Automated Road Safety Enforcement Will Drive Strong Long Term Earnings Power

Catalysts

About Acusensus

Acusensus develops and operates AI driven traffic enforcement and safety solutions for government customers worldwide.

What are the underlying business or industry changes driving this perspective?

• Global governments are increasingly prioritizing road safety outcomes and outsourcing behavioral enforcement to specialist providers. This positions Acusensus to convert its expanding pipeline of international tenders into high margin recurring service revenue and growing earnings.
• Tightening regulation and political focus on distracted driving and seatbelt use across multiple jurisdictions supports wider adoption of automated and real time enforcement. This should drive higher camera deployments per contract and structurally lift group revenue over the medium term.
• The successful commercial launch of the Road Worker Safety product into road construction, roadside assistance and traffic management creates a new scalable service line that can be rolled out domestically and then offshore. This adds a second long term growth engine alongside core enforcement and supports sustained top line expansion.
• Transitioning U.S. customers from early stage, officer assisted real time enforcement to fully automated end to end programs in selected states is likely to materially increase the number of deployed systems per contract. This may enhance operating leverage, boost gross profit and improve group EBITDA margins as scale is reached.
• Ongoing expansion and extension of long duration government contracts in Australia and New Zealand underpins a growing base of locked in, high visibility recurring revenue. This enables disciplined investment in international sales, R&D and new products while still supporting future earnings growth and stronger free cash flow.

Assumptions

How have these above catalysts been quantified?

• Analysts are assuming Acusensus's revenue will grow by 21.6% annually over the next 3 years.
• Analysts are not forecasting that Acusensus will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Acusensus's profit margin will increase from -4.4% to the average AU Software industry of 11.4% in 3 years.
• If Acusensus's profit margin were to converge on the industry average, you could expect earnings to reach A$12.1 million (and earnings per share of A$0.09) by about December 2028, up from A$-2.6 million today.
• In order for the above numbers to justify the price target of the analysts, the company would need to trade at a PE ratio of 33.8x on those 2028 earnings, up from -89.2x today. This future PE is lower than the current PE for the AU Software industry at 35.8x.
• Analysts expect the number of shares outstanding to grow by 0.22% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.09%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The strategy depends heavily on governments continuing to expand automated enforcement and behavioral road safety programs. Any shift in political will or community backlash, particularly in key growth markets like the U.S. and U.K., could slow contract awards, limit camera deployments and materially constrain long-term revenue growth.
• International expansion is currently loss-making and requires sustained headcount, R&D and sales investment. If scale in the U.S., U.K. and New Zealand takes longer than expected, operating expenses may continue to rise faster than new contracts ramp up, pressuring EBITDA and delaying any improvement in net margins.
• The new Road Worker Safety product line is still in pilot and pre-revenue. If customer adoption is slower than management’s “aggressive plans” assume or competing safety technologies emerge, this second growth engine may fail to scale, limiting diversification and the uplift in group earnings that investors are anticipating.
• The business model is capital intensive, with significant trailer and equipment CapEx and potential use of debt funding in the future. Any misstep in forecasting demand, delays in mobilizing large contracts or higher lease and demobilization costs could weaken free cash flow and reduce the balance sheet strength that underpins the investment case.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The analysts have a consensus price target of A$2.3 for Acusensus based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analysts, you'd need to believe that by 2028, revenues will be A$106.7 million, earnings will come to A$12.1 million, and it would be trading on a PE ratio of 33.8x, assuming you use a discount rate of 8.1%.
  
• Given the current share price of A$1.65, the analyst price target of A$2.3 is 28.3% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.