Business optimization often involves small changes that lead to outsized returns. This is especially true of the inevitable transition from paper to digital labels, and its associated cost reductions in terms of labour, hardware and human error.
Danavation Technologies (CSE:DVN), the only North American-based provider in the space, is demonstrating just how margin-accretive this transition can be across retail, grocery, health care, warehousing and more with its proprietary Digital Smart Labels™.
The high-resolution Digital Smart Labels™ feature cloud-based management, IoT functionality and modern graphics, including QR codes, supported by military grade AES encryption and lithium-ion batteries that last for more than 10 years.
Store owners can automate label displays in real-time using AI, big data and machine learning that responds to diverse inputs, such as sales velocity, weather conditions, current events, stock levels and price elasticity, all with the benefit of universal software integration and access to Danavation’s in-house software and engineering team.
These features are delivered under a platform-as-a-service model that includes software,
hardware, analytics and intelligence tools, the application of which can reduce costs by tens of thousands of dollars and save more than 40 per cent compared with paper displays by 1) adjusting more nimbly to changing market conditions and 2) freeing up hundreds of employee hours for more productive tasks, such as closing sales or attending to the needs of patients and customers.
Danavation’s substantial value proposition, coupled with almost 40 per cent insider ownership, as well as its origins in Dana Industries, est. 1993, a retail solutions company with relationships with numerous Fortune 500 brands, including Walmart, Costco and FedEx, equips the company with the pedigree to usher its multi-billion dollar addressable market into a smart future, while building diversified revenue from platform SaaS contracts (55% target), software add-ons (20%), related services (15%) and technical support (10%).
Recent installations of note include Ace Hardware, Mexico’s Impulsora, Btrust Supermarket and MPL Group. Let’s examine all four in greater detail:
Ace Hardware
Danavation will install Digital Smart Labels™ in the first of more than 40 Ace Hardware locations across the central U.S. owned by an independent hardware store banner.
This first installation is in Ohio and is expected to be finalized by Q1 2024, with potential for expansion across the portfolio contingent on satisfactory margin expansion and improved customer and employee experiences.
The news strengthens the relationship between Danavation and the global hardware brand, which has amassed more than 5,000 independently owned and operated stores. Digital Smart Labels™ already boast a successful track record at Ace Hardware locations in Indiana, South Carolina and California, representing a strong foundation for future contracts.
Impulsora
Following a value-added installation in 2021 with Impulsora – Mexico’s largest distributor of electrical and lighting equipment – the chain tapped Danavation to outfit its remaining 11 locations with Digital Smart Labels™ by the end of 2023.
The savings realized from these ongoing installations led the Mexican brand to add another six smaller-format locations in September 2023, with initial work slated for early 2024.
The leadership positions of Impulsora and Ace Hardware, as well as their expansion capabilities, make their relationships with Danavation key pillars in the company’s growing revenue base, which is up by 11.5 times from C$100,000 in 2019 to C$1.15 million in 2022, and is on track to grow even higher in 2023 with C$960,000 collected as of Q2.
While Danavation clearly benefits from associations with household names, the company prides itself on streamlining labeling operations for smaller, community-centric brands with an emphasis on cost-effectiveness and personalized service.
Btrust Supermarket
One of these small but mighty brands is Btrust Supermarket, which operates four locations across Quebec and Southern Ontario with combined retail space of more than 60,000 square feet. Danavation will install Digital Smart Labels™ in two of these locations between Q4 2023 and Q1 2024.
MPL Group
Another is MPL Group, a pharmacy, retail and property rentals company that contracted Danavation to modernize labels at two of its Nova Scotia pharmacies, BeaverBank and Hutchins, with installations also expected to be finalized between Q4 2023 and Q1 2024.
This quartet is only the latest in a growing client roster spanning more than 35 brands across Canada, Mexico and the United States, making a strong case for Danavation as the go-to name in label automation.
With macro tailwinds to catalyze momentum, including 1) expected global smart label market growth at an astounding 13.1% CAGR to more than US$27.39 billion by 2030, 2) North America, with only 5-6% smart label adoption, expected to capture the majority of this growth, and 3) Danavation’s estimate that the U.S. market will drive about 80% of its sales through 2026, all signs suggest a company with a defensible moat that should be reflected in a steadily appreciating stock price. Counterintuitively, this has been far from the case.
A value play reserved for eagle-eyed allocators
Despite Danavation’s stronghold on the future of digital labeling with a leading-edge, plug-and-play solution, DVN shares have lost more than 85 per cent of their value over the past year.
The steep fall is largely caused by the company’s unprofitability, high debt at more than 2x assets as of April 2023, and its major expense being SG&A, which gross profitability, though consistently positive, will not be able to overcome until scale and brand power replace the need for a marketing-first approach. The question then becomes, how capable is Danavation of delivering on a viable path to positive free cash flow?
The average investor’s answer, as DVN shares demonstrate, has erred on the negative side, with balance sheet concerns overriding a more qualitative value assessment.
Eagle-eyed allocators, on the other hand, have a rare opportunity to look past temporary growing pains and gain exposure to a company built to spearhead the era of smart retail and generate shareholder value in the process. These include:
- A trading environment of peak pessimism, allowing shares to trade at a discount
- Established relationships with global brands thanks to Dana’s more than 30-year history in retail
- A growing location footprint in the U.S., Canada and Mexico
- Dana’s founder, John Ricci, serving as Danavation’s president, CEO and director, to guide the company into its next phase of growth
With management estimating that Digital Smart Labels™ will command a 3.5% share of their serviceable obtainable market in North America by 2025, and ongoing product development set to diversify offerings into NFC/RFID smart tags, video analytics and biometrics, among others, potential investors have every reason to hold conviction in Danavation as manual labeling fades into the history books.
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