Within the Sierra Nevada Mountain range, lives the biggest tree in the world. It is almost as tall as the Big Ben at a height of 84 meters. The General Sherman was seeded between 700 BC and 300 BC. It has survived changing climates, fires, the introduction of invasive species, and far more.

It is no small feat for a tree to grow as big as the mighty General Sherman, but its legacy is explainable. The giant sequoia sits on the Sierra Nevada Mountain range. Snow falls on the mountain range in winter, melts in spring, and is then carried through streams and a vast groundwater network, passed the General Sherman who surely takes his fair share.

For a tree to get as big as General Sherman, it requires more than an adequate water supply. It needs sunlight, undisturbed by neighboring trees, soil with enough nutrients, the right genetics, the right climate, and a myriad of other blessings. Other saplings growing in a similar environment should do similarly as well.

In our search for companies to invest in, we would ideally like to find a General Sherman sapling. A company with the right genetics, in the right location, undisturbed by neighboring trees, and enough water and nutrients to grow up big and strong and hopefully last the next 2000 years.

Onesoft Solutions

As we ventured through the forest in search of a General Sherman Sapling, we came upon Onesoft solutions – a little SaaS (software as a service) company with 0 known competitors. The company’s seed was dropped in an ideal location, and a number of fortunate events, partnerships, and an excellent management team have accelerated the company and its product, to where it stands today.

Before we explain how this company is going to make tons of money and grow extraordinarily big exceptionally fast, we need to understand the company and its industry.

Oil & Gas Pipeline problems

There exists 2.7 million miles of Oil & Gas pipelines in the United States. Estimates say that per mile of pipe it costs $7,700 to inspect and maintain. (Remember this $7,700 number it will be important for you later). The extensive process of maintaining and monitoring a pipeline is referred to as Integrity Management.

 Of the 2.7 million miles of pipe, approximately 660,000 are “Piggable”.

Oil & Gas operators use things called PIGs (pipeline inspection gauges) to collect data, clean, and maintain their pipelines. In an activity called “PIGGING”, they will insert the device into the pipeline where it will move through the pipe pushed along by the product (gas/oil). Whilst the PIG is in the pipe, it will clean the pipe and collect data. There are different types of PIGs, some clean, some collect data, but most work in government.

‘Inspection’ PIGs will collect data like temperature, pressure, corrosion, metal loss, bends, and curvature.

Once all this data is collected it is then extracted, compiled, and analyzed by engineers who must detect anomalies, leaks, and anything else that may indicate there is something wrong in the pipeline.  Most operators depend on internally built systems that output the data from the PIGs into excel spreadsheets. These systems are old, ‘legacy’ systems, and engineers are then depended upon to analyze the data, which can take months as in the picture below.

Onesoft collects this data and analyses it using machine learning in a matter of minutes or seconds outputting far more accurate results that can save oil & gas operators months of work and millions of dollars. The results allow operators to act on the most critical parts of the pipeline faster than before.

If your knowledge of machine learning is rough, go read up on Google’s DeepMind AI which is able to accurately predict protein structures from their amino-acid sequence- something humans had to do manually, often got wrong, and took ages. After being fed a gigantic amount of Data, Google’s DeepMind is now able to quickly and accurately solve protein structures. This was a huge accomplishment and shows the practicality of machine learning and AI.

Now that you are smarter for understanding a bit about AI, let’s get back on track. Onesoft Solutions, through its subsidiary OneBridge, has created a software program called CIM (Cognitive Integrity Management) that has been fed large amounts of data from pipelines and is able to interpret pipeline data gathered from PIGS all the more effectively. The practical use case is astounding as humans are no longer required to interpret the data, only to act on it.

On top of this core product, CIM is bunching together other modules that can perform risk management functions, corrosion detection, compliance, and regulatory services to form CIM into an all-in-one platform. Data can be nicely arrayed into reports for audit, compliance, and savings solutions. These additional programs are referred to as “modules” and will create additional revenue for Onesoft in the future.

The CIM Platform as produced by Onesoft Solutions analyses the data for the engineers and outputs actionable solutions. The major value add is that it uses machine learning to analyze the data- the actionable output is far more accurate than an engineer’s manual output. Machine learning finds patterns where humans don’t even know to look and can tell pipeline operators where the most critical problems lie.

The investment case

As much fun as it is to learn about pipelines and their internal processes, it’s a lot more fun to make money off of it. Does our little sapling have what it takes to be another General Sherman? Will there be adequate water, nutrients, space to grow, and a lack of competition?

It is impossible to accurately place a value on what Onesoft should be worth currently; it is growing extremely fast, but the speed at which it grows will fluctuate wildly leaving our models inadequate. Its profit margins will also change as the company matures. We have a rough idea of what the total addressable market is from what the company gave us but it also assumes much.

Let’s take a look at what we do know:

2022 Revenue should come in at $5m CAD and the company has a gross profit margin of 75%. They recently went cash flow positive and they have grown revenues at 77%+ annually since the rollout of their main product.

Most SaaS (software as a service) companies traded at an average multiple of 8X their next twelve months’ revenue (NTM) for the past 10 years. But most SaaS companies are also not growing at 77% per annum.

Let’s assume Onesoft’s NTM revenue is $7m (a very conservative estimate given how fast they are growing). They should be priced at 8X7= $56m CAD. A very close figure to their actual market cap of $64m~.

So, the company trades at 9 times NTM. But we have been conservative, we have not taken into account how fast they are growing, surely they should trade at a higher multiple given their growth? When does this growth stop?

Onesoft’s management has been kind enough to provide us of their estimate of the total addressable market. Their capturable market is currently around $100m+, and they are currently working on modules to add to the CIM platform which could take it further. When working with predictions so far out into the future, it pays to be conservative.

So Onesoft has ample room to grow for the next 5 years but its total addressable market is not as gigantic as one would hope, we will also have to wait and see with regard to its pricing power. If it can easily charge more than $100 per mile of pipe it could trade a lot higher.

We would say the company is cheap at its current multiple, and it has wonderful prospects, we will keep this sapling under our watchful eye. If we are lucky and the volatility of the current market persists, we may be able to add this company to our collection at a very reasonable price.

Heiden Grimaud Asset Management has no exposure to Onesoft Solutions. It is, however, being closely followed and a trade execution may take place at a lower price level.

Heiden Grimaud Asset Management does not own shares in Onesoft Solutions, however;

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