Federal Certification And SaaS Offerings Will Unlock Smart City Prospects

Key Takeaways

• Increased federal and military orders, bolstered by key certifications, position Actelis Networks for continued growth impacting future revenue positively.
  
• Expansion of software services and strategic infrastructure projects increase revenue predictability and present substantial growth opportunities.
  
• Actelis Networks faces uncertain profitability due to revenue unpredictability, increased expenses, possible shareholder dilution, and potential delays in securing major contracts.

Catalysts

Engages in the design, development, manufacture, and marketing of cyber hardened, hybrid fiber, networking solutions for Internet of Things and telecommunication governmental agencies and companies in North America, Europe, the Middle East, Africa, and the Asia Pacific.

• Actelis Networks has seen a significant increase in new orders, particularly in the federal and military sectors, boosted by a JITC cyber certification and inclusion in the Department of Defense Approved Products List. This positions the company for continued growth, which is expected to positively impact future revenue.
  
• The expansion of the company's software and services, including the introduction of the MetaShield SaaS offering, is anticipated to generate recurring revenue, thereby creating more predictable revenue streams and enhancing margins.
  
• The introduction of the GigaLine 900 solution for multi-dwelling units (MDUs) is gaining significant market traction, which could see a growth in revenue as trials and initial deployments turn into substantive sales in 2025.
  
• Actelis Networks is strategically positioned for major smart city and transportation infrastructure projects, such as Highways England NRTS3, representing substantial future opportunities that are expected to drive revenue growth.
  
• A focus on operational efficiency, alongside potential selective debt facilities to fund initiatives, aims to support growth while reducing equity dilution, which could lead to improved earnings sustainability.

Actelis Networks Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Actelis Networks's revenue will grow by 36.6% annually over the next 3 years.
• Analysts are not forecasting that Actelis Networks will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Actelis Networks's profit margin will increase from -54.8% to the average US Communications industry of 10.7% in 3 years.
• If Actelis Networks's profit margin were to converge on the industry average, you could expect earnings to reach $2.1 million (and earnings per share of $0.16) by about July 2028, up from $-4.2 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 38.3x on those 2028 earnings, up from -1.4x today. This future PE is greater than the current PE for the US Communications industry at 28.4x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.72%, as per the Simply Wall St company report.

Actelis Networks Future Earnings Per Share Growth

Risks

• The company has acknowledged unpredictability and lumpiness in their revenue generation cycles, which might make it difficult to sustain a consistent top line growth pattern, potentially impacting future revenue projections.
  
• Actelis Networks' expenses are likely to increase as they prioritize investment in sales and marketing to drive growth, impacting net margins and delaying profitability.
  
• While the company has achieved notable success in reducing debt, their intention to potentially raise additional debt or equity to support growth initiatives may introduce financial instability or lead to shareholder dilution, affecting earnings.
  
• Achieving profitability in 2025 is uncertain, as the timing and size of potential large contracts, which could turn the company profitable, are unpredictable, thus impacting future earnings prospects.
  
• The major federal and military contracts they are pursuing could experience delayed decision-making or shifts in government spending priorities, which would impede anticipated revenue growth and affect net margins.

Valuation

• The analysts have a consensus price target of $5.0 for Actelis Networks based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $19.8 million, earnings will come to $2.1 million, and it would be trading on a PE ratio of 38.3x, assuming you use a discount rate of 7.7%.
• Given the current share price of $0.53, the analyst price target of $5.0 is 89.3% 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.