Ubisense Group: FY '12 Revenues Weaker, But Profitability In Line

Ubisense expects to report FY12 profitability in line with consensus expectations, although it expects revenues to be below market expectations. While delays in certain projects have affected H212 revenues, Ubisense continues to see strong interest in its RTLS solutions, helped by its partnership with Atlas Copco. The recent acceptance of a pilot project by Daimler could lead to wider adoption across the organisation, Ubisense continues to fulfil follow-on orders from existing customers, and high value manufacturers outside of its core automotive market are also trialling the technology.

FY12 revenues weaker, but profitability in line
Ubisense expects to report FY12 revenues below market expectations, through a combination of slightly weaker Geospatial revenues and some RTLS deals pushed into FY13. The company expects to report profitability in line with consensus expectations – we note that our EBITDA estimate of £1.02m is below consensus of £1.23m. Despite a decline in Geospatial revenues year-on-year, the mix of revenues favoured high-margin software versus services, and the division used fewer consultants to deliver services. Net cash at year-end was £2.6m, below our £3.2m forecast. We make no change to estimates at this point; preliminary results are due in mid-March.

RTLS continues to enjoy positive momentum
Ubisense separately announced that Daimler has approved the pilot installation at its Mercedes S Class assembly plant in Sindelfingen, Germany, which means that the project can now move into full integration phase across the remainder of the assembly line. We would expect that once this plant is fully up and running, Daimler may consider installing the technology in other assembly plants in Europe and the US. The company also noted that in H2, new installations were completed at existing customers (BMW, BAE Systems and Hyundai) and at new customers (Lufthansa and US Steel). The company continues to consider acquisitions in this market.

Valuation: RTLS adoption key to upside
In our view, the market is valuing Ubisense’s two businesses in line with their relevant markets on an EV/sales basis. Key to driving upside will be evidence that the RTLS business is winning contracts with new and existing customers and hence growing faster than the market and improving profitability. Considering the size of the available market, we continue to believe this is possible and could drive the share price above 245p.

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