What links Tesco (TSCO), Sainsbury (SBRY), Asda, Waitrose, John Lewis, Diageo (DGE), Pret A Manger, Greggs (GRG), Coca-Cola (KO:NYSE), Carlsberg (CARL:CPH) and Budweiser-owner Anheuser-Busch InBev (BUD:NYSE)?

It might surprise you that it’s a £135 million AIM-listed UK technology company based in Guildford. Meet Eagle Eye Solutions (EYE:AIM), an ambitious business which is trying to transform how big brands reach out to customers.

The deepening cost-of-living crisis is tightening its grip on household budgets, making life increasingly tough for consumer stocks. Yet this could be a blessing in disguise for Eagle Eye, as retailers and big brands try new ideas to win sales from existing and new customers.

It’s worth noting that while the stock has lost 23% this year, the share price has rallied 21% over the past month, possibly a sign that investors are catching on to the company’s potential.

BEST-IN-CLASS EAGLE EYE AIR

Eagle Eye claims to have developed a best-in-class loyalty and promotions omnichannel software-as-a-service platform called Eagle Eye AIR. It allows customers of big brands businesses to validate and redeem digital promotions in real-time, principally to large supermarket chains, retailers and hospitality organisations across Europe, North America and Australasia.

Eagle Eye AIR works as a platform to integrate into existing point of sale terminals (computerised tills in old money), helping businesses to market and send vouchers, coupons, and loyalty incentives to customers, either by text, email or store apps.

The platform also provides users with useful customer data and insights, such as the number of redemptions taken up on a specific offer, and in which store.

This is a massive help when it comes to targeting customers with increasingly personalised rewards, one of the retail industry’s holy grails.

According to research by data insights firm Fact.MR, the sheer scale of digital data now within reach is ushering in a ‘new generation of customer relationship management’.

The researcher claims that increasingly smart artificial intelligence applications means analysis of mountains of data can help describe customer behaviour with a richness and depth like never before, allowing retail organisations to understand their buying habits and preferences and develop appropriate marketing plans, identifying sales transactions, and establishing long-term loyalty relationships.

‘The incentives supplied to potential consumers will have a significant impact on profitability,’ Fact.MR says.

LOYALTY TECH GROWING MUCH FASTER THAN GDP

Fact.MR estimates that the global digital loyalty market is set for rapid growth over the next decade, from about $40.3 billion last year to $98 billion by 2032. 

These exciting statistics might prove optimistic, and it’s unknown how big a part Eagle Eye might play in the industry in future. That said, it has some heavyweight experts on the board to help, including non-executive directors Terry Leahy, who ran Tesco for 14 years, and Robert Senior, former boss of ads group Saatchi & Saatchi.

Leahy owns a 9.27% stake in the business, while founder and chief technology officer Steve Rothwell owns another 5.19% of the company, so there is decent alignment of objectives at the top table with ordinary investors.

What we do know is that Eagle Eye is starting to gather a growth head of steam despite the tough backdrop. On 20 May the company released a pre-close update for the year to 30 April 2022 that revealed EBITDA (earnings before interest, tax, depreciation and amortisation) and revenue would beat market expectations by 7% and 10% respectively.

‘This is due to the go-live of a national US grocer contract which was announced in January 2022, while the company has benefited from significant new customer wins across multiple geographies and an accelerated ability to bring these live,’ explained Megabuyte analyst Vinay Bhardwaj at the time.

STICKY CUSTOMERS AND REVENUES

Importantly, once a new client is won, Eagle Eye is able to deepen its relationship, creating opportunities for higher revenue and profits
per client.

This was illustrated at the half year stage when the company’s NRR, or net revenue retention, was 130%, demonstrating its ability to upsell existing clients.

Also worth noting is the company’s very low churn, reported at just 0.04%, so when a company signs up with Eagle Eye AIR, it almost always sticks. ARR, or annualised recurring revenues rose 45% to £18.9 million, outpacing the 40% growth of £15.1 million headline revenue.

Having reported its first meaningful pre-tax profit in the June 2021 year of £1 million, with £1.9 million forecast this year, it catapults the company beyond the proving stage and demonstrates that Eagle Eye AIR adds substantial value to its users.

The company’s own calculations imply upfront costs to new customers are paid back within the first year, a compelling pitch, while gross margins north of 90% show significant control over Eagle Eye’s own running costs.

Shore Capital’s headline revenue forecast this year of about £30 million is expected to rise by a third by 2024, by which point pre-tax profit should hit £4 million, calculated at an implied price to earnings multiple of 48, based on the 519p share price at time of writing.

With another fiscal 2022 update pencilled in for July ahead of final results in September 2022, there are near-term catalysts for investors and the share price.

The stock is not cheap by any measure, and we wouldn’t rule out plenty of volatility in the months ahead given the market’s mood, but there is an increasingly attractive long-run investment story here, one that deserves further investigation by investors.

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