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26
Gatekeeper Systems is a value buy as revenues continue to grow
Posted by: Gerry Wimmer
6/26/2016
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TOP IDEAS: Sales of Gatekeeper Systems Inc. (TSXV: GSI) high-definition imaging systems and security solutions for mobile applications are gaining momentum and profits are beginning to emerge.



It appears 2016 is shaping up to be a strong year for revenue growth at Gatekeeper Systems Inc. (TSXV: GSI - $0.11), but the Company’s stock price is still trading near its lows. Therefore, we see a good small cap growth investment opportunity at a value price. That said, Gatekeeper Systems Inc. has become one of Investorfile’s Top Ideas.

Based in Abbotsford BC, Gatekeeper Systems Inc. is a leading provider of rugged high-resolution video security and safety systems for mobile applications, including body cameras, in-car police video systems, school bus video and stop arm camera video enforcement systems, transit bus video systems and airborne digital recording systems for military applications.

Gatekeeper’s value proposition goes beyond the sale of video devices but, rather, the integration of hardware and software to provide systems that derive significant value from the data collected from installed mobile cameras. As such, Gatekeeper’s industry-leading Incident Management Software synchronizes real-time video, mapping, audio and vehicle sensors to create a total picture of operations. The Company’s photo enforcement technology and auto-ticketing software protect students on buses, school and parking zones by deterring bad driving habits.

Gatekeeper is a brand leader in outfitting school buses in North America with mobile video systems. Gatekeeper’s technology platforms are used for recording incidents inside and outside school buses. For recording inside school buses, the platform integrates high definition video with GPS, voice, live streaming, WIFI and vehicle sensors recorded to an onboard military-grade, high-definition digital video recorder. The software synchronizes video, date and time, voice, vehicle sensors such as activation of stop arms, signals, brake and warning lights, door switches or other electronic sensors. The synchronized data is then displayed on Gatekeeper’s video management software, allowing the navigation of hundreds of hours of recorded video to find, save and share as evidence by school officials or law enforcement should a security or safety incident occur. There are approximately 550,000 school buses operating in the USA with an average of 25,000 to 50,000 school buses manufactured each year according, to Gatekeeper.

Recent legislation in some states and provinces allow authorities to use video from a school bus video system as evidence to issue a citation for stop arm violations which occur when buses are stopped, the stop arm is engaged and/or children are getting on or off the school bus. Gatekeeper has developed a high-speed license plate reading system which is attached to the outside of the school bus and records video evidence required to prosecute stop arm violators. With that, the Company developed a cloud-based software application with the trade name TIM (Ticket Infraction Management) system that connects to the vehicle owner database and manages the entire citation cycle for stop arm infractions.

Gatekeeper has marketed its school bus stop-arm violations solution to school boards and law enforcement districts under a recurring revenue sharing model based on a split of the dollar amount of citations issued and collected. The average citation is usually between US $250.00 and US$500.00. The Company said it is estimated that over 13 million stop arm violations occur in the United States annually.

Gatekeeper’s stop-arm enforcement application is currently installed and in pilots on school buses in 16 school districts. The Company anticipating recurring revenue streams from its stop-arm business to begin within its current fiscal year.

While to date the majority of sales are in the school bus market, Gatekeeper’s products are scalable for transit buses, law enforcement vehicles and officers, aircraft, taxis and general fleet vehicles; maritime applications including coast guard patrol boats and navy vessels, as well as homeland security and defence applications, including special operations. As such, the Company recently launched several new products including: Body cameras for law enforcement; high-definition in-car video systems for law enforcement vehicles and high-definition airborne digital recorders for aerospace applications that will meet certain military standards, including electronic magnetic interference.

Over the past nine months, the Company has implemented new sales and marketing strategies to strengthen Gatekeeper’s brand awareness while adding distribution partners to complement its direct sales team. As a result, revenues have begun to grow more significantly. The last quarter reported (which was fiscal Q2 ending on February 29, 2016), the Company’s revenues jumped 59% to C$1.73 million. But that may be was just the beginning. Gatekeeper’s Management has provided guidance that Q3 sales should set a Company record, coming in at over C$2.49 million, and Q4 sales could be another record sales quarter. Gross margins on sales average about 50%. Approximately 90% of Gatekeeper’s revenues are derived from customers in the USA.

With the increase in revenues the Company reported a slight profit in fiscal Q2. As revenues continue to rise in Q3 and Q4, profitability at Gatekeeper could become more pronounced. As such we feel Gatekeeper’s operations are at an inflection point that makes the Company’s stock an attractive investment opportunity.

We estimate that for fiscal 2017, Gatekeeper could average a C$3 million quarterly revenue run rate (C$12 million annually), generating C$2 million of earnings before interest, taxes, depreciation and amortization (EBITDA) for the fiscal year. Based on this forecast and given the current capital structure, the Company’s stock (at $0.11) trades at a valuation under 3.5 times Enterprise Value (EV) to EBITDA. This is a very inexpensive price for a growth company.

The Investorfile blog recommends that small cap investors should take advantage of the current stock valuation levels and begin accumulating shares of Gatekeeper up to a price of $0.25. Assuming an average accumulation cost base of $0.18, a stock position in this Company can be purchased for under six times EV/EBITDA (based on our forecast), which is a value-wise small cap investment opportunity. Of course, over time we feel that Gatekeeper will exceed our annual financial projection and therefore the stock price will exceed our accumulation price target of $0.25 for more upside over the longer term.

As of February 2016 fiscal Q2, the Company had a strong balance sheet with cash on hand of $700,000, no debt and a working capital ratio of over 3:1.

Management and directors own about 15% of the Company shares. The BC Discovery Fund, an institutional investor, has an 8% ownership position in Gatekeeper.

The Company currently has 63.3 million shares outstanding. Of note, about 12 million share purchase warrants (from a prior equity financing) are outstanding at strike price of $0.25.

The Company's website www.gatekeeper-systems.com

Author's share ownership disclosure: GSI - Yes


Read Disclaimer:

This article is for informational purposes only. This article is based on the author's independent analysis and judgment and does not guarantee the information's accuracy or completeness. The information contained in this article is subject to change without notice, and the author assumes no responsibility to update the information contained in this article. The information contained within this article should not be construed as offering of investment advice. Those seeking direct investment advice, should consult a qualified, registered, investment professional. This is not a direct or implied solicitation to buy or sell securities. Readers are advised to conduct their own due diligence prior to considering buying or selling any stock.

Investorfile.com is not engaged in an investor relations agreement with Gatekeeper Systems Inc. nor has it received any compensation from Gatekeepers System Inc. the preparation or distribution of this article.

The author of this article has acquired and may trade shares of Gatekeeper Systems Inc. through open market transactions and for investment purposes only.

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Comments:
Posted by: sandy pascuzzi
Hi, I finally tried one of your suggestions: GSI -Thank you! Dynamite Q3...

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Hi Gerry, Your philosophy is focused on principles that have been shown to produce above average results over time and your record has clearly proven that. Congratulations on a great blog and thank you for the hard work that you do in sharing and updating your ideas; it is much appreciated.