MoneyTalks: SaaS stock Kinatico rated a Buy, while life insurer ClearView to benefit from multiple tailwinds
Taylor Collison has slapped an OUTPERFORM recommendation on Kinatico (ASX:KYP), with a 15c price target (vs current price of 12c).
Kinatico is a regulatory technology (Reg-Tech) workforce software business, primarily focusing on daily workforce management through its OnCite platform.
The company acquired Bright People Technologies for $15.3m in 2021, a move described as transformative for KYP as it allowed an accelerated move into the workforce compliance sector.
KYP is primarily targeting the healthcare, energy & utilities, education and professional & financial services sectors to simplify their compliance management.
Taylor Collison says the company’s strategic shift from essentially verification services to higher-margin recurring revenue business captured its interest in the stock.
The transition to this new high-quality SaaS revenue business model has increased customer stickiness for KYP, evidenced by zero customer churn in the last 18 months, along with higher quality revenue streams.
“The enhanced product mix and focus on workforce compliance management means KYP’s SaaS capabilities are more entrenched in the day-to-day operations of customers,” wrote Taylor Collison.
“Estimating KYP is only 15% through this conversion, we see an extended growth horizon of existing customers transitioning to SaaS before even accounting for any new customers.”
Taylor also believes that there are strong regulatory tailwinds for the Kinatico’s business.
“Recent amendments to aged care, healthcare and infrastructure related regulations such as the Aged Care Act 1997 are providing a formal and accelerated tailwind for KYP’s monitored compliance suite,” said the note from Taylor.
KYP, according to Taylor, is becoming a go-to provider to simplify and streamline compliance needs, replacing the manual and antiquated status quo often recorded in Microsoft Excel.
Meanwhile, KYP’s substantial cash balance of ~$10m at December 31st 2023 places it in an ideal position to fund revenue growth via organic and inorganic means.
In terms of valuation, Taylor says that KYP trades at a discount to peers on a FY23 EV/Revenue multiple.
“With the compliance management software space expected to grow at 10.9% CAGR, we value KYP at $0.15 per share using a blended peer analysis and DCF methodology.
“Industry growth is further complemented by KYP’s scalable platform and strong customer relationships,” said Taylor Collison.
Separately, Taylor Collison also has a BUY rating on ClearView Wealth (ASX:CVW), with a 12-month price target of 83c per share (vs the current price of 58c).
ClearView is a life insurance provider with three main products – pure life risk cover products, investment linked products, and bundled products.
The total life risk insurance market in Australia is around $16 billion – with ~$10 billion in individual risk products (sold via financial planners), and ~$6 billion in group risk products (via super funds or employers).
According to Taylor Collison, there are several long term drivers supporting the continued growth of the Australian life risk insurance market: Population growth; ageing population which means life insurance holders will hold their policies longer; and rising household wealth.
ClearView is also set to benefit from regulation changes.
“We see the current regulatory landscape as ideal for a disruptive medium sized player [like ClearView],” said the note from Taylor Collison.
Specifically, Taylor pointed to three qualities that should benefit smaller players like CVW, versus legacy life insurers:
“Modern, unified systems should mean CVW is more agile in bringing new products to market, making changes to existing products and other efficiencies.
“Smaller players will often have less legacy processes and other constraints when looking to introduce new products or business approaches.
“And larger incumbents are likely to have an existing book of policies that feature legacy wordings – which are often more vague and lead to undesirable outcomes.”
CVW is also poised to benefit from both higher interest rates and higher inflation, Taylor says.
The brokers said its valuation target is also based on ClearView’s target to generate $400m in-force premiums by FY26 – up from $325m in FY23.
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