Microcap stock offers new label technology

Danavation Technologies’ Digital Smart Labels™ enable companies to automate labelling, price, product information and promotions in real time.

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With Digital Smart Labels, prices such as these can be updated instantly from a central source.

New technological innovations often lead to rapid changes in previously stable systems. Recall how quickly the retail sector adapted when the Universal Product Code (UPC) technology was introduced. The option to simply scan a systematic barcode printed on every consumer item changed every aspect of the retail sales environment. UPCs are now ubiquitous in almost every sector to capture greater efficiency.

Emerging technology companies are attractive for speculative investment because they present opportunities to capture strong market gains as users rapidly transition from obsolete systems. The successful introduction of disruptive technology may position a small company to build a foundation for impressive growth.

Speedier point-of-sale information

One Canadian-based micro-cap stock is now on the leading edge of new technology that may transform a critical function in the consumer retail sector. Danavation Technologies Corp. (CNSX—DVN) was recently launched to advance the rollout of Digital Smart Labels™, a system developed to transmit data to strategically mounted e-paper display units; its stock began trading in mid-January. The company is the only licensed provider founded in North America to offer this patented technology, which dramatically upgrades the process of providing point-of-sale consumer information.

Operating on the Internet-of-Things framework, the system enables real-time information to be securely and accurately displayed throughout an entire facility with one centrally managed delivery system.

Danavation is already making inroads with established consumer retailers to upgrade their product information model to the new display system. The main advantage of Digital Smart Labels™ is to lower operating costs as these retailers no longer require an army of clerks to replace paper labels whenever the price changes for an item. The system enables information to be immediately updated in a central database with greater efficiency for all products, and then transmitted to a custom micro display panel for consumer review.

Senior management has a track record

The drive towards increased operating efficiency is building up acceptance of the technology. If you can demonstrate to prospective clients that your system will save them money, then you are going to at least get some consideration. It helps that senior management of Danavation has a long track record providing services to large corporations in the retail sector; therefore, existing contacts and client relationships will perhaps open some doors.

The overall market for this technology is estimated at more than US$5 billion just in North America, according to business data firm, Research and Markets. Several of the leading consumer corporations are already on board and a strong pipeline of potential clients will lead to a very rapid growth profile for the company as this proven and established technology gains market share.

Danavation provides a turnkey setup to arrange the wireless infrastructure network to operate the system in a facility and install the micro e-display panels on store shelves. Data is then uploaded for every product display to include all relevant information. This may then be updated in real-time quickly and efficiently through the client portal.

An upfront setup fee is negotiated to build out the system. Thereafter, a monthly fee is payable to Danavation through the contract term for ongoing support and system access. The appeal of this business model to Danavation shareholders lies in the revenue growth potential as more clients adopt the system. Technical support and custom feature development are also available to clients.

Technology has gained acceptance

With any emerging technology rollout, the early part of the launch usually entails the greatest risk to the success of a company. There is a certain degree of inertia that restrains established corporations from taking leadership to accept a new system. Once the early adopters have taken action and the benefits become obvious, the growth curve accelerates quickly. Danavation is now beyond that higher-risk phase and is well on the way towards capturing a much-larger market share.

Management has presented growth objectives that set the bar very high. The company aspires to achieve gross revenues of $10 million for the full year of 2021, which represents a growth rate of roughly 30 per cent compared to the prior year. If they are able to achieve this target, the company should be within range of reporting a net profit from operations. Achieving profitability so early in the development curve would certainly contribute to a higher market value for the company as well.

Danavation has targeted the US market for perhaps 80 per cent of its client base. This makes sense, considering that the US market is 10 times the size of the domestic Canadian market. In addition, the stronger US dollar makes the services offered by Danavation much cheaper when priced in that foreign currency. Appealing international growth options will ensure that Danavation has enormous upside for a long time into the future.

Gross profit margin about 65 per cent

With this scalable system, incremental growth may turbocharge profitability. The company is achieving profit margins amounting to roughly 65 per cent of gross revenues.

Following the setup phase, recurring revenue realized from each new client contributes to the top line with almost no additional cost burden on an operating basis. This presents the potential for rapidly escalating earnings as the company achieves its growth ambitions.

Danavation is a software company that is marketing a specific product with its licensed Digital Smart Label™ system but working towards the creation of new technologies and patents that may establish more diversified operations going forward.

Uses beyond retail displays

The company is already moving beyond the established market for retail price displays. Additional sales channels include warehousing, animal shelters, manufacturing facilities and the health-care sector.

A breakthrough sales agreement was recently reported with the Ensign Group Inc. (NASDAQ—ENSG). Ensign operates long-term health-care facilities at multiple locations across the United States. Ensign will now begin the transition to using Digital Smart Label™ displays for patient care, so that critical medical data may be efficiently presented to health-care professionals and they can access client information in real time.

Compared to the previous standard of utilizing printed charts and files for the same purpose, Danavation’s Digital Smart Labels™ will provide greater security and accuracy, along with faster updating of information at the click of a button.

Meanwhile, new product lines are also in development to maintain the leadership position of the company. The development process is supported by the organic growth already underway. A strong balance sheet with about $2 million in cash and no long-term debt is also attractive.

Pilot project underway at LCBO

I believe Danavation has all of the critical elements in place to successfully capitalize on this technology. The company has achieved inroads to partner with some of the biggest names in key sectors, such as Ontario’s government liquor store, the LCBO (a pilot project testing the smart labels is in progress at two store locations), and is well-positioned to deliver exceptional growth.

High margins will contribute towards achieving profitability. Expansion opportunities to establish the system in other sectors beyond retail may build faster growth. And the potential for development of new technology could add another layer of upside for this dynamic company in the future.

As a newly-listed entrant in the early phases of its rollout, the stock is currently trading as a microcap story. I expect the value of this company to increase very quickly to match the pace of growth in the quarters ahead.

Mike Kachanovsky is a freelance writer who specializes in technology and junior mining stocks.

This is an edited version of an article that was originally published for subscribers in the April 23, 2021, issue of Investor’s Digest of Canada. You can profit from the award-winning advice subscribers receive regularly in Investor’s Digest of Canada.

Investor’s Digest of Canada, MPL Communications Inc.
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