Investment Matters

TZ Limited: Unlocking its potential

This week we will be looking at TZ Limited, a technology company that forms part of clients portfolios.

What is TZ Limited?

TZ is a world leader in smart digital locking, using a patented (180 patents) locking system developed in Australia over 15 years ago. 

TZ provides digital locks that are able to interface securely to the internet and the smart software that facilitates this.  As a result, its locks are capable of remote locking, control and monitoring (including the monitoring of temperature through environmental sensors).

 

 TZL

The current market

TZ has taken its technology and focused on two product areas – smart lockers and data centre locks. 

Smart lockers are an exciting area of growth.  They are primarily utilised as day lockers or to store packages.  Smart lockers are used by a variety of customer types, including corporations, education providers, postal services and apartment residents.

Compared to traditional lockers, smart lockers provide added security and convenience for users, as well as better data collection and monitoring.  For example, TZ’s mail management lockers can allow a package to be delivered (allowing access to the locker), log its receipt, notify the recipient of the delivery and log when it is collected. 

Data centre locks are used to provide access control to data cabinets (which contain servers) to prevent unauthorised access and attacks.  TZ’s technology allows for detailed audit trails as well as environmental monitoring (such as temperature and humidity sensing and leak detection).  TZ is, therefore, able to benefit from growth in data collection globally and as organisations continue to migrate to the cloud. 

As awareness of its product grows, TZ is looking to expand its customer base globally, by winning large contracts and through its global distribution partner Ricoh.

It is also focusing on developing recurring, service-based revenue, including by providing its smart software as a service and through annuity hosting.

 

Future opportunities

Given that locks are ubiquitous and new applications for connected devices (the 'internet of things') continue to be developed, exciting opportunities are emerging for TZ.

An example is in retail, where TZ is looking to develop retail locker networks.  These will allow customers to click and collect their packages at their convenience.  If proven successful, the company could significantly benefit from the growth in online shopping.

It has also collaborated with Mercedez Benz Research to develop a mobile package delivery vehicle.  This vehicle incorporates TZ’s smart lockers, allowing secure package delivery (minimising the likelihood of loss or theft).

Opportunities also exist for TZ to license its world-leading technology to other providers and continue to build global partnerships and awareness of its product.

 

Performance and outlook

TZ has dramatically improved its gross profit margin over the last few years, from 30% in FY-16 to 51% in FY-18.  This is a result of a number of initiatives, including shifting its manufacturing and sourcing to Asia, the development of more cost-efficient designs and reducing its operating costs.  Furthermore, the company has significantly altered its sales mix, focusing on higher margin products.

Importantly it has increased revenue in its targeted product lines (by >40% in 2 years based on our expected FY-19 revenue forecast).  This is a good business, with good margins, that is growing.

As a result of these substantial and fundamental improvements, our expectation is for the business to be EBITDA profitable for the 2H-19 (results in August).  This will be a key milestone for the business and will mark the end of the 'turnaround' phase that First Samuel clients have assisted the business through.

From this point, however, the business will turn outwards to increasing (profitable) sales growth, as it leverages off the recognition of its technology platform.

TZ’s current customers include some of the world’s leading technology companies such as Apple and Microsoft.  Furthermore, it provides services to preeminent universities such as Princeton, national postal services such as Malaysia Post and large corporations such as Disney and Nike.

We have confidence in the company’s prospects over the medium to long term.  There is significant potential in its technology, growing awareness of its products and emerging potential applications for its locks.  We assess that in time its share price will reflect this.