Gatekeeper Systems Still On Track For Outstanding 2020

With the Coronavirus outbreak spreading around the world, businesses are forced to shut down in an attempt to slow the spread of the virus. Unlike many other publicly listed companies that have been struggling to cope with this situation, Gatekeeper Systems (CA:GSI – $0.18 & US:GKPRF – $0.12 & GER:1GK – €0.11) has confirmed that it has been named as an essential business during the emergency order in Pennsylvania.

The Company this week reiterated that its business with the Southeastern Pennsylvania Transportation Authority (SEPTA) will continue its normal operations. This is quite logical as public transportation has been deemed an essential service across most regions. SEPTA is Gatekeeper’s largest customer and represented 30% of its revenues in 2019. In fact, in the past few years, Gatekeeper has announced SEPTA orders that total approximately C$25 million.

Gatekeeper can be Successful in Good Times and Bad

Gatekeeper’s ability to come out of this situation relatively unscathed is a mix between having a strong business model, smart planning and exceptional execution. Not only does the Company operate as an essential business, it is still able to fulfill orders. It built up a surplus amount of inventory in preparation of the Chinese New Year. That was immediately before the Coronavirus shut down most of China’s manufacturing capacity. Gatekeeper does not foresee any supply issues going forward as manufacturing capacity in China is back at about 80%-90%, and continues to work with its domestic suppliers to ensure deliveries meet expectations in 2020 fiscal.

Having sufficient inventory is imperative for the Company to take advantage of opportunities as they arise. The US Senate has recently passed a $25 billion stimulus bill for transit agencies like SEPTA to “prevent, prepare for, and respond to the coronavirus”. Gatekeeper’s Platform as a Service ( PaaS ) strategy provides its customers with multiple services from Mobile Artificial Intelligence ( MAI™ ) for smart city applications to end to end high definition video and data management solutions. This unique business model provides the company with multiple revenue pillars inside a single account, which assists with customer retention making it virtually bullet-proof even during difficult economic conditions.

This strategy could gain the attention of other transit authorities throughout North America especially given they seemed to have earned the trust of the 6th largest transit authority in North America.

Even during these times of isolation, Gatekeeper is taking orders for the school bus market. This could actually be a good time for installation. If the school buses are sitting idle, the Company’s service technicians could fulfill the orders without breaking social distancing protocol.

Conclusion: Gatekeeper Remains a Rare Undervalued Tech Gem on the TSX Venture

Since our last article, GSI has increased in price from $0.15 to $0.18 on the TSX Venture Exchange. That is still only a CAD$16 million market cap. This level of valuation in the technology space is usually reserved for a highly speculative company with little to no revenue and a weak balance sheet. Gatekeeper however has worked hard to gain a solid financial footing from both an income statement and balance sheet perspective.

Highlighted by its robust business with SEPTA, the Company has achieved significant revenue growth over the past several quarters. This trend is expected to continue. As a result, we project Gatekeeper to achieve revenues of between $17 million and $22 million for the current fiscal year ending August 31, 2020.

Based on the midpoint of our projection, GSI trades at a revenue multiple of around 0.7x. A multiple that low usually occurs only on companies with poor growth prospects or highly negative margins. Yet again, Gatekeeper has produced a positive net income in two of the last three quarters with it narrowly missing its third positive quarter in a row in a seasonally weak Q1. It has a strong balance sheet with over $6 million in working capital. It has not needed to dilute as its share count has remained steady between 87 million and 89 million throughout fiscal 2018 and 2019. Gatekeeper has everything a small cap investor could possibly want in an investment: transparent financials, a straightforward and successful business plan, a solid balance sheet, and a strong leadership and management team. Smallcaps Recommendation: BUY. Advice: BuyPrice Target: $0.69Latest Company Report (pdf)
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