𝛼SK or SearchTotal Brain Limited: Waiting for the Curtain to Rise
Total Brain Limited
Waiting for the curtain to rise
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 Q4 cash receipts of $1.6m down 6.4% on the same quarter in FY20 which included a $1m upfront payment for a large contract. On a constant currency basis, Q4 receipts grew 2.0% year on year. The company noted that pending IBM transaction with the US Veteran Affairs administration for the deployment of the Mental Fitness 360 platform and GRIT application is nearing execution, signalled by a public announcement in June on the US government website, Sam.gov, that the contract award was imminent. We have adjusted our forecasts to take into account this delay, and now expect the contract to commence in September. We have also incorporated the Hamptons Life D2C deal, on which Total Brain expects to execute binding agreements in the current quarter. The Hamptons Life D2C licence will deliver $2.35m per year in additional revenue for three years from the date of signing and then $0.35m ongoing. Total Brain will hold a 5-year option to acquire up to 50% ownership of the D2C business which we have not included in our forecasts. Our forecasts now also include the additional shares issued in the recently completed $6.5m share placement and entitlements offer. Our base case DCF valuation is now $0.87/share (previously $1.20) following these adjustments. On the old share count the valuation is $1.07/share.
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.
Adjusting for IBM delay, Hamptons and capital raise
We have incorporated the Hamptons D2C opportunity together with the recently announced Eastman Corporation 3-year deal in our forecasts from FY22 and ongoing. However, we have also pushed out the timing of revenues from the IBM Mental Fitness 360 programme which has been delayed awaiting sign off from US Veterans. In its Q4 update and investor presentation, Total Brain has referred to the public announcement by the Veterans Administration on the US government website SAM.gov which suggests that the IBM GRIT platform had been selected for the mandate, highlighting July 20th as the tentative contract award date which has since passed. Given the delays, we are assuming that the IBM deal will commence in September and start generating revenues in October, following a 45-day implementation period. This has resulted in the exclusion of IBM from our FY21 forecasts and Q1 of FY22. Our forecasts and share count also include the recently completed $6.5m institutional share placement and entitlements offer. 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.
Base case valuation is $116m or $0.87/share
Our base case DCF valuation is $0.87/share after adjusting for the new share count following the share placement and entitlements offer and adjusting expectations from the IBM Mental Health 360 programme. We see commencement of the US Veterans contract with IBM Mental Health 360 as the key near term catalyst for Total Brain’s share price.
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- Total Brain Limited: Waiting for the Curtain to Rise04 Aug 2021