Invisio: Fundamental Analysis

Background

Invisio Communications AB (publ.) was founded in 1999 in Copenhagen, Denmark, where they have their headquarters. They are listed on Small Cap, NASDAQ OMX Stockholm. They develop, manufacture, market, and sell their own communication solutions – an advanced two-way radio headset, and its varieties.

Product Offering

Their unique selling point is their patented Bone Conduction technology which converts the vibrations in the jawbone when speaking, into sound. It makes it possible to communicate in all environments such as loud noise, extreme heat, and underwater. Invisio themselves say, ”INVISIO Bone Conduction is so effective that you can hear a person whispering when he is standing next to a screaming jet engine.” (Invisio Annual Report 2014)

The in-ear earplug has a built-in microphone which picks up the sound waves that are generated from you talk, through your jawbone. This way, the radio transmits nothing but your own talk. No noises from your environment is picked up. The receiver will not hear the massive grumbling engine by your side or the explosions taking place just around the corner. This makes the product especially useful for the military, fire department, and other professions where radio communication is needed in a noisy environment. Another unique selling point is their Advanced Hearing Protection Systems combined with Hear-Thru. The in-ear plugs function as hearing protection by keeping very loud sudden noises and loud continuous noises away. The hear-thru consist of microphones on the outside of the headset, delivering natural situational awareness. Natural, in the sense of being able to detect the direction from where the sounds are coming from.

Invisio X5
Photo courtesy of Invisio. Image shows Invisio X5 – Dual in-ear hearing protection headset with full situational awareness.

Sales

Invisio’s sales is gaining positive momentum. Their largest customer is the U.S. Military with their TCAPS-program (Tactical Communications And Protective System).

Invisio sales
Amounts in thousands SEK. Estimates are my own.

Other large customers are an undisclosed number on NATO-countries, Canadian Department of National Defense, undisclosed customer in Australia, and the Finnish Armed Forces. But will the armies continue to buy this type of product? Most likely, as the U.S. Department of Defense’s Hearing Center of Excellence states how the Department of Veterans Affairs (VA) estimated the compensations for major auditory disabilities in FY2010 to be $1,39 billion. That is for just one year. They also expect the compensation to increase to over $2,26 billion by 2014. The same source states a few examples of noisy everyday happenings for military personnel. The Department of Defense’s quietest weapon is the M-16, which measures around 156 dB when it fires. They say exposure to sounds above 160 dB or higher can cause immediate physical damage to one’s ears. They state how spending several hours in a helicopter’s cockpit that measures to 85 dB can cause gradual hearing loss. Also, soldiers tend to skip using their traditional hearing protection gear as they feel they loose their ability to interpret their surroundings (Invisio Annual Report 2014).

Photo courtesy of Invisio Annual Report 2010. The image shows a traditional circumaural headset.
Photo courtesy of Invisio Annual Report 2010. The image shows a traditional circumaural headset.

Invisio estimates that 90% of the present global market is dominated by traditional circumaural head-sets, which are shown above. Among the competitors you find the following companies: Peltor (part of 3M), MSA Sordin, Selex Communications, Racal Acoustics (part of Esterline), Honeywell Safety, Thales Group, Phonak, and Silynx Communications. None of them are close of having an identical product to Invisio. These facts gives Invisio a good head start. Invisio’s Bone Conduction patent expired in Europe and Singapore in 2013 and the U.S. in 2014. Thus, we can expect Invisio to keep growing their business for another couple of years before the competitors start to release their own versions with jaw bone conduction-technology.

Risks

Invisio themselves state how the influx of orders can fluctuate between quarters due to long decision processes for these products. This means there can come a quarter with less than the usual amount of orders, and vice versa.

According to KFOR-TV in Oklahoma, USA, scientists are working on a pill which can reduce the hearing loss after having been exposed to extremely loud noise, if the pill is taken within 12 hours after the noise exposure. Dr. Kopke in the article, believes the pill might hit the market before 2019.

Insider Holdings

Among the six Directors on the Board, five people own the Invisio stock. Director Lage Jonason has the largest stake among the directors and is the largest owner overall, with 27,1% of the shares. Among management, CEO, CFO, and two Vice Presidents, all four own Invisio shares. (Sweden’s Financial Supervisory Authority)

Discounted Cash Flow Analysis

This DCF is somewhat conservative. It projects five years with 10-30% sales growth and then continues with 2% eternal growth.

INVISIO DCF1

INVISIO DCF2

Conclusion

Invisio is a BUY with a target price of 35,12 SEK. Today’s closing price was 26,30 SEK (July 6th, 2015). The company still has a unique product which many military powers want and need in order to mitigate their costs for hearing loss compensation. No real competing product seem to be in sight yet for at least a few years. The company showed its first profitable year in 2014 and is projected to grow its profits for all the coming years.

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