READ THE FULL PKKFF RESEARCH REPORT
In Q1 Tenet Fintech (OTC:PKKFF) stayed the course despite delays in raising cash to support growth. After a successful Q4 from shopping holidays, capital was redeployed in Q1 to other sectors. Of the $34.7 million in revenues generated in Q1 $7 million came from the petroleum vertical versus none last year. For the first time insurance started to contribute revenues toward the latter part of Q1 and added $500,000 in revenues. Given its launch late in Q1 we expect that vertical could add over $3 million to revenues in Q2. Both these sectors add gross margins higher than the corporate average. This is typically the company's weakest quarter as Chinese New Year impacts three weeks to a month of the quarter and we expect sequential improvement in Q2.
With funding delayed and still not resolved, the company slashed its guidance for 2022 down to $210 million (as shown below) which turned out to be close to the $220 million we had forecast. Revenues and profits from insurance that had been expected to start in Q4 2021, was shifted to Q2 2022. The launch of the Canadian Business Hub was also delayed by lack of capital. It was expected to be live in Canada by the end of 2021. Adding to woes were lockdowns in parts of China for two months of Q2. It is now June and there still has not been a capital raise, although it could happen by August. The company is exploring a number of options: straight debt, convertible debt and equity. It hopes to get on a major Canadian exchange and also list on the London Stock Exchange opening up further options. At any rate Tenet is trying to avoid using equity while the stock price is so low and indicated any raises would be in tranches and as needed. While operations in China are self-funding, the company is burning about $2 million dollars a month in Canada.
The company now has CN$19 million on cash on hand and a fully diluted share count of 119.2 million putting its US market cap at US$195 million and its enterprise value at US$210 million. Using company guidance of US$167 million for 2022 estimated revenues, the stock is trading at 1.3xs EV to sales versus its peers who now trade at 3.4 times. The valuations for the fintech space have come down hugely from their peak, but are up from the bottom. Given the company needs to raise cash to reach its guidance, and that has not yet happened we are using lower estimates until we see that happen and how it will be achieved. Using a revenue expectation of US$143 million, that yields an EV to Sales of 1.5 times 2022 estimated revenues.
Outside of China, the company is planning a new business model that relies on data and analytics to produce information of value as well as providing a platform for small and medium business to communicate, trade and advertise as shown in the figure below:
Tenet recently attended the Restaurants Canada Show to encourage industry businesses to pre-register for its Canadian Business hub in order to use it to source financing and promote their products and services. It also attended 2022 NCCCU, a show for Canadian lenders. Tenet was able meet several interested potential lending partners. Tenet also attended Canada's largest retail industry event, RCC Store 2022 (https://storeconference.ca/), on May 31 and June 1.
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