The recent IPO of disinfection technologies player Applied UV (AUVI, Financial) was a phenomenal success for all the subscribers. The company offered 1 million shares to the public at a value of $5 per share, and their price showed a triple-digit appreciation on the first day itself.
Applied UV is an established supplier to the hospitality industry with a team of seasoned veterans and aims to grow across the healthcare segment through this public offering. Given the background of the Covid-19 pandemic and the increasing spread of surface-based infections, particularly in healthcare facilities, it appears to be a good time for a company like Applied UV to offer itself as an investment opportunity.
What does Applied UV do?
Applied UV is a company focused on the acquisition and development of disinfection technologies to address the hygienic requirements of the healthcare, hospitality, commercial and residential markets. The company was formed in February 2019 with the purpose of acquiring two key entities, namely SteriLumen and Munn Works.
Through its ownership of SteriLumen, Applied UV owns a patented disinfection technology that uses a narrow range of ultraviolet light spectrum called UVC to destroy pathogens on surfaces. It has two main products offered for sale which are the SteriLumen disinfecting mirror and the disinfecting drain.
In order to set up a solid client base, Applied UV went on to acquire Munn Works in July 2020. Munn Works is known to manufacture and supply custom designed decorative framed mirrors, framed art and bathroom vanities to the hospitality industry. It has a client base of some of the top-most hotel brands in North America including names like Hyatt (H, Financial), Hilton Hotels & Resorts, Marriott (MAR, Financial) and Four Seasons.
Through these two key acquisitions, Applied UV has developed the ability to build larger volumes of the SteriLumen disinfecting mirror and also has a wider distribution for the same across the hospitality industry. The goal of the IPO is to raise additional funds to expand the reach of its unique disinfection technology and add more products like the disinfecting drain, medicine cabinet, sink and many more using the widespread application of the technology. In fact, it has earmarked $250,000 specifically for research and development to potentially increase its product offerings, which is a very positive sign.
Applied UV's growth strategy
The acquisition of Munn Works was a big breakthrough in advancing Applied UV's distribution across the hospitality industry. Munn Works already has a strong advertising infrastructure in place, which includes pushing its products through ads in hotel design magazines like Boutique Design and Hospitality Design as well as participation in major national trade shows along with social media marketing. The company's CEO, Max Munn, who is now the President at Applied UV, has a vast industry network within hospitality and has been a part of Munn Work's growth story, where he was instrumental in growing the sales force and maximizing the advertising ROI (return on investment). His network and his experience at marketing the mirror products will come in handy in Applied UV's growth plan.
It is worth highlighting that Applied UV CEO Keyoumars Saeed's vision of the company goes beyond the hospitality industry, as its technology has a wide application potential for offices, hospitals, healthcare facilities and even individual homes. The company plans to offer a wide variety of products of daily use such as disinfecting medicine cabinets and sinks that are consumer-oriented.
Its marketing approach will be purely B2B and it will reach its target consumers through distributors across the U.S. and the Middle East for now, with gradual expansion to other markets in the near future. Applied UV has already filed for the relevant patents in the EU and it is a matter of time before the European market also opens up for the company. All these factors indicate a strong upside potential.
Strong macro
Infectious diseases acquired through surfaces are a rampant cause of hospitalizations across the world, and the biggest market within this space is that of HAIs (Healthcare Acquired Infections). These may be defined as illnesses contracted by patients in a healthcare facility while being treated for an altogether different sickness.
Applied UV looks to address the massive HAI market, which causes close to 99,000 deaths in the U.S. each year and which has been designated as a priority by the U.S. Center for Disease Control (CDC). HAIs broadly include infections like C-diff, MRSA, E. coli and candida auris, which are more likely to affect the aged population (i.e. adults above 85 years of age), an age group that is rapidly growing in the U.S.
The problem is that traditional cleaning and disinfection tools continue to have a limited effect on surface-based bacteria, which are leading to rising HAIs. In fact, the annual cost of HAIs to the healthcare system is estimated at $45 billion. The average patient in a healthcare facility ends up spending an average of 6.5 extra days on contracting an HAI and is five times more likely to get re-admitted and twice as likely to die. These are shocking statistics and show us the importance of Applied UV's technology.
Not only can it fight off the regular infections like E. coli, but it is also known to potentially be effective on SARS-CoV-2 as well. The company's disinfecting mirror and disinfecting drain have been tested at ResInnova Laboratories against the OC43 human coronavirus strain, which is genetically similar to SARS-CoV-2, and was proven to effectively counter the same. This indicates a strong potential demand for the products of this technology in the future to continue the fight against the coronavirus.
Final thoughts
As we can see in the chart above, the stock rose by a phenomenal 132% on its first day to levels of $11.60, though profit booking on the second day led to the price stabilizing around the $7.30 mark.
It is worth highlighting that Applied UV has had strong financial traction prior to its listing. The company's revenue grew from $1.46 million in the first quarter of 2019 to $1.528 million in the first quarter of 2020, and its gross margin also grew from 22.1% to 24% in this same period. Its overall revenues for 2019 were $9.3 million with a gross margin of 35.6%, up from $7.6 million in 2018, which are all very strong data points.
This growing top-line is a function of the strong demand for its products within the hospitality space. The current share issue of about 16.2% of the company for $5 million in gross proceeds values Applied UV at $30.8 million, which is, in my opinion, a throwaway price as it denotes a price-sales ratio of 3.3.
Even at current levels, I think there is continued scope for multiples expansion owing to the potential of its disinfection technology. Also, with the top-line growing as a result of increasing marketing expenditure ($0.5 million from the issue specifically earmarked for sales and marketing), I think the stock could easily end up being a multi-bagger for investors.
Disclosure: No positions.
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