Zacks Small Cap Research – SVRE: Initiating coverage of SaverOne. Striving to protect all road users from the distracting technology in vehicles. – Technologist

By Brian Lantier, CFA

NASDAQ:SVRE

READ THE FULL SVRE RESEARCH REPORT

We are initiating coverage of SaverOne (NASDAQ:SVRE) with a valuation of $1.80

SaverOne is working to help close the Pandora’s box of problems that have emerged since mobile devices transitioned from simple phones to entertainment and media devices. The draw of these devices (and the social media apps on them) has been a key contributor to a sharp rise in distracted driving accidents and deaths.

Despite being in business for nearly a decade, SaverOne is still a fairly early-stage company commercializing its first products. The company offers an in-cabin distracted driver prevention system that effectively locks down the most distracting apps on an enabled mobile device when it is near the driver in a SaverOne-equipped vehicle. The automated engagement of the blocking technology is a key point of differentiation for companies and fleet managers looking to mitigate liability risk associated with distracted driving by their employees.

SaverOne’s initial product requires an extensive installation process and is targeting the aftermarket commercial vehicle market. This installation process has likely limited the initial applications of the technology to commercial fleets but we do believe that an integrated solution built-in by commercial vehicle OEMs could be on the near horizon which would drastically expand the market opportunity for SaverOne. Eventually, we believe the company would like to work with passenger vehicle OEMs to include the SaverOne Phone Location Unit as well.

The initial customers for the SaverOne Driver Distraction Prevention System (often referred to as the SaverOne DDPS) have included private and public bus fleets, industrial customers, and transportation companies. The company’s OEM solution has been designed to be sold to large commercial vehicle manufacturers and auto manufacturers.

To date, the bulk of the company’s operations and sales have been based in Israel (and we do expect some impact on operations in 2023 sales as a result of the current hostilities) but the company has an aggressive international expansion plan to bring its solutions to the EU and the US in 2024.

The company is in the early stages of developing another product to supplement Advanced Driver Assistance Systems (ADAS) which will utilize its core RF signal detection technology to warn drivers of Vulnerable Road Users (VRU) in the vicinity. Other technologies currently used in vehicles (radar, cameras, lidar) can be impacted when the line of sight is interrupted and the SaverOne solution seeks to address this issue by utilizing RF signals. We think there will be some significant hurdles to bringing this product to the broader market, but we think there could be use cases that make a great deal of sense.

The company has significant opportunities to expand its installed base through OEM relationships and international growth. Challenges for the company include perceptions that the free alternatives in the market (Carplay, Android Auto, etc.) are sufficient and a complex standby equity agreement that is likely to increase the number of freely trading ADSs in 2024 which does not appear to be fully appreciated by investors today.

Valuation

SaverOne is at the very beginning of its growth cycle with two product lines and we anticipate that as the company’s installed base grows investors will gain further confidence in the model and assign a greater premium to the company. We believe SaverOne can more than double revenues in 2024 and 2025 and then will continue to experience high double digit revenue growth for the foreseeable future beyond 2025.

Given the company’s commitment to launching an OEM version of its DDPS and its VRU offering, we anticipate significant research and development investments through 2025 which will prevent the company from generating positive cash flow at least in the near-term. While there are no pure comparables for SaverOne, we consider many of the providers of Advanced Driver Assistance Technologies to be among the best comps for SaverOne.

Given the explosive growth in the market for technical driver assistance tools like those assistance most of these companies trade at significant multiples of revenue averaging nearly 5 times 2025 revenues.

We believe that give the very early stage of development at SaverOne, the company is likely to trade at a substantial discount to the other companies in the vehicle safety space. We are assuming that the company can trade at 3x 2025 revenues of $7.5 million giving the company an implied valuation of $22.5 million. Based on our estimates for share growth in 2024 to fund operations we have arrived at a valuation target for SaverOne of $1.80/ADS. If the company issues significantly more shares or ADSs than we have anticipated to meet its capital needs we may have to adjust our price target to reflect a higher ADS count.

Summary

1) Despite operating for nearly a decade, SaverOne has only recently started accepting meaningful commercial orders for its driver distraction prevention system. The aftermarket installations are enabling the company to demonstrate the value of its technology but the much more significant opportunity for SaverOne will be if an OEM partnership can be reached to build the system into vehicles as they are assembled.

2) The company faces a challenging landscape with free tools built into phones (Apple CarPlay/Android Auto) and several well-financed competitive products from firms targeting the commercial vehicle space. The company has a strong presence in Israel today but the greatest opportunities for long-term growth will be in Europe and North America.

3) The company’s shares are prone to “meme-like” spikes in volume and price on little to no news. Long-term investors should be opportunistic when building positions in SaverOne and be cautious if the shares overreact to news. The company is also still actively raising capital under its standby equity purchase agreement which makes it challenging to get a proper understanding of the total outstanding shares between SEC filings. We think long-term investors will be able to better focus on the fundamentals of the company when the share issuance under this agreement has been completed.

4) The opportunity to protect vulnerable road users (VRUs) is underappreciated by the market today as most investors would like to see this translate from a concept into a real-world application. This product could provide substantial upside to our long range projections if the company can successfully develop a product for this market and partner with OEMs to install it.

SUBSCRIBE TO ZACKS SMALL CAP RESEARCH to receive our articles and reports emailed directly to you each morning. Please visit our website for additional information on Zacks SCR. 

DISCLOSURE: Zacks SCR has received compensation from the issuer directly, from an investment manager, or from an investor relations consulting firm, engaged by the issuer, for providing research coverage for a period of no less than one year. Research articles, as seen here, are part of the service Zacks SCR provides and Zacks SCR receives quarterly payments totaling a maximum fee of up to $40,000 annually for these services provided to or regarding the issuer. Full Disclaimer HERE.