Meeting Notes

CV Check – Quick and efficient verification of personnel credentials

April 2, 2019

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CV Check – Quick and efficient verification of personnel credentials

CV Check has been busily scaling up its identity and credential verification platform over the past three years. Aided by a strategic repositioning of both the platform and target customer group, growth has been impressive and a maiden quarterly operating cash flow surplus has been achieved. The company also reported a marked reduction in the operating loss for the six months ended 31 December 2018 and a breakthrough to profitability is anticipated in the near term. I caught up with CEO, Rod Sherwood at the recently held TechKnow Invest Roadshow in Melbourne.

COMPANY DATA

Date of ReportASXPricePrice TargetAnalyst Recommendation
02/04/19CV1$0.091N/AN/A
Date of Report20/02/19ASXST1
Price$0.058Price TargetN/A
Analyst RecommendationN/A
Sector: Software & Services52-Week Range: $0.044 - $0.100
Industry: Information TechnologyMarket Cap: $24.84 million

Source: Commsec

What do you do?

CV Check is a comprehensive platform for validating and verifying personal credentials, particularly associated with employment. The model was originally conceived and marketed as a consumer product where police and traffic checks could be easily sourced. However, it soon became evident that the value proposition was not particularly strong and that volume growth could not deliver a profitable outcome within a reasonable timeframe. Accordingly, in 2017 the company shifted to a B2B model targeting corporates who would use the platform to validate and verify a range of information typically profiled in employment applications.

Corporate revenue now contributes over two-thirds of total revenue and is growing at a double-digit pace. Although consumer revenue has now stabilised, its share of total revenue will continue to fall.  From a cloud-based portal, corporates can automatically source verification and validation of police, traffic, immigration and residency, credit, financial and business, education, professional qualification and employment records.

CV Check integrates with leading HR platforms and is highly secure ensuring very high levels of privacy, is automated and workflow efficient. The platform is amongst the market leaders in Australia and New Zealand with over 300,000 checks performed annually.

What is the business case?

With surveys showing that over 50% of job applications contain inaccurate information, about 28% of people admit to lying on the applications and 25% of all candidate screening results contain some form of discrepancy, the value proposition for employers is compelling. The risks of employment based on false or misleading information are high and in recent times there have been a number of high-profile cases where senior executives have been employed on such a basis with severe adverse consequences and resultant brand damage.

This proposition has strong supporting tailwinds which will add to the pressure to verify and validate the credentials of their workforce. This includes the fallout from Royal Commissions into the Financial Services industry and the Aged Care sector and legislative backing in New Zealand for children’s worker safety checks (for which CVCheck is the government’s sole gazetted supplier). The trend is towards increased legislative and compliance policy requirements for qualifications and safety checks in many key industries.

What are the growth opportunities?

With relatively low market penetration and large enterprise B2B growth rates of about 50% pa, a high rate of growth seems assured for the next few years based on the current business model. Channel partnerships and white labelling will contribute to sustained high rates of growth. Further opportunities lie in extending the marketing focus into the SME sector which will also be subject to many of the legislative workforce requirements.  But the model and proposition lend itself to considerable development. A natural extension involves checking of credentials and qualifications of the existing workforce to undertake particular tasks, operate certain machinery and equipment or even work in particular secure or sensitive areas or hostile or toxic environments. This is potentially a larger market and certainly has recurring aspects which will require efficient workflow processes for regular and quick checks.

Whilst domestic opportunities are considerable, international expansion would also appear to offer significant opportunities. The challenge would be to establish a foothold and quickly build scale. Such a move would therefore most likely be through either partnering for geographic entry or an acquisition of a similar business with a good client base but lacking in technology and capabilities and where the CV Check platform would add considerable value; this is how CVCheck successfully entered New Zealand.

Financial overview

Between FY 2016 and FY 2018, revenue increased by 76% to $12.6 million and the operating loss was cut by 80% to $1.8 million. Whilst margins strengthened as increasing scale was achieved, the shift to the B2B model markedly reduced customer acquisition costs and was a big factor in this improvement. In particular, adspend on the consumer market was markedly wound back, enabling that segment to become profitable and contributing to the jump in overall margin. This was further evident in the results for the six months ended 31 December 2018. Although revenue increased by only 6% compared with the same period in the prior year, with a fall in consumer sales offsetting a 50%+ gain in large enterprise B2B sales, the operating loss was cut by another 60% to $0.5 million. The repositioning of the business to the B2B sector, tight management of the cost structure and the benefits of scale delivered a maiden positive operating and investing cash flow in the December 2018 quarter of $0.2 million, which was a major milestone achievement.

The company’s balance sheet is typical of a technology company with 38% ($2.8m) of the $7.3 million in total assets represented by intangibles. The next largest item is cash of just under $2.8 million. There are no borrowings. A major financial objective is to ensure that operating cash flow remains positive so in the absence of a major acceleration in sales and marketing effort or an acquisition, the company would seem to have adequate cash resources to achieve profitability.

What do I think?

With Royal Commissions and other enquiry’s highlighting poor corporate behaviour across industries with a sharp focus on appropriate staff qualifications, CV Check is in the right place at right time with an efficient solution for employers to manage the verification process.

I like that the company has gained market traction and is rapidly building scale with a breakthrough to profitability on the horizon. With low market penetration, there is still enormous room to grow and there are considerable additional growth opportunities. Importantly, having achieved positive operating cash flow, and with significant cash resources there is no obvious overhang from a potential capital raising.

CV Check has an excellent growth profile which should enable it to develop into a much larger business over the next few years.


Gordon Capital Disclaimer

This document is provided by Gordon Capital Pty Ltd (Gordon Capital) and InterPrac Financial Planning Pty Ltd (InterPrac). The material in this document may contain general advice or recommendations which, while believed to be accurate at the time of publication, are not appropriate for all persons or accounts.


Recommendation Rating Guide

Recommendation Rating GuideTotal Return Expectations on a 12-mth view
Speculative BuyGreater than +30%
BuyGreater than +10%
NeutralGreater than 0%
SellLess than -10%

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