Checkit plc TICKER: CKT     EXCHANGE: L

Checkit (formerly Elektron Technology) operates a SaaS platform that digitises and vastly improves the running of routine tasks/workflows, particularly with regards to efficiency, quality, standardisation and regulatory compliance. In May’19, the group acquired Next Control Systems for £8.8m, which added scale to the IoT (Internet of Things) element of the product suite.

The company is aiming to become a global leader in real-time operations management software.


Making rain from cloud software & services
Published: Oct 04 2019

Thomas Edison was one of the founding fathers of modern day electricity, after inventing the world’s 1st light bulb in 1879. Equally 140 years on, Chairman Keith Daley, ex-CEO John Wilson and CFO Andy Weatherstone have harnessed the power of the ‘Elektron’, and delivered an 8-fold return for shareholders over the past 3 years.
The good news, is that – even following the £104.7m disposal of Bulgin to Equistone Partners Europe - this winning team remains largely in place (albeit Mr Wilson moves to a non-exec role). With the Board once again aiming to materially out-perform the benchmarks by rapidly scaling Checkit’s (formerly Elektron Technology) real-time cloud-based operations management software & services.
What’s more, there’s plenty of capital too, with proforma net cash of £94m (worth c.50p/share) - plus maybe another £2m or so, from the future sale of the non-core EET (Eyecare) unit.
The intention is to distribute the majority of these funds to shareholders in the form of a 2-for-3 £81m Tender Offer at 65p. The rest is ear-marked to further exploit Checkit’s 1st mover advantage, with perhaps a little left over for bolt-on M&A.
To us, this strategic pivot towards software & services makes perfect sense. Although in the short run the Bulgin divestment will be earnings dilutive, with our sum-of-the-parts valuation declining from 83p to 70p/share.
Additionally, the disposal will enable far greater resource (especially management time) to be focused on the slimmed down group – ie to accelerate product innovation, marketing and international expansion. The first day of trading in the new shares (AIM: CHK) begins today at 8am.
Turbo-charged growth at a modest price
Published: Jun 12 2019

To be a great investor, you must be a great learner too. The same is true for companies. Back in 2014 Elektron’s largest division, Bulgin delivered 6.3% EBIT margins on sales of £27m. Today, after successfully moving up the value chain, shedding commodity products, streamlining costs and introducing new technology, the same entity is achieving 30.0% margins on £30.1m of revenues. A huge improvement that we think is not only sustainable, but also a credit to the management team, who have demonstrated they know what makes a business tick, with the shares rising 10-fold over the same period.
What’s more after the transformational £8.8m acquisition of Next Control Systems in May, the latest ‘gaming-changing’ project could prove equally rewarding for shareholders. Indeed by improving Next’s performance and merging it with Checkit, we suspect in 5 years’ time the enlarged division could hypothetically more than double Elektron’s 45p stockprice on its own.
In terms of today’s prelims, group FY19 turnover jumped 13.1% to £33.7m (all organic vs £29.8m LY), whilst EBITDA and EBITA climbed 33% and 77% to £6.8m (£5.1m) and £4.6m (£2.6m) respectively - bolstered by strong demand, the devaluation of the Tunisian Dinar (+3.6% margin boost) and favourable operating leverage. Similarly, underlying EPS came in at 2.1p (+103%), with net cash closing Jan’19 at £10.1m, or 94% higher than 12 months’ earlier (£5.2m) - despite investing £2.8m in R&D (8.3% sales), of which £1.5m was capitalised (vs £1.8m amortisation), and incurring start-up costs related to Checkit’s US rollout on the West Coast.
Looking ahead, given the global uncertainties, we’ve prudently decided to hold our FY20 adjusted EBIT (£6.6m) and EPS (2.7p) estimates intact, along with retaining the 83p/share sum-of-the-parts valuation.
CEO John Wilson commenting: ”The Group’s trading performance in FY19 was exceptional and we have made strong operational and financial progress during the year. Bulgin delivered record profitability, Checkit sales accelerated to plan and EET returned to profitability. We look to the future with optimism.
Taking Checkit to the ‘Next’ level
Published: May 15 2019

Visionary and founder of Apple, Steve Jobs, was a consummate genius at taking everyday concepts (ie PCs, mobile phones) and ultra-simplifying them for users. 
Likewise Checkit’s innovative SaaS solutions have transformed the process of completing routine tasks (eg cleaning restaurants, maintaining schools) - generating unrivalled benefits in terms of efficiency, customer service, repeatability, transparency, safety and regulatory compliance. 
The goal now is to exploit this 1st mover advantage, rapidly scale the division, and ultimately become a global ‘category champion’. This morning, the business took a major step forward towards achieving this objective, by announcing the £8.8m (cash/debt free) acquisition of Next Control Systems Ltd (NCS) – a leading UK (98% sales) remote monitoring, control, IoT and real time data analysis specialist, based in Fleet (Hampshire) and employing 104 staff.
The transaction is modestly priced (6.6x EV/EBITDA, 7.3x EV/EBIT), immediately earnings enhancing, value accretive, and should generate substantial synergies in due course. Not least, by improving product quality, up/x-selling services, expanding overseas and opening doors for Checkit into other non-food related verticals.
From a risk perspective too, all of NCS’ key employees have decided to stay on, which should ensure a smooth handover and integration. Plus, the deal appears to be relatively low risk, in light of the Board’s prior knowledge of the target, alongside the symbiotic chemistry, skillset and genetic fit.
Elsewhere, Q1’20 trading (ie Feb-April) has been strong, with turnover up 17% to £8.9m (LY £7.6m), driven primarily by Bulgin (+20%). Consequently, we have upgraded our FY20 and FY21 EBIT forecasts to £6.6m (vs £5.8m before) & £8.4m (£7.4m) respectively – but prudently held the 83p/share valuation. 
Bulgin approach infers 'substantial' upside
Published: Feb 05 2019

Elektron (EKT) is a specialist niche product OEM and B2B operational service provider, enjoying a wide economic moat. It runs 3 separate divisions, each targeting distinct markets, yet bound together by a single centre of engineering excellence.
Today in a trading update EKT said it had received “an unsolicited offer for Bulgin at a substantial premium to the Group’s market capitalisation (ie £84m)”. On this occasion nothing came of it, with the interested party ultimately withdrawing “due to strategic reasons”. However, we believe the approach from an unspecified “overseas buyer” nonetheless highlights the considerable upside available, and puts a solid floor under EKT’s shares. 
The Board also separately announced that it is seeking buyers for EET. The disposal is likely to take 3-6 months to execute, which if successful would allow the group to focus entirely on its core Checkit and Bulgin interests.
Not only did the business deliver a slightly better than expected out-turn for FY19 (revenues +13% LFL to £33.7m vs £29.8m LY), but also the healthy closing order book and pipeline (Book:Bill >1 with order intake +7% £34.3m) provide a springboard for a “record” Q1’20.
Divisionally, the FY19 sales growth (all organic) came from Bulgin (+10% to £30.1m) and Checkit (+100% £1.0m), with the latter exiting the period on a contracted run-rate of £1.2m pa (+60%). Similarly EET was 30% higher at £2.6m vs £2.0m LY and profitable.
Better still, Bulgin is highly cash generative, pushing net funds as at Jan’19 to £10.1m (vs £5.2m) - even after investing heavily in Checkit and building an extra £0.3m of working capital ahead of any potential Brexit related supply chain issues. 
With regards to the numbers we reiterate our FY20 EBITDA forecast of £8.6m on turnover of £36.0m, and likewise hold the sum of the parts valuation at 83p/share. 
Elektron knocks it out the park
Published: Nov 01 2018

Elektron Technology is firing on all cylinders, with CEO John Wilson saying today that “the Board expects FY19 to be significantly ahead of market expectations,” after enjoying an “exceptional Q3”. Thanks to “record sales” of £8.8m (+13% LY) at Bulgin (re unprecedented demand), alongside a similarly impressive performance from EET (Optometry equipment), posting revenues up +33% to £0.8m. 
Better still, due to management’s continued focus on product profitability, augmented by positive operational gearing and in-house capacity improvements, Bulgin’s FY19 EBIT margins are anticipated to be c.30% (vs 26.4% LY & 25% H1). Substantially ahead of our previous forecast of 27.6%, and delivering an estimated 34% for H2.
Elsewhere Checkit has also made excellent progress, reporting Q3 turnover up 200% to £300k (£100k LY) – and completing the development of its next generation Work Management module, which added Android compatibility and GPS tracking. Both key system enhancements for customers, particularly outside the food industry, as evidenced by the recent adoption by the Blood Sciences Department of Leeds Teaching Hospitals NHS Trust (50 locations). 
So what does this all mean in terms of the numbers? Well in total, Q3’19 turnover came in at £9.9m (+16.5% vs £8.5m LY, & +17% YTD at £25.8m) with September net cash closing at an equally healthy £8.5m (vs £6.8m July). In turn, leading us to raise our FY19 revenue, EBIT and cash projections to £33.5m, £4.6m and £9.7m respectively vs £31.9m, £2.7m and £8.3m before. Indeed as an indication of the strong momentum behind the business, this is the fourth consecutive upgrade we have made in only 4.5 months.
Likewise our FY20 projections have been lifted too, thus boosting the overall SOTP valuation from 69p to 83p/share - split 62p Bulgin, 14p Checkit, 2p EET and 5p net funds.
John Wilson, CEO, will be presenting at our next Investor Forum on the 28th November.  Register to attend: 

Doing all the right things consistently well
Published: Sep 19 2018

Elektron (EKT) is a specialist niche product OEM and B2B operational service provider, enjoying a wide economic moat. It runs 3 separate divisions, each targeting distinct markets, yet bound together by a single centre of engineering excellence located in Cambridge.
For EKT - particularly in light of the difficult hand it was originally dealt – this morning’s ‘strong’ results are the culmination of years of hard work, and a reflection of the business’ resilience and quality.
In terms of the 1st half numbers, revenues and EBIT climbed to £15.9m (+17% LFL) and £1.4m (180%) respectively, thanks to a standout performance from Bulgin. Here “unprecedented demand” (bookings +10%) propelled turnover up +14.4% to £14.3m (£12.5m LY), EBIT 20% higher (£3.6m vs £3.0m) and operating margins to 25% (24% LY). Similarly, Checkit delivered impressive top line growth of 146% to £0.4m, aided by July’18 annualised revenues running at a £1.1m clip (vs £1.0m April and £0.5m LY) – with losses broadly flat at £2.2m (-£2.3m LY) mirroring its ambitious expansion plans. Optometry equipment maker EET made good progress too, breaking-even (-£0.2m LY) on revenues up 33% to £1.2m.
Elsewhere, net cash closed July at £6.8m (vs £2.1m LY & £5.2m Jan’18) and is set to rise to £8.3m by Jan’19. Implying to us that there is headroom available for possible synergistic M&A, albeit nothing is thought to be imminent & organic growth remains by far the #1 focus.
Alongside the improving outlook, the medium-long term prospects at each division are in our mind outstanding. For us, all of these three scenarios are perfectly feasible and not factored into the current share price. Consequently, although our forecasts remain unchanged, we think the broader risk/reward profile has improved, and accordingly have nudged up the SOTP valuation from 66p to 69p/share - split 49p Bulgin, 14p Checkit, 2p EET and 3p net funds.
Upgrading forecasts again
Published: Aug 09 2018

Disruptive technology is turning the world upside down. Look anywhere from online retailing, autonomous vehicles and social media, to big data, augmented reality and artificial intelligence. Life is changing, and fast. Similarly we think Elektron’s Checkit service is set to transform the workplace, simplifying everyday tasks such as cleaning schools, monitoring food safety and testing patient blood samples, whilst simultaneously delivering substantial time/cost savings, along with improving customer service and regulatory compliance.
So far 281 customers have signed up, generating annualised revenues of >£1m (vs £780k Jan’18 & £540k Jan’17) - including John Lewis, the NHS, Claridges, Alton Towers, Compass, Cambridge University and Center Parcs. The latter decided only last month to extend coverage from 2 to all of its 5 UK locations – “freeing up more than 20,000 hours of resource per year”.
Elsewhere, we think there are material opportunities in leveraging the data, where Checkit already collects >35m measurements/month. For instance, providing industry benchmarking services (re continuous improvement), and ‘anomalous’ data sets to other 3rd parties, say for advertising purposes.
So how is the business performing? Well encouragingly, the firm reported this morning that it is set to beat consensus estimates, thanks to record H1’19 sales (+14%)/orders at Bulgin, a 144% jump in turnover at Checkit to £0.4m (re contract implementations) and a 33% leap in EET revenues, reflecting the pull-through of orders and improved distribution. 
All told, group H1’19 sales came in at £15.9m or 16.9% above LY, driving est PBT to £1.4m and closing net cash of £6.8m, boosted by the £0.8m disposal of Queensgate Nano. CEO John Wilson, adding “strong double digit growth during H1’19 is representative of the multi-year transformation of our business. We now expect to be ahead of market expectations."
Lifting estimates & SOTP valuation to 66p/share
Accordingly, we have increased our FY19 turnover and adjusted PBT forecasts by 4% and 17% respectively to £31.9m (£29.8m LY) and £2.7m (£2.7m). We have nudged up the Jan’19 closing net cash position to £8.3m (£5.2m) and lifted the sum-of-the-parts (SOTP) valuation by 6.5% (or 4p) to 66p/share (see below) - split 46p Bulgin, 14p Checkit, 3p EET and 3p net funds. 


'Strong' start to the year
Published: Jun 20 2018

There is nothing wrong with banking a few profits after a parabolic move, especially when a stock becomes disproportionately large within one’s portfolio. Yet for Elektron, based purely on the fundamentals, we believe this would be a mistake despite the stock’s >5-fold rise since the 2017 lows. 
Indeed, this morning the company said that Bulgin was continuing to experience buoyant demand, with YTD performance ahead of plan. Supported by a ‘record orderbook’, driving H1 expected sales up at least 8% LFL to £13.5m (LY £12.5m).
Accordingly, we have increased our FY19 turnover and EBIT forecasts for the division to £27.5m (vs £27.3 LY) and £6.9m (£7.2m) respectively. Elsewhere, EET is making good progress too, and tracking full year estimates. While Checkit is in “advanced discussions” with several global businesses to adopt its disruptive technology. 
From a macro risk perspective, we understand Elektron has minimal exposure to the recently proposed ‘US-EU/Chinese’ trade tariffs, even though c.64% of revenues are generated outside the UK. Instead there may actually be a small positive forex benefit given $ appreciation vs the £ (6%) and Tunisian Dinar (10%) over the past 2 months. 
So what does this all mean? Well, in terms of the group our FY19 EBIT climbs from £2.0m to £2.3m – which in turn pushes the sum-of-the-parts (SOTP) valuation 2p higher to 62p/share.
Buy one, and get two for free
Published: May 17 2018

Elektron (EKT) is a specialist niche product OEM and B2B operational service provider, enjoying a wide economic moat. It runs 3 separate divisions, each targeting distinct markets, yet bound together by a single centre of engineering excellence located in Cambridge.
EKT has created its proprietary SaaS based Checkit service. Recognising that, by digitising the entire process of performing routine tasks, it could deliver substantial benefits in terms of efficiency, customer service, repeatability, transparency, operational management, safety and regulatory compliance. No wonder that a clutch of top-brands have already signed up. 
Checkit has now moved from start-up to commercialisation mode with a US soft-launch slated for late 2018, leveraging Los Angeles as an initial beach-head.This is not small beer either, as the Board reckon North American market is worth >£1.3bn alone, on top of the UK’s £272m. And we estimate that continental Europe and the rest of the world (RoW) would add another £1bn a piece. All told generating a >£3.5bn global addressable market.
We think Checkit is effectively given away in EKT’s stock price ‘for free’. You see, the vast bulk (91% FY18) of group turnover and all the profits/cash, is generated by Bulgin: a world-class designer/manufacturer of hermetically-sealed (ie air/water-tight), fail-safe circular connectors. Management have done an excellent job in boosting EBIT margins from 5.4% in FY13 to 26.4% in FY18 without unduly impacting the top line, since greater average selling prices and order sizes have more than compensated. 
Similarly we think Elektron Eye Technology is today being effectively being valued at zero when compared to EKT’s market cap. Its two main therapeutic areas being the early detection of Glaucoma and ‘age-related macular degeneration in patients. It is estimated that by 2020 there will be 196m AMD and 80m glaucoma sufferers worldwide.
Bearing all of the above in mind and employing a range of sector multiples, our sum of the parts analysis indicates that Elektron is worth 60p/share – made up of: 40p for Bulgin, 15p Checkit, 2p EET and 3p net cash.

Foreign buyers gorging on UK stocks

Document can be downloaded here: UK plc ‘going for a song’

Being a shareholder in a company that receives a juicy takeover offer is a marvellous feeling. Something that many fortunate investors have experienced over the past 3 years. Thanks to a spate of M&A bids by deep pocketed overseas buyers – partly triggered by the June 2016 Brexit result, which sent the £ tumbling and adversely affected the FTSE.

Consequently today, given this trend is unlikely to end anytime soon, we’ve highlighted 30 possible acquisition ideas in the attached research paper. Spilt equally between large and smallcap stocks – covering a broad selection of industries.

What’s more we believe most of these businesses are underpinned by strong fundamentals and substantial upside in the event of predatory interest.

According to Factset Mergerstat/BVR, the average bid premium paid for such deals between 2004-14 was 30% – with the figure trending upwards since the global financial crisis.

Happy investing. Published 27th August 2019