EquityBytes - ByteSize Research on Dev Clever finds Group revenue could rapidly ramp to £27m to FY23e from the EdTech opportunity.

INVESTMENT CASE 

Dev Clever plc is a Software as a Service (“SaaS”) digital innovation Company operating within education technology (“EdTech”), digital marketing and mobile gaming markets.  

Founded in 2013, the Company has already established itself as one of the UKs leading technology providers of online, mobile, and virtual reality and remote learning platforms in the Education Industry with multiple blue-chip clients across the UK, Europe and US. Importantly, the Group recently signed a strategic heads of terms agreement with Lenovo, the World’s #1 technology hardware supplier to the EdTech markets, to power the Group’s ambitions within the EdTech markets across the US and Canada from April 2020 and in the UK from June 2020. Longer term ambitions include launching its proprietary career guidance, remote learning and recruitment platforms worldwide in partnership with Lenovo. 

Vox Media Player

MANAGEMENT 

Senior management have an impressive blend of business experience and deep domain knowledge of digital media, 3D Graphics and VR immersive technologies. Furthermore, Chris Jeffries, CEO and Founder, has a background within digital transformation, and is therefore well placed to disrupt the EdTech markets with innovative Virtual Reality Technologies. The Group currently has 32 employees with skillsets across Web, Mobile,3D design and Virtual Reality. 

TECHNOLOGY, SERVICES & MARKETS 

The Group’s proprietary technology has received several industry awards for its application of leading-edge Virtual Reality (“VR”) and Artificial Intelligence (“AI”) experiences across three distinct, but complementary, market verticals to enable customers to Educate, Engage and Experience with their end-users. 

Within the Education markets, the proven platform includes large libraries of data for the deployment of education and career guidance programmes through the specialist application of insightful Artificial Intelligence platforms and immersive VR technologies across the EdTech markets. The technology platforms, www.launchyourcareer.com, VICTAR VR and Launchpad Remote Learning, are accessible online, on mobile and in VR and provide high value propositions to secondary schools, further and higher education (‘FE/HE’) Institutions, commercial training providers and enterprises. The modern architecture means the Group can offer the platforms on fully hosted platforms with high value SaaS and managed service revenue models.  

The Group has also developed a light touch remote learning platform which is currently being used by national retailers to remotely induct and upskill their workforce in the UK and US. In response to COVID 19, the Company is rapidly repurposing the platform to enable schools across the world to easily adopt virtual at home teaching and learning for students. The company anticipate the Launchpad platform will be ready for launch by mid-April this year. 

In our opinion, the strategic relationship with Lenovo both de-risks the technology investment proposition and provides the Group with significant first mover advantage in the rapidly growing EdTech markets around the World. 

We estimate the market size for the types of products and service the Group has developed are approximately £100m per annum in the UK and approximately 10x that in the US and Canada, using fairly conservative data, on the number of schools, further and higher education institutions and Corporates looking to capture the best talent. 

FY19 FINANCIAL RESULTS & CURRENT TRADING 

Recently announced FY19 results to October 31st 2019, largely reflected a year of product investment and commercial progress. Importantly, as of the 31st October 2019, the Group reported gross cash reserves of £0.5m, which was supplemented in January 2020, with a placing that raised net proceeds of £0.35m and a further £0.4m through a convertible loan facility provided by the Chairman and CEO. 

Post the recent trading update, the Group has announced current trading remains strong with subscriptions for the Company's SaaS-based career guidance platforms, Launchyourcareer.com and VICTAR VR ("VICTAR"), increasing by over 223% since the end of February 2020. This takes the total number of UK schools using the platform to 191. This increased demand is a direct result of more schools identifying an immediate remote-based learning requirement. 

BUY-SIDE INTELLIGENCE 

With no consensus forecasts for Dev Clever we have undertaken a Case Study exercise to understand the potential revenue opportunity for the Group in the UK, Canada and the US from its launch in partnership with Lenovo, which is planned to commence in April 2020. 

We have modelled the market size for schools and classrooms, further and higher education Institutions, Enterprise sales to Corporates and the managed service opportunity, which is the Group’s premium offering. 

Key findings include, on relatively conservative estimates, forecasts the revenue opportunity for Educate increases from approximately £1m FY20e to over £26m per annum in FY23e. 

By making some additional explicit assumptions of other revenue sources, including the Agency Services, we estimate total revenue for the Group increases from more than £2.4m in FY20e to over £27m in FY23e. 

	FY20	FY21	FY22	FY23
Revenue £m	2.4	6.2	15.3	27.4
Revenue growth (%)		158%	146%	79%
Gross Profit (£m)	1.6	5.1	13.5	24.4
Gross Margin (%)	67%	81%	88%	89%
EV/Revenue (x)	5.8	2.2	0.9	0.5

Based on an Enterprise value of £14m for the Group, we can see EV/Revenue multiples rapidly decreases from 5.8x in FY20e to less than 0.5x in FY23e. Based on these estimates, we can see revenue growth over the period is significant throughout the forecast period. 

To understand how this revenue opportunity could translate into enterprise value for the Group, we’ve compiled some market and company base metrics based on current EV/Revenue for the Technology sector in general and similar SaaS based and VR based companies quoted in the UK. Based on this preliminary analysis, we can see similar companies quoted in the UK are valued on an Enterprise Value / Revenue basis of more than 4x. SaaS based companies in the US are rated even higher on approximately 8x, with companies reporting revenue growth in excess of 40% to Dec 2019 commanding premium EV/Revenue multiples in excess of 16x. 

Based on our case study, this would suggest the Company could be valued in FY23e on 4x revenue of more than £27m, suggesting a significant re-rating of the stock over the next 2-3 years. 

SUMMARY  

Dev Clever clearly has best-in-class technology for intelligent and immersive technologies within the Technology markets for career and training guidance. By partnering with Lenovo, it has positioned itself as a first mover within the Virtual Reality EdTech markets.  

2020 is clearly going to be a transformational year for VR technologies in general and Dev Clever is clearly well positioned through its partnership with Lenovo, with plans confirmed that it intends to begin its roll-out across the UK, Canada and US from April 2020. In addition, the Company is predicting that by mid-April this year they will be able to offer Schools its Launchpad remote learning platform to enable them to easily adopted virtual, at home teaching and learning for students. 

Our initial modelling of the Educate opportunity in the UK, Canada and the US, in addition to fairly flat sales within the Agency Services business, suggests the Group could generate aggregate total revenue of over £27m by FY2e3. Based on a small group of similar SaaS/VR listed companies in the UK, currently trading on EV/Sales market multiples of over 4x, this could value the Group in FY23e at over £108m, before we even begin to consider and model the opportunities around the rest of the English speaking World.