It’s often advised to build when the market is down, and Ondo InsurTech PLC (LSE: ONDO) is a prime example of a company putting this advice into action.
Specializing in insurance technology, as its name might suggest, Ondo is the innovator behind a smart device known as LeakBot.
This small but mighty gadget, designed for household leak detection, has been a catalyst for Ondo, establishing an influx of commercial partnerships. The company has attracted attention from both insurance carriers and, increasingly, water utility companies, who have been deploying LeakBot extensively among their customer bases.
Since its public debut in March 2022, Ondo has secured significant contracts with top-tier insurance carriers such as Admiral and Hiscox in the UK, as well as with notable UK water companies, Southern Water and Portsmouth Water.
Southern Water is gearing up to roll out LeakBot to more than 1,000 customers in an upcoming pilot program, with the goal of mirroring the remarkable 60% reduction in water leaks that was accomplished in the Portsmouth Water trial.
Additionally, Ondo has joined forces with Waterwise, a prominent water efficiency organization, to advocate for technologies that help prevent leaks.
On the international front, Ondo has entered into a five-year agreement with Länsförsäkringar Trygghetstjänster, Sweden’s foremost non-life insurer, extending the reach of LeakBot to a customer base of two million.
What’s more, Ondo is collaborating on a proof-of-concept pilot with Firemark Collective, the innovation subsidiary of IAG, Australia’s largest general insurer.
In April, LeakBot made its way into the US market through a strategic partnership with global business process management firm WNS.
Further extending its influence, Ondo has recently struck up a strategic alliance with US-based PURE Insurance. The goal of this partnership is to offer the LeakBot system to a select group of PURE members, thereby enhancing risk management protocols and decreasing the frequency of preventable claims.
That’s a whirlwind of contract signings crammed into just the first seven months of 2023.
But what makes LeakBot such a hot topic? First and foremost, it’s the magnitude of the problem that Ondo aims to address with LeakBot that turns heads.
In the US, leaks result in the loss of over one trillion gallons of water annually. A staggering 28% of insurance claims paid are attributed to water damage, a figure surpassed only by claims related to weather incidents.
In the UK, the situation is similar, with water damage accounting for nearly 30% of claims paid, making it the leading source of such claims.
Objective research by the insurance benchmarking firm Consumer Intelligence, which analyzed data from 43,000 LeakBot units deployed by nine UK carriers, demonstrated a 39% decrease in the frequency of water claims and a 51% reduction in claim severity.
This has translated to substantial savings for policyholders, with the claims cost per policy plunging by 70%, from US$209 to US$63—indicating an average saving of US$146 on homeowners’ policies.
LeakBot operates by using highly sensitive heat sensors to detect unusual water flow in a house’s main pipe, identifying when water is being delivered at unexpected times.
While there are other leak detectors available, they tend to be expensive and necessitate professional installation. In contrast, LeakBot is cost-effective to manufacture and is designed to be user-friendly.
To distinguish between normal water use and leaks, LeakBot employs algorithms that monitor a household’s average water usage throughout the day, allowing it to detect anomalies. This is especially beneficial for identifying micro leaks, which are responsible for the majority of water damage in homes. To address these leaks, Ondo dispatches a team to locate and repair them.
A Glimpse into LeakBot’s History
This unique, patented strategy was conceived in an innovation lab led by Craig Foster, Ondo’s CEO, during his tenure at the home maintenance corporation HomeServe. When HomeServe decided to go private through a deal with Brookfield Asset Management (TSX:BAM.A), the innovation lab evolved into Ondo InsurTech.
Reflecting on the company’s journey, Foster stated, “Becoming a listed entity was beyond my wildest expectations.” This became a reality when, via a reverse merger with Spinnaker Acquisition, Ondo became one of the inaugural insurtech groups to be listed on the London Stock Exchange.
Going public was a significant step that required considerable persuasion for Foster. His hesitations appeared justified when, shortly after Ondo’s IPO, the SPAC market collapsed, leading to an immediate 50% loss in Ondo’s market capitalization. Foster candidly admitted, “I was naive, thinking our strong product and large target market, along with promising news, would suffice… Yet for nine months as we announced new deals, it felt like a ghost town.”
Ondo’s 2023 Momentum
In 2023, Ondo’s fortunes took a remarkable turn. Its market capitalization skyrocketed fivefold, from £5 million to over £26 million, spurred by a series of significant new partnership announcements, notably the WNS roll out.
While some might consider Ondo’s shares overvalued following such a rapid surge—especially since last year’s revenues (ending 31 March 2023) were approximately £2.1 million—projections tell a different story. For instance, sponsored research from Bloom Analytics estimates that Ondo’s recent agreement with Länsförsäkringar could generate £30 million in revenues over the next five years, at a 40% margin, from this customer alone.
Ondo’s revenues are forecasted to multiply tenfold within the next five years, although Bloom acknowledges that reaching positive cash flow will be a multi-year endeavor for Ondo.
If LeakBot continues to captivate large-scale clients as it has this year, and if Ondo successfully transitions its numerous pilot programs into robust, recurring revenue streams, it seems that there might still be an opportune window to invest in Ondo, even as the broader market lags.
