Investor Marc Kennis detailed how he thinks the company’s value proposition will play out – both near-term and long-term.
Blockchain technology company Security Matters (ASX:SMX) has plenty of upside as it looks to convert a multi-year product development period into commercial opportunities, investment firm Pitt St Research says.
Still, investors “need to have mindset this is going to be a long-term play”, Pitt St’s Marc Kennis says.
Speaking with Stockhead recently, Kennis provided insights into how he views SMX’s value proposition after Pitt St included it as one three ‘Emerging Stocks Down Under’ in a research report earlier this month.
For Security Matters, 2021 was a year where it continued to build out a commercial pipeline for its tracing technology – a patented marker which can be applied chemically to solids or liquids in order to track source materials and manufactured goods across the product supply chain.
Its new partnerships included a development deal with multinational tyre manufacturer Continental, as well as global fashion conglomerate LVMH.
Kennis likes the partnership strategy, as well as SMX’s marker technology.
“They’ve established a lot of use cases, so the next step is to convert it to revenues and that’s what shareholders are looking for right now,” he said.
“As an external investor, I like their strategy of partnering with industry leaders to come up with a de facto standard for the industry,” Kennis says.
Earlier this year, SMX also lodged a patent filing for its computerised Exchange Platform.
The platform will provide for the blockchain-based distributed management of electronic certificates associated with plastic units that meet the sustainability standards enforced by SMX’s technology.
“If they can get their technology platform approved by regulators, it leaves competitors in the space with no other choice but to work with them,” he said.
“Ultimately what they’re working towards with all their stakeholders is an improved method of tracking and tracing to what currently exists, and there’s a lot of value-add there.”
“The challenge to what they’re doing is that it takes a long time. I first spoke to (SMX CEO) Haggai Alon back in 2018, so I’ve been following the business for a number of years now.
“The thing is if they can establish that platform model for each individual vertical, it’s really powerful,” Kennis said.
Industry Opportunities
With its tracing technology, SMX is aiming to position at the forefront of the global clean energy transition by enabling the creation of a circular, closed-loop economy across major supply chains – from source materials through to recycling.
While that transition will be in play for the long-term, Kennis also said SMX can also capitalise on more near-term opportunities via the growing importance of verification of origination and ethical sourcing.
“If you look at their recent deal with LVMH, one of the biggest concerns for a company like themis verifying the origination of their finished product ,” Kennis says.
“So that’s where I think most companies will initially see the value.”
Then longer term, the sustainability and circular application of SMX’s technology will also be important for all investors and stakeholders, Kennis added.
“That will gain in importance, but the immediate application is to make sure your product has been ethically sourced and that it’s up to standards,” he said.
“Then if you factor in all their other development agreements, from food agriculture to industrial production, the technology has applications on a lot of different levels.”
“So I think initially the commercial focus will be on the ability to verify origination of its raw materials and ethical sourcing , then those other market opportunities will gain in importance over the next 10 years.”
In that context, Pitt St Research has a near-term upside valuation for SMX of 48c – a 50% premium to its current traded price.
But for Kennis, investors with an interest in SMX should back the long-term vision stemming from the broader application of its patented marker technology.
“You need to look at it with a longer-term view because that’s really the play here,” he said.
“What the stock does near-term will depend on commercialisation deals. But you need to have a view that this company has a product which is well positioned to benefit from a broader trend.”
“For SMX, we think they have that product. But investors may need to be a bit more patient compared to, say, lithium stocks for example.”
This article was developed in collaboration with Security Matters, a Stockhead advertiser at the time of publishing.
This article does not constitute financial product advice. You should consider obtaining independent advice before making any financial decisions.