The Transformation of Gatekeeper Systems

In just a few quarters, Gatekeeper Systems (CA:GSI – $0.19 & US:GKPRF – $0.13 & GER:1GK – €0.12) has transformed itself from a digital video systems company to a fast growing Artificial Intelligence (AI) & Video Analytics provider.

SEPTA has become a cornerstone customer for the Company, following its strategic expansion into these markets. Since acquiring Delaware-based assets, which enabled the SEPTA relationship, Gatekeeper has announced additional SEPTA orders that total up to C$25 million.

Gatekeeper’s sales and earnings have grown considerably the past quarters. Sales in the first quarter reached $3,356,397 up 82% compared with Q1 the year before. Gross profit was up 61% and the net loss was almost entirely wiped out, while a loss of $687,379 was recorded for Q1 last year. Also, in the fiscal year 2019, which ended August 31, 2019 sales increased by 75% compared with 2018 and the net loss was cut in half.

As a result of this, we value Gatekeeper Systems no longer as a digital video systems company, but as a software company, as a big majority of its revenue is derived from that area.

On average, software companies trade, or are bought out, at approximately 5 times their 12-months trailing revenue. For example, Dialog Semiconductor bought Adesto Technologies Corp. (IOTS) a couple of weeks ago for approximately $500 million enterprise value. Adesto is a provider of custom integrated circuits (ICs) and embedded systems for the Industrial Internet of Things (IIoT) market. Its 12-months trailing revenue was about $118 million.

However, we take a very conservative approach, leaving lots of room for upside adjustment and value Gatekeeper at 3 times its 12-months trailing revenue. Based on 87.9 million shares outstanding, the intrinsic value of Gatekeeper’s shares derived from that model is $0.65.

Consequently, we reinitiate coverage of Gatekeeper Systems with a buy recommendation and a price target of $0.65, which is 242% above today’s stock price.

Smallcaps.us Advice: Buy	Price Target: $0.69	Latest Company Report (pdf)
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