𝛼SK or SearchTotal Brain Limited: Ready to Execute
Total Brain Limited
Ready to execute
Total Brain (ASX:TTB) is the developer of a neuroscience-based mental health & fitness platform powered by the largest standardized neuroscientific database in the world formed over almost two decades and with $50m of R&D funding. The company has reported FY21 revenues of $3.694m, down 4.7% on FY20 due to an 11% depreciation of the USD/AUD exchange rate. On a constant currency basis, revenue increased 6.0% for the year. The company saw a strong increase in Affinity partner revenue which increased 172% to $1.09m, driven by the renewal and upsell of American Association of Retired Persons’ (AARP) contract. Corporate revenues were flat for the year with net new contracts offsetting a legacy contract while Clinical revenues declined 11% to $0.4m as a result of legacy client churn offsetting more recent revenue gains since the relaunch of the product in H2 FY21. Total Brain noted that it expects growth in these core business lines, Affinity, Corporate and Clinical to accelerate materially in the coming quarters, driven by the pending IBM deal with US Veterans ($0.6m in annual revenue in year 1), the Hamptons Life partnership ($6m up front and ongoing maintenance fees of $0.185m) and the recently won Eastman Corporate contract ($0.25m for three years). We have made minor adjustments to our forecasts from incorporating the FY21 actuals. Our base case DCF valuation is $0.88/share with ~40% of our valuation attributable to the IBM Thrive 360 relationship.
Business model
Total Brain operates a subscription as a service (SaaS) model for its mental health and fitness platform. The science behind the platform has been developed over almost two decades with input from the leading academic institutions in the field. This has generated a proprietary neuroscientific database of scale which underpins the scientific validation that differentiates Total Brain from other brain training and wellness applications. The app, promoted by affinity partners, assesses the four core brain capacities (emotion, feeling, cognition, self-control), pre-screens seven common mental health conditions and delivers personalised brain and mind/body training.
FY21 result discussion and outlook
A key feature of Total Brain’s FY21 results was costs containment, despite increased investment in product and people. Employee costs increased 6% across the year but costs overall grew by 5% with declines in COGs and other operating costs. Cash costs reduced by 1% in FY21. The underlying EBITDA loss declined 3.3% on FY20 and was lower than our expectations. In our view, Total Brain’s investment in its product and people positions it to quickly capitalise on the opportunities presented in the IBM and Hamptons deals and as new clients emerge. The company noted that it was encouraged at the momentum behind the mental health market and is anticipating that FY22 will be a breakthrough year with several opportunities emerging in its core Affinity, Corporate and Clinical markets. Total Brain ended FY21 with $1.4m in cash and has subsequently completed a $6.5m capital raise. This together with the pending $6m upfront payment from the Hamptons Life transaction, and other collections, including the $0.25m/annum Eastman Corporation contract will give Total Brain with a 12+ month cash runway.
Base case valuation is $117m or $0.88/share
Our base case DCF valuation is $0.88/share after incorporating the FY21 results and making minor adjustments to our FY22 and FY23 forecasts. We see commencement of the US Veterans contract with IBM Mental Health 360 and the finalisation of the Hamptons Life direct to consumer transaction as key near term catalysts for Total Brain’s share price.
- Unlock research summaries
- Follow top, independent analysts
- Receive personalised alerts
- Access Analytics, Events and more
Join 55,000+ investors, including top global asset managers overseeing $13+ trillion.
Upgrade later to our paid plans for full-access.
- Total Brain Limited: Ready to Execute31 Aug 2021