Ava Risk (ASX:AVA) share price jumps 14% on strong FY21 profit growth & capital return

It has been a great day for Ava Risk's shares…

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The Ava Risk Group Ltd (ASX: AVA) share price has been a positive performer on Monday following the release of its full year results.

At the time of writing, the risk management technology company's shares are up 14% to 51.5 cents.

Ava Risk share price jumps after more than doubling its profits

  • Revenue increased 41% to $65 million
  • Earnings before interest, tax, depreciation and amortisation (EBITDA) up 116% to $16 million
  • Net profit after tax jumped 178% to $13.75 million
  • Net operating cash flow rose 195% to $17.6 million
  • Capital Return of $39.2 million (or ~16 cents per share) and $1 million on-market buy back

What happened in FY 2021 for Ava Risk?

For the 12 months ended 30 June, Ava Risk reported a 41% increase in revenue to $65 million. This was driven by a 61% jump in Services revenue to $40.34 million and a 17% lift in Technology revenue to $24.7 million.

In respect to its Services revenue, management advised that this increase reflects the expansion of its Ava Global Logistics customer base and the capture of a greater share of existing client spend. Whereas its Technology business benefited from an increase in licensing fees from the Indian MOD project.

Supporting its strong profit growth was an improvement in its margins. Management advised that its gross margin improved despite a greater mix of revenues coming from the lower margin Services business. This was thanks to the Technology business improving its gross margin over the previous year.

Furthermore, its operating expenses only increased 7.8% year on year to $16.32 million, leading to operating leverage. This ultimately supported a 178% jump in net profit after tax to $13.75 million.

But perhaps the biggest positive that is supporting the Ava Risk share price is the announcement of a major capital return.

Earlier this month the company signed an agreement to offoad its Services business. This is expected to leave the company with $40.2 million in excess capital, which will soon be returned to shareholders.

An approximate $39.2 million (or ~16 cents per share) capital return has been proposed and will be voted on at its annual general meeting. In addition, a $1 million on-market buy back will be undertaken.

Based on the current Ava Risk share price, the capital return equates to a 31% yield.

What did management say?

Ava Risk's CEO, Rob Broomfield, commented: "Since acquiring MaxSec Group in December 2017, Ava Risk Group has been delivering consistent growth and moved into profitability over the past two years. We are really pleased with the crystallisation of value achieved from the Services Division, Ava Global, and the strong net cash return from the divestment – 587% over five years. We are also seeing strong returns from the Technology Division, both in top line growth and operational efficiencies, which is providing us with the capability to execute on future growth initiatives."

"Looking ahead, we are optimistic about our technology businesses – FFT and BQT – which together reported FY2021 revenue of $24.7 million and EBITDA of $8.3 million, up 17% and 64%, respectively. The increased momentum noted in the fourth quarter has continued into the current quarter, and new orders are building on the $4.3 million of FY2021 backlog. In addition to these new orders, we have already received over half of the $1.5 million of contracts expected in FY2021 but delayed."

What's next for Ava Risk in FY 2022?

Positively, management notes that it has a very strong pipeline of sales opportunities in existing markets, and a growing pipeline in new markets. This includes in its mining conveyor solution Aura IQ.

As result, it appears confident of further growth in the Technology business in FY 2022.

Mr Broomfield commented: "Importantly, we are looking beyond FY2022 to fulfil our vision of being a global leader in actionable, intelligent data streams that protect and optimise critical assets – by leveraging our partnerships, growing recurring revenue and leveraging our scalable model. We have a great team behind us, a strong network of partners, an exceptional customer base and ended the year in a robust financial position."

The Ava Risk share price is still down 12.5% year to date despite today's strong gain.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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