Knosys Ltd (KNO: ASX) is a microcap company on the ASX specialising in cloud software.
About Knosys
Knosys is a knowledge management software company that provides organisations with a simple way to share and access information across departments. Using their KIQ cloud system, companies can control and share information internally with ease. Knosys originally built the software specifically for ANZ, but it soon became clear that this system could be standardised and sold to other companies. These companies currently include Optus and Singtel.
Knosys is now targeting mid-market companies for this Software-as-a-Service (SAAS) product and on-boarded its first company in the June 2019 quarter, with reports of keen interest from other organisations.
Financial Outlook
Knosys’ recurring revenue has grown 73% over the past year when comparing FY18 to FY19. With a cash balance of $4 million as of July 2019 and no debt, the company is in a strong financial position to accelerate its growth.
Knosys currently has a market cap of $11.6 million and annual recurring revenue of $3 million per year. This means if you currently bought shares in the company you will pay around four times annual recurring revenue (market cap divided by annual recurring revenue). When compared to other technology companies on the ASX, with similar business models, a multiple of four times recurring revenue is low.
Verdict & Risks
If Knosys can become cash flow positive in the near future its share price may be re-rated by investors resulting in a significant rise in its share price. The next year could be exciting for Knosys as they look for growth in their new service targeting mid-level companies.
Knosys is not without risk though, as the majority of their revenue comes from two companies, ANZ and Optus. If either of these companies withdrew from using the Knosys service, a large chunk of the recurring revenue would disappear. What’s more, it’s a very small company and its shares could be very volatile so it’s definitely not for the faint-hearted.
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Disclaimer: At the time of publishing, Jack owns Knosys shares.
