AVN Company’s financial performance

Avanceon Limited (AVN) held its corporate briefing session today to brief about the introduce Octopus Digital and outline future strategy. To recall, AVN reported consolidated profitability of PKR 1.0Bn (EPS: PKR 4.9) in CY20, up 15% YoY. On the other hand, earnings during 1QCY21 clocked-in at PKR 245Mn (EPS: PKR 1.15), down 36/18% YoY/QoQ. Key takeaways from the session are summarized below:

The company essentially is the leading provider of industrial automation, process optimization and systems integration solutions. The business model is to provide real time data to manufacturing companies through digital dashboard technology and KPI prediction models. AVN has also partnered with Microsoft Corporation to create a collaborative business model to cater to the industrial sector and to ensure data security needs of the clients.

Over the period of three years, the company has witnessed an increase in order generation from USD 38Mn in CY18 to USD 59Mn in the outgoing year. As per the management, the business operations remained largely unscathed by the outbreak of COVID-19 due to company’s work from home policy. The company was able to ensure timely project deliveries during the lockdown period.

The management mentioned that they reported the highest ever revenue of PKR 6.4Bn in CY20, up 32% YoY. Excluding the other income, this translated into a massive bottom-line growth of 47% YoY to PKR 0.8Bn during the same period. Higher other income in CY20 was on account of recognition of exchange gain. As of 1st Jan 2021, the company has business backlog of USD 47.5Mn in pipeline.

Commenting on the financial projections for CY21, the company officials stated that they are anticipating the revenue to reach PKR 8.7Bn, up 35% YoY. Consequently, the bottom-line is expected to surge by a whopping 77% to PKR 1.8Bn (EPS: PKR 7.2) during the same period.

During CY19, the company carved out its service business to a wholly-owned subsidiary, known as Octopus Digital for which the IPO is expected in the ongoing year. The Octopus’s business model comprises of three main segments which include: 1) Topware, 2) OmniConnect, and 3) After-Market Service (AMS). The company is projecting revenue growth of 2.4x to reach PKR 0.7Bn in CY21 for Octopus Digital. On the other hand, earnings are expected to clock-in at PKR 0.4Bn (↑ 2.0x YoY).

The AMS business segment of the company contributed around PKR 0.5Bn in revenue during the end of CY20, with major contribution from Dubai at 47%, followed by Pakistan and Qatar at 36% and 17%, respectively. However, geographic revenue mix changed in 1QCY21, with Pakistan’s share declining to 17% and Qatar’s share jumping to 40%. Going forward, the company is expecting AMS revenue to witness double-digit growth due to additional digital upselling. Note that it currently has 45 maintenance contracts in place.

The company has also recently signed an MoU with the largest power conglomerate, Hub Power, to establish digital transformation partnership.

Given the accelerated pace of digitalization and increasing number of companies looking to migrate to digital platforms, the management is very optimistic about the future outlook of the company.

Courtesy – BMA Capital Management Ltd.

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