BeWhere Holdings
An interesting and somewhat unknown microcap business that should benefit from scale as well as tailwinds in the industry as the technology advances. While there is potential for some benefits to be realized from a first-mover advantage scenario as well as strategic partnerships with one of the big telecom players in Canada, it is difficult to see any long term durable moat at this time.
Given the size and reasonable valuation considering the potential growth over the next few years, it seems like a good opportunity for individual investors who can acquire this type of business while the larger institutions and indexes cannot due to illiquidity of the stock.
Now, let’s dive a little deeper…
What they do
BeWhere makes products and software that track assets and is looking to go deeper into the growing IoT (internet of things) space. These are small (and getting smaller) hardware that utilize gps/5g/LTE networks to track assets that are in transit or are generally not easily tracked otherwise. These assets can be valuable to the customer. A small cost to track it and manage the data via software is an efficient way of managing the risk of losing the asset or simply understanding the data for a fleet of construction equipment, for example.
They sell using partnerships with distributors, resellers, etc. and often do large volume of sales to businesses, government or other larger organizations that would value such products.
They have some ambitious future plans to penetrate the intelligent transportation, smart cities, smart agriculture, etc. Right now, they have customers in construction, government, supply chain/warehouse distribution and others. they offer simple tracking products as well as more sophisticated data collection on atmospheric conditions such as temperature, pressure, moisture, etc.
Products/Services
They offer several products with differentiated uses and connectivity options. These include:
Bluetooth beacons and wifi/bluetooth gateways
Sensors and transmitters that use newer cellular network tech (NB-IoT, LTE-M)
They also offer software on web, mobile or API options to integrate with other software uses. This part of the business is where the recurring revenue comes from and should expand significantly as sales of the hardware continues.
Recurring revenues
The software sales to accompany the hardware is a very valuable part of the business. It currently accounts for just under half of all sales and very high margin and valuable as it should be somewhat long term oriented for customers.
Management and inside ownership
Both the CEO and the COO have around 8.7 million shares of the business each and have purchased recently. For a business of this size, this is significant. It represents over 20% of the market cap at present. Strong insider ownership is a great sign of aligned incentives.
Partnership with Bell
The company has partnered with Bell as the network provider for their products. The company has leveraged this partnership to develop their new cellular network supported products. I believe this could be an advantage while the company grows from a tiny microcap. It also has some potential for a buyout if the purchase would make sense strategically for Bell.
Growth opportunities and scale
There continues to be growth in sales and I don’t suspect that to change significantly for a few years. The business has plans to release 5G products in the future that should expand their sales lines and as the business scales, it should enjoy better margins thanks to its software side of the business.
Secular growth
The IoT (internet of things) is expected to grow for a long time. It is still in its infancy with applications in many industrial settings taking hold with new builds and retrofits. A significant portion of this industry will be in areas where BeWhere could gain a significant foothold if they play their cards right.
Competition
From a product competition perspective, it’s hard to imagine that they are offering anything all that special. There is different technology that uses 5g, LTE or other networks that are from larger companies. One obvious example is the Apple Airtag that has recently come out.
Lack of competitive advantage
One could argue that they have a somewhat good position in terms of having a first mover advantage with some of their hardware. I’m not so sure this is a huge advantage and I don’t know that the tech is something that will make them winners in the end market in the future.
I think it’s more likely that they will leverage their partnerships with their sellers and with Bell as a network/technology partner to stay relevant for the medium term and hopefully they can continue significant growth to a point where it makes more sense for their existing customers to simply stick with them and potentially grow with these customers.
Funding for growth
In a recent presentation it was mentioned that it appears unlikely that the stock will need much more dilutive stock offering after the partnership with Bell and now that there is adequate funding from operations. Time will tell if this is true over a longer period of time as the company is still rather small and access to debt may not be as fruitful and easy as larger businesses.
The good thing for growth is that the recurring revenue and off-loading of the sales to partners means the operational costs should not scale with an increase in demand for products with new contracts or through acquisitions of new customers. In fact, over the past few years, this has proven true so far as operational costs have actually decreased as topline revenues have climbed. There should be some opportunity to use the operational leverage here. Of course, if sales decrease or pricing is affected, they also have limited ability to trim costs in the future.
Valuation
I would be naïve to try to value the business on a current earnings basis or anything of that sort. It simply isn’t a mature business in terms of scale yet. That being said, if you were to look at a price to sales multiple (currently less than 4X) and project out a fair growth rate for the next several years (20% a year), it appears that you are not getting ripped off completely and in some scenarios, it could be a great price. This is likely due to the smaller market cap of the business and less attention to this area of the market, despite the really good growth and future optionality to enjoy some benefits to scale.
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Note: At the time of writing, I do not own BeWhere Holdings stock (as of 02Nov2021).
the only reason i would ever like this company is because of it's insane operating leverage