TZ Definitely One For The Locker
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TZL's recent $8 million share issue – which was over-subscribed – sees the company well-positioned in terms of working capital and balance sheet strength.
Technology developer TZ Limited (TZL) has sat in the “promising” category for several years now, but looks poised to move out of that status and into profitability over the next couple of years.
Then the Mark Bouris-chaired company would be able to leave behind such troubles as a failed tender with Australia Post in 2012 that led to the market capitalisation halving and the chief executive losing his job, and an even more unfortunate loss of a CEO, in 2009, when Bouris ousted Andrew Sigalla, who was subsequently charged with embezzling more than $6 million from the company to pay off gambling debts and a mortgage. Another senior executive was also charged with embezzlement.
Such shenanigans should, by now, no longer be capable of tarnishing the impressive turnaround that chairman and executive director Bouris and his team have put in place. TZL is now positioned firmly at the heart of the e-commerce revolution, with its package asset delivery (PAD) business division and its A.D.A.M. (Automated Delivery Asset Manager) Parcel Locker Network, a fully automated end-to-end parcel locker network designed to cater to time-poor, budget-conscious online shoppers. The interactive lockers give customers a convenient, secure and cost effective way to collect their online orders without having to wait at home for a delivery.
The system integrates a network of TZ SMArt technology locking devices and proprietary system software “smart lockers.” These are located in office buildings, shopping centres, apartment buildings and service stations, so consumers can pick their deliveries up from the place most convenient to them. They offer shippers, private and public parcel services and customers secure, efficient and convenient drop-off and pick-up of almost any packaged asset – vital documents, valuable merchandise, sensitive materials, critical parts and components, even perishable items.
TZL has signed deals to supply the lockers to Singapore Post, Malaysia Post, Poste Italiane, Westpac, GPT, Hills Industries, University of Technology Sydney and KPMG (announced after the half-year result). The company’s own A.D.A.M. Parcel Locker Network in Australia is supported by agreements with property owners, carrier companies and e-retailers. The smart locker technology notifies recipients of package deliveries via SMS text message or email, gives them a unique access code for retrieving packages, keeps an audit trail of the package’s travels and status, and notifies the recipient if packages are not picked up in a timely manner. The lockers are accessible 24 hours a day, seven days a week.
E-commerce retailers Nike.com, Tony Bianco, Glue Store and Pamper Hamper Gifts have adopted the A.D.A.M. network to offer their customers an alternative delivery option to Australia Post. TZL has partnered with delivery management software group Temando to ensure that each package is compatible with the A.D.A.M locker sizes and that all delivery information feeds back to the carrier for execution. The beauty of the system is that it does not matter to the A.D.A.M. network which carrier is used.
The infrastructure protection (IXP) division offers affordable, highly scaleable micro-security and environmental monitoring solutions, that provide a cost-effective way to protect and manage a vast range of physical assets, beyond the reach of existing security systems. There are two systems: TZ Praetorian, which is designed to work with existing third-party building access control systems to extend physical security and audit trail capability down to the cabinet enclosure level, and TZ Centurion, built around an IP-based access control system focused on delivering physical security and environmental monitoring at the most granular level, from anywhere in the world. The IXP division’s customers come from the finance, government, healthcare and data centre sectors.
There is also an aero asset maintainability business, that uses the same TZL SMArt technology to replace the mechanical latching and fastening devices used in the aviation industry with systems that provide mechanical function, but with embedded intelligence that can capture environmental data, control access and manage maintenance procedures.
In the half-year to December 2014, TZL more than doubled its revenue to $7.63 million, led by PAD sales, which more than tripled in the back of the successful roll-out of 100 lockers for Singapore Post. The division was also boosted by further penetration of the US corporate and residential sectors, the rapidly emerging and substantial Australian Day Locker business and the on-going Postal Locker roll-outs underway in Asia. TZL says many of these contracted relationships represent the potential for on-going and significant sales not just for the balance of this financial year, but into 2016 and beyond, supporting continued substantial and sustainable business.
IXP sales in the December half-year were down 20% on the previous year, but TZL attributed this primarily to project timing issues, not from a reduction in demand or market potential. Several projects are anticipated to come on-stream in the current half, which are expected to boost sales so as to deliver the anticipated year-on-year growth. TZL reaffirmed its revenue guidance of $18 million–$20 million for the full-year.
Gross margins improved from 29% in the first half of FY14 to 37% in the first half of FY15, mainly due to some components being manufactured at lower cost in China. By the end of the financial year, TZL should be in full production in China through its contract manufacturer, and this should improve margins further.
The PAD pipeline remains strong with multiple postal and corporate opportunities, including day locker sales to two banking groups (Westpac and undisclosed) and multiple opportunities with other companies for day lockers, property developers and managers for residential lockers and a “US logistics company”. TZL believes contracts with existing PAD customers could be extended to be worth more than $300 million. According to Edison Investment Research, most of this (about $250 million) is from the postal locker opportunities in Singapore, Malaysia, Indonesia, the US and Italy, but corporate, educational and residential lockers are also showing significant promise and tend to be higher margin.
Edison says IXP has always been a “lumpy” business, so it is not concerned by the 20% decline in revenue – this could easily swing significantly the other way in the second half with just a few large contracts. TZL has given the sales potential of existing clients in the IXP business as $27 million, but Edison says the timing of roll-outs is very uncertain.
The recent $8 million share issue – which was over-subscribed – sees TZL well-positioned in terms of working capital and balance sheet strength. Edison sees net profit breakthrough as being achievable in FY16, but some other broking analysts are more conservative. However, it seems clear that TZL has sufficient cash, pipeline of deals and increasing interest from the market to move into the ranks of profitable companies sooner rather than later. At just $47 million in market capitalisation, the company is a tiddler, but at long last it looks capable of breaking out of what has been a tight trading range.
James was founding editor of Shares magazine, and oversaw one of the most successful magazine launches in Australia. He has also written for BRW, Personal Investor, The Age and Management Today, and was subsequently personal investment editor at The Australian and editor of financial website, investorweb.com.au