x Sales Multiple. Given QoQ Revenue growth of 100%, this doesn’t seem justified at all.
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Growing Margins are increasing profitability and will see the Company become Cash-flow positive in 2021.
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TraceSafe is diversifying their product line-up to include Venues, Cruise Lines, Construction Sites, and well-poised to capitalize in 2021.
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TraceSafe’s stake in Airbeam is now worth 40.5M-54.0M and management is likely to issue Airbeam shares to shareholders.
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The market for Enterprise Wearables expanding at 41% a year bodes well for TraceSafe
We feel that TraceSafe’s low valuation is a temporary imbalance given the lack of analyst coverage in small-cap markets which will correct. As to when this correction will occur, the best cure for undervaluation in the Small Cap space is
1) Promotional marketing or
2) let the results speak for themselves
We feel that the company is proving its model, seeing successes in expanding its product line and customer base alongside a very Successful investment in Airbeam which de-risks investing in TraceSafe as investors today are getting 2 high-quality tech stocks for the price of 1.
Estimates and Price Target For TraceSafe
Q4 2020 Revenues: 2M
FY 2021 Revenues: 20M
P/S Multiple: 15x
12 Month Price Target: $9.65 (includes Airbeam Spin-Off Value)
*In Wayne We Trust*