ONDO Insurtech : Solving water leaks one drop at a time

Disclaimer: The following write-up is no investment advice. The author may own, buy and sell securities mentioned in this post. Please always do your own due diligence.

The short case: We are investing in a company creating a new market segment, representing an opportunity for several billion dollars in potential annual recurring revenue (ARR), currently trading at ~6x 2025e ARR for a 2024e revenue growth of ~70%. Most importantly, the ongoing penetration of the U.S. market suggests an annualized revenue growth of ~65% from 2025-27 in my pessimistic model, all while generating significant cash flows thanks to a strongly negative working capital.

History: Founded in 2014, Ondo Insurtech's mission is to become the global leader in claims prevention technology for insurers. The company's Leakbot solution - specializing in detecting micro-water leaks to minimize future damage - was developed within an R&D program at HomeServe (owned by Canadian investment giant Brookfield AM, with a market cap of ~C$90 billion). This program, started in 2014, was later listed through a reverse takeover via a SPAC in early 2022, initiated by the lab manager in charge of the project, now Ondo Insurtech's CEO, Craig Foster.

Revenue breakdown: Although the customer base is currently quite concentrated (around 20 insurance partners by the end of 2024), Ondo works with many premium insurers such as Admiral (UK), NationWide (US #8 with ~2.8% market share), Selective Insurance (listed in the US with a ~$5 billion market cap), Ageas (UK #7), TopDanmark (Denmark #2), Alm Brand (Denmark #3), and Länsförsäkringar (Sweden's leading home insurer with ~30% market share). Since the signing of Liberty Mutual in February 2025, the total number of houses addressable by these signed partners amounts to ~13 million when it was ~5,2 million just one year ago. As of September 30, 2024, the company generated 38% of its ARR in Nordic countries (Sweden and Denmark), 44% in the United Kingdom, and 18% in the United States.

Solution: The group's Leakbot technology is innovative as it is the first on the market to detect micro-leaks (as low as 3ml/minute compared to 40ml for competing technologies) at a cost that defies competition, allowing insurers to repair micro-leaks before they worsen and cause significant damage, leading to large claims for the insurer and major inconvenience for the policyholder. This is made possible by a heat-based measurement technology rather than flow-based, which does not require a plumber to cut the pipe, making Leakbot "plug and play" for the end consumer, who receives the small sensor for free directly in their mailbox. Moreover, the solution is particularly appreciated by insurers as Ondo also provides plumbing services, detecting and repairing these micro-leaks (often hidden behind walls with no visible damage). This proactivity improves customer retention rates for insurers, as consumers receive differentiated equipment and services compared to traditional insurance contracts based on intangible benefits and post-event relationships.

Market: Although nascent, the market for accident/damage detection and prevention is rapidly expanding globally, as insurers see a measurable ROI. While Ting has paved the way in the U.S. for fire prevention, Ondo is benefiting from the same enthusiasm in the water damage claims segment, which represents 20-30% of the total claims handled by insurers (source: State Farm). Insurers pay out nearly $20 billion annually in claims in the U.S. and UK (source: Association of British Insurers Property Claims Report), with an average cost per incident estimated at ~$14,000 in the U.S. (source: Nationwide). Based on the current price in the U.S. of $5 per month per installed Leakbot, the top 100 U.S. insurers - Ondo's primary target - currently insuring ~100 million homes, represent a potential $6 billion in annual recurring revenue (ARR) for the UK leader (excluding price adjustments for inflation included in contracts).

Reasons for our conviction

A quasi-monopolistic competitive position in a nascent market

The group's solution relies on a star technology of the 2010s, now overlooked by investors: the Internet of Things (IoT). At Durolle Capital, we aim to stay away from current trends like AI. Conversely, "forgotten" technologies that reach a certain level of economic maturity represent fertile ground for shareholder value creation. Ondo Insurtech seems to perfectly fit this criterion.

"Ondo" is the Japanese word for "change in temperature." It aptly describes the innovative way the group's solution detects micro-water leaks using an algorithm that compares temperature changes in the main water supply, unlike historical solutions that base their analysis on water flow or noise in the system.

Thus, the patented Leakbot solution can detect leaks as small as 3ml/minute, while existing competitors can only detect leaks starting at 40ml, leaving time for serious damage to occur. This competitive advantage lies in the group's integrated software, not the sensor, which is more of a commodity and its manufacturing delegated to a subcontractor based in Bedford (UK).

While predictive maintenance has always been the primary promise of IoT optimization for industrial purposes, Leakbot perfectly fits the "Predict and Prevent" strategy implemented by insurers in recent years to reduce annual claims costs. This is even more interesting as its price of $5 per month per home is significantly lower than existing solutions that require a plumber for installation, while Leakbot is received in the mailbox and only needs to be clipped onto the pipe by the end consumer (see photo above). The cost per home for the insurer is thus much lower at $60 annually compared to the $400-500 average cost of competing solutions, excluding installation fees (~$100 on average).

This ease of deployment, coupled with lower costs, should enable the growth of a market that has so far been non-existent due to insufficient ROI for insurers. Proof of this is that the ROI of the solution is such that insurers are willing to finance the purchase and deployment of Leakbot for their policyholders, who receive the technology for free. Some, like Nationwide, even offer discounts on annual premiums in exchange for installing this small sensor. It is therefore not unreasonable to imagine Ondo becoming the standard in its field, or even mandatory for new insurance contracts, which would be a turning point for the solution and for Ondo's shareholders.

An end-to-end countercyclical offering thanks to which every stakeholder wins

As mentioned above, insurers find in Leakbot a solution that improves customer experience and retention rates, all while providing a significant ROI and without having to manage plumbing services which are delegated to Ondo. This is even more important in the inflationary environment we have experienced over the past four years, where the average cost of repairs - and thus claims - has increased significantly (source: Association of British Insurers Property Claims Report).

While the end consumer benefits from a turnkey service offered for free by their insurer, or even a reduction in their annual premium, the insurer reduces its exposure to claims risk and improves customer retention. In 2022, Swedish leader Länsförsäkringar saw a return to growth - thanks to the deployment of Leakbots - for the first time in five years in the test region of Sörmland. The installation rate among the targeted customer base during this test reached 40%, a testament to the success of such an offering among consumers.

Moreover, studies conducted by some insurers provide insight into the ROI associated with Leakbot. One insurer calculated a 145% return on investment over the first six months of deployment, with savings estimated at ~£5.5 million, while another saved $2 million in claims over the first six months of its test deployment, for a total solution cost of $150,000.

Even more impressive, during its deployment in the Sörmland region, Länsförsäkringar saw a 40% reduction in water damage claims costs (the remainder being related to causes not detectable by Ondo's solutions, such as roof leaks or storm-related damage).

Additionally, service quality - a major criterion for insurers - is highly praised by consumers, as evidenced by TrustPilot ratings of 4.8/5, Apple Store ratings of 4.7/5, and a Net Promoter Score (NPS) of 81 at the end of 2024/25, compared to 61 and 69 for globally recognized companies like Apple and Amazon, and 65 for its closest competitor, Ting. Moreover, 94% of Nationwide customers who have deployed the solution strongly recommend it to their family and friends.

This praised customer service is strongly tied to the fact Ondo Insurtech has internalized the plumbing service, employing their own plumbers and training them. Thus, they can detect leaks hidden being walls thanks to heat detection when historic solutions cannot precisely point where the leak is in the system. The ability to have the leak taken care of from detection to repair with only one interlocutor (the Ondo app) is a real factor of satisfaction for the end customers and a great differentiator for the company.

Finally, the commercial momentum mentioned below seems well protected from a global economic slowdown. Indeed, the group's solutions enable efficiency gains and improved profitability for insurers, so a deteriorating economic environment would only increase the attractiveness of Leakbot, especially if insurers offer premium discounts to encourage its installation.

The commercial momentum seems already well underway…

After several years of multiplying tests with leading European insurers such as Admiral (UK top 10), Ageas (UK #7), Länsförsäkringar (Sweden #1), TopDanmark, and Alm (Denmark #2 and #3), or NFU Mutual (UK top 10), 2025 appears to be the ideal time to become a shareholder of the company.

Indeed, we are reaching the point where Ondo is transitioning from a somewhat speculative R&D company to a business whose offering is finding its market and beginning to accelerate commercial deployments. Thus, these numerous tests are starting to bear fruit, with large deployment projects signed in Europe that should drive growth in the coming years. The latest significant deal is with Länsförsäkringar, which plans to deploy the solution in the 2 million homes the group insures in Sweden. Another European player reaching maturity, NFU Mutual, with 900,000 insured homes in the UK, has already conducted several test deployments in 2024 and plans to have 17,000 Leakbots in service by the end of January 2025 before expanding the deployment to all its members.

By the way, the UK offers a perspective on the potential penetration rate Leakbot could achieve once its market matures, as by September 30, 2024, the group's solutions had penetrated 49% of the addressable market of existing partners, with 45,000 Leakbots installed for 92,000 homes insured by local partners. Since then, the addressable market in the UK has significantly increased after adding partners such as NFU Mutual. In Denmark, the penetration rate reached ~7% as of September 30, while it is only 1% in Sweden following the signing of a 5-year framework agreement with Länsförsäkringar (21,000 deployments for 2 million insured homes).

Another important positive point from a commercial perspective is the inertia that characterizes insurers. These historically change-averse players take time to analyze potential technological advancements to integrate into their processes/business models. For example, it took Ondo more than two years to sign with Nationwide. However, once the ROI is proven and the terms of a partnership are set, insurers represent the perfect example of the "land and expand" model popularized by AWS. If they start with measured deployments during the test phase, their steady ramp-up provides strong visibility for Ondo, with a typical sequence of a large player starting with 5,000 or 10,000 Leakbots in the first year and exceeding 40/50,000 potential annual deployments in subsequent years.

Moreover, the group's ability to keep up with the acceleration in annual installations is not a concern, as management increased monthly production capacity from 10,000 to 40,000 Leakbots in October 2024 to meet growing demand in the U.S., which should become the main growth driver from 2025 and a significant commercial lever in the coming years.

… driven notably by the United States which have a very strong potential

Like Europe, the U.S. is on a very positive trajectory in terms of new partner signings and deployments in new states. Ondo began its penetration of the U.S. market in June 2023 by signing Mutual of Enumclaw for a test deployment of 10,000 Leakbots, followed later that year by PURE Insurance and then Nationwide for a test deployment of 6,000 Leakbots in just two states (Ohio and Washington) starting in January 2024. Since then, many insurers have joined the ranks of partners on the new continent (Selective, Anon, and Indiana Farm Bureau), and the solution is now present in 18 states, largely due to the expansion of the Nationwide program announced in November in 14 additional States.

The top 10 U.S. home insurers are State Farm (18.4% market share) with nearly one-fifth of U.S. households, Allstate with 9%, Liberty Mutual (7.3%), USAA (6.6%), Farmers (6.2%), Travelers (4.9%), American Family (4.4%), NationWide (2.8%), Chubb (2.6%), and Progressive (1.8%). These 10 insurers represent nearly two-thirds of Ondo's addressable market, which consists of the top 100 U.S. insurers (~100 million homes).

By announcing a partnership with #3 Liberty Mutual in early February 2025, which will see them deploy 10,000 Leakbots for an initial test (compared to Nationwide's 6,000), Ondo has thus managed to sign ~10% of the total U.S. addressable market in about a year and a half. While the total number of homes insured by its European partners already signed approaches 3 million, this figure is already close to 10 million in the United States!

Although these U.S. partnerships are expected to develop over several years, the potential for Leakbot installations among these existing clients alone is enormous. If Ondo achieves a penetration rate at Nationwide and Liberty Mutual close to 40%, as seen in the UK and Nordic countries with more mature partners like Länsförsäkringar, the group could aim for over 4 million Leakbots installed in the U.S., all without signing a single new partner. At $60/year per Leakbot, this would represent a potential ARR of $240 million. This penetration rate seems reasonable given that a Nationwide test deployment in Ohio, where Leakbots were sent to mailboxes indiscriminately, saw a 70% installation rate by consumers, and the U.S. giant offers discounts of up to 10% to customers who install their prevention solution.

All of this is even more staggering as the decisions of these two technological opinion leaders serve as social proof for other insurers, who must follow suit or risk falling behind in terms of offer quality and competitiveness. This is the case with Indiana Farm Bureau, which announced in late November 2024 that it would deploy 10,000 Leakbots over the coming year without even going through a test phase, citing "fruitful results demonstrated with other insurers." As a result, the speed of the group's growth on this new geography should only accelerate

Beyond the potentially considerable volume effect in the coming years in the U.S., Ondo is penetrating this market through its new subscription pricing model at $5 per month per Leakbot deployed, unlike the European market, which served as a laboratory and where some partners benefit from more advantageous pricing.

The beauty of the Ondo model, which allows insurers to make significant savings, is that it comes with undeniable pricing power for our UK leader. Indeed, the average annual premium for U.S. consumers is much higher than in Europe (~$1,100 per year vs. ~£250-300 in the UK), as is the average cost of claims, which is around ~$14,000 in 2023 according to Nationwide, compared to ~£7,500 in the UK. (see appendix for more details on the reasons for these differences), Ondo can charge a higher price per Leakbot while providing an equivalent ROI to European insurers. The revenue leverage on new U.S. deployments is therefore very significant, as confirmed by the published figures. As of September 30, 2024, the U.S. represented 16% of annual recurring revenue for only 5% of the number of Leakbots installed.

Moreover, this comes with higher profitability, as the main direct sales costs are plumber salaries, which remain well under control (~1 plumber for 7,000 Leakbots). While the gross margin per Leakbot is low in the deployment year mainly due to costs associated with interventions for larger leaks (management estimates that ~10% of the installed base requires an intervention in the first year), it can reach 80% from the second year due to a lower number of necessary interventions (~5% of the base according to historical data).

What’s more, this theroy is currently reflected in the numbers, as the company announced on February 13 that it expects an ARR of €7.5 million for the fiscal year ending March 31, 2025, driven notably by a +380% growth in the number of Leakbots installed in the U.S.

This represents a +90% growth compared to the 2023 performance, which showed an ARR of €4 million. Finally, after many years of losses, the company should reach the critical size of €10 million in revenue in fiscal year 2025, allowing it to break even in the second half of the year.

Ting: a similar player paving the way

Although Ondo has no direct competitors, there is a U.S. company operating in the insurtech space: Ting (owned by Whisker Labs). Active in the same "predict and prevent" segment for fire prevention in the U.S., its commercial development provides insight into the speed of deployment of such solutions with large insurance customers.

Founded in 2014, Whisker Labs received funding from State Farm - the largest U.S. home insurer and a leader in best practices - in a Series A round in 2021, before signing a deployment partnership for over 2 million homes. Nationwide followed suit.

Distributed under the same model (i.e. : for free) by insurers to consumers to reduce the risk of fires caused by electrical arcs, Ting surpassed the 1 million detector mark just two years after reaching 100,000, figures well above my assumptions for Ondo (see valuation), suggesting a very rapid, or even faster than my most optimistic projections, scale-up (reaching 1 million Leakbots installed in 3 years and a half).

A business model enabling a rapid and profitable expansion

As mentioned earlier, higher average revenue per customer (ARPU) in the U.S. combined with larger volumes should allow Ondo to expect an acceleration in its growth from 2025, following an already impressive fiscal year 2024 (a +90% YoY increase in recurring revenue in Q4 2024/25 to €7.5 million).

Such levels of growth could prove to be a bottomless pit in terms of capital spending. However, the company can rely on a well-thought-out business model with a high return on capital employed (ROCE), aiming for operational breakeven by 2025.

While at launch, Ondo earned non-recurring revenue per Leakbot upon deployment and variable revenue in case of plumbing service intervention, management initiated the transition to a subscription billing model starting in 2023. Now, Ondo earns fixed revenue per Leakbot installed (and thus per home).

It allows the company to benefit from better revenue recurrence (and thus visibility) as well as a working capital requirement that works in its favor. Indeed, the group's framework agreements with its insurer partners stipulate that they prepay each new order of Leakbots, as described in the diagram below.

This mechanism allows for a possibly strong positive cash generation as early as 2025, despite an operating result that might barely reach breakeven. In essence, the more aggressively Ondo Insurtech grows, the more it should generate cash, which is a good thing for a company whose annualized revenue growth should oscillate between 50% (pessimistic model) and 100% (optimistic model) over the next five fiscal years.

Another important factor is that Ondo's potential growth is not constrained by the hardware part of its offering, as the group recently quadrupled its production capacity, going from 10,000 to 40,000 units produced per month, all for an investment of only €150,000, proving that the model is truly capex light.

Despite a history of losses during the R&D and testing phases with partners (net loss of £6.1 million in 2022/23 and £3 million in 2023/24) accompanied by significant dilution in past years, the capital increase in May 2024 - which raised £4.2 million - combined with reaching operational breakeven in 2025/26 are factors that make me confident in the company's ability to grow profitably and without further dilution for minority shareholders in the future.

Finally, the renegotiation of the debt related to the acquisition of Leakbot from HomeServe for an amount of £6.2 million allows Ondo to start repaying the principal only from March 2027 until 2030. By then, Ondo should be largely cash-generative (~£3.3 million in 2027, ~£6.4 million in 2028, and ~£10 million in 2029 in my pessimistic model).

Additional distribution channels beyond insurers

Ondo Insurtech is on the verge of establishing itself in the water damage prevention segment for insurers through Leakbot and, in this sense, appears as a "one-trick pony." However, other distribution channels are available to the group, such as WNS Holding in the U.S., IAG in Australia, or G4S in Denmark, which sell Ondo's solutions to their insurer clients with performance guarantees.

Moreover, many water suppliers have already started testing Leakbot for deployment among their customers. This is notably the case in the UK, where the regulator aims to reduce daily water consumption per household by 36 liters. Suppliers like Portsmouth Water, Southwest Water, and Southern Water are all in the testing phase and have shown very promising initial results. Portsmouth Water revealed that 24% of the 1,000 homes tested (80% installation rate) had a pre-existing leak, and their number was reduced by 60% in just six months.

The regulator has a £100 million fund to finance this initiative. For example, this amount would allow the deployment of Leakbot in 3 million homes and represent water savings of 100 megaliters, equivalent to 38 Olympic swimming pools and 241/day, or two-thirds of the national target. For its part, Southern Water estimates potential savings at 9,200 megaliters per year, equivalent to 3,600 Olympic swimming pools, if Leakbot were deployed across its network. Finally, in January, Northumbrian Water, which serves 2.7 million homes in northeast England, announced it was testing Leakbot with a potential rollout starting in 2025.

Another potential commercial lever, albeit further distant in the future in my opinion, could be the use of the group's API and sensor data by insurers to improve retention rates or refine risk/reward profiles during contract renewals, for example

Finally, Ondo's stated mission is to become the undisputed leader in prevention technologies for all types of incidents. Could this lead to a merger with other niche leaders like Ting to become THE giant across many verticals of the predict and prevent business? In my opinion, it's only a matter of time.

A speculative aspect ?

Although this represents one of the main risks for minority shareholders in the medium term in my opinion, it goes without saying that Ondo should attract the attention of some industrial players and/or private funds. While a merger with Ting would make sense to create a giant in prevention technologies for insurers, a short-term exit would be a real disappointment.

This profile of companies - benefiting from a privileged competitive position, a business model enabling profitable scaling, a legitimate and interested management team, all while being exposed to a rapidly expanding market - is very rare in listed markets notably due to the many takeovers in recent years.

Nevertheless, the cap table is rather favorable to a continued listing, with a free float representing ~56% of the capital. HomeServe holds ~10.8%, and many of its employees are now shareholders, as is Ondo's management team. In total, various insiders own ~7% of the capital, with the possibility of increasing to ~9% within 12/18 months by exercising warrants. This should be sufficient to block any takeover attempts if the management wishes to remain independent.

Main risks

Execution risk linked to strong growth

As with any high-growth company, the ability to deliver concrete results will be key to Ondo Insurtech's stock market success. The management team has handled the various stages of the company's life very well so far, whether during the R&D phase or the POC/testing phase with initial partners. As of September 30, 2024, and since its IPO in 2022, Ondo has multiplied the number of Leakbots deployed by 3x, its revenue by 5.5x, its ARR by 9.4x, and the number of homes insured by its partners by 12x. This smooth progress since listing coupled with the ramp-up in production capacity and the two major partnerships signed in the U.S. reinforce my confidence in the ability of the management to deliver in the near future.

Dilution risk to finance rapid expansion, especially in the U.S.

Although this is the main point to watch for in any investment in a small, growing company with a still-light balance sheet, I am convinced that most of the financing effort is behind us. However, we are not immune to disappointment in the commercial ramp-up in the U.S., which could lead to dilutive equity raises.

As long as Ondo shows strong growth, I consider this type of dilution acceptable, given our role as supporters of these entrepreneurs on a mission. Nevertheless, the rationale for the raise and the evolution of the company's fundamentals will need to be reassessed in due time if this occurs.

Customer concentration risk

Although Leakbot is intended to be deployed in hundreds of thousands or even millions of different consumers, Ondo's direct customers remain a small number of large players with significant bargaining power.

In my view, the pricing power currently displayed by the solution demonstrates its financial attractiveness for these players, and its stickiness should increase as deployment density and the volume of data generated grow, becoming a potential goldmine for insurers (like data management systems that are difficult to decommission due to the volume of accumulated data).

Risk of being acquired too early

As mentioned earlier, I would be very disappointed if the company was taken private before demonstrating the full extent of its commercial potential and the quality of its fundamentals. Finding investments that make sense for all stakeholders - with a business model offering a high return on invested capital, benefiting from a broad and dynamic market to reinvest cash annually at IRRs above 30%, all this at the very beginning of its journey - is rare.

This reminds me of the discovery of Esker in 2016 at ~€20.

Why does such an opportunity exist ?

A SPAC reverse take over listing that is anything but orthodox

In my opinion, the fact that the company did not go public in a traditional manner (through the investment banking route) clearly works against the company in terms of visibility. The lack of a roadshow inevitably reduces public interest in the story, and having been listed via a reverse takeover (spin-off) through a SPAC in 2022 may scare off many, given the proliferation of SPACs for the wrong reasons at that time, often resulting in abysmal shareholder value destruction.

However, not all SPACs are equal, and some have become shareholders of very respectable companies. This is the case, for example with Innovid, from which we greatly benefited before it was acquired by Mediaocean in 2024 at a 90% premium to the last stock price.

In that sense, I am convinced that Ondo is a company with a bright future and that we are taking advantage of the opportunity provided by the lack of visibility and interest from most investors for micro capitalization companies.

The micro-capitalization factor

It goes without saying that with a market cap of ~£45 million, volumes are low, limiting the potential shareholder base. In my opinion, it is the kind of situation where size gives an unfair advantage.

Becoming shareholders of companies before they are "revealed to the world" is one of the strong axes of our investment strategy. Once the £100 million market cap threshold is reached, this should unlock a first tranche of institutional investors who are currently following the case from afar without being able to truly invest due to the size factor. All of this will then play in our favor.

Execution risk

As mentioned above, the main risk for Ondo, as is often the case for any high-growth company, lies in execution and the speed of adoption of the group's solutions. If the company finds its market, as I am convinced it can, then I have no doubt that we will be greatly rewarded.

However, the current valuation seems to fairly reflect the published figures for fiscal year 2024, and we are therefore dependent on strong growth in 2025.

If, for micro or macro reasons, insurers were to slow down installations, Ondo's potential valuation would be significantly impacted. I am confident in the visibility the company enjoys thanks to the Master Agreements signed with insurers under predefined conditions. These insurers would not commit if the numbers did not work in their favor, which reassures me of their willingness to install Leakbot within their customer base.

Valuation

Out of caution, I like to consider Hofstadter's Law when modeling the potential future performance of a high-growth company. This is why, in my four models (worst case, pessimistic, normal, optimistic), I set the gross margin of the U.S. division at 70%, compared to the 80% envisaged by management. These additional 10 points of margin could greatly play in our favor in the future - if achievable - but they are not necessary to make Ondo an investment case with very attractive performance potential.

Also, I am not duplicating Ting’s adoption rate, going from 100,000 sensors installed to 1 million in just two and a half years, even if it’s happened recently (2023/24).

Indeed, while it took Ondo five and a half years to install the first 50,000 Leakbots, the company crossed the symbolic 100,000 threshold less than three years later (April 2024), a testament to the accelerating demand. Thanks to the accumulation of partners whose deployments should add up like Saas revenues, I estimate that it would take the group around 1.5 years in my normal model and 2 years in my pessimistic one to exceed the 200,000 Leakbot deployed (~150,000 at the end of March 2025), and then 3 years and 4 years to reach 500,000 installations. Finally, I think the company should be able to cross the million mark by 2028/29 (4 years) in my base scenario and 2030/31 (7 years) in my pessimistic one. I set this duration at less than 3.5 years in my optimistic model.

To better contextualize the 1 million Leakbots deployed, this would mean that Ondo would have penetrated less than 8% of the homes insured by its current partners, which total ~13 million, without signing any new ones (which seems very unlikely given the current signing momentum). If Ondo were to double the number of homes insured by its clients by then, representing ~25% of the volume of homes insured by the top 100 U.S. insurers, this penetration rate would be 4%, which seems very reasonable given the results communicated by its clients during various tests, which rather suggest rates between 20% and 30%.

Finally, I take the current share price of 35 GBP as a reference and use a churn rate of 5%, in line with the figures observed by insurers over the years.

Worst case scenario

If Ondo only signs one other top 10 U.S. insurer over the next three years with low deployment velocity, I estimate that the company should still be able to reach 200,000 Leakbots installed in the U.S. through Nationwide and Liberty Mutual.

At the group level, we would have deployed ~420,000 sensors for revenue of ~£17.5 million. The gross margin should reach 52% thanks to the U.S., resulting in an EBIT of ~£1.5 million and near zero benefits. Free cash flow generation would be around ~£0.5 million (£2.5 million adjusted for HomeServe debt repayment due 2027).

This would still represent annualized revenue growth of around 50%, which, in my opinion, could warrant a FCF yield of ~4%, implying an EV/revenue 2027e of ~4.5x, resulting in a share price of 40 GBP and a near-zero performance over the period.

Over a 5-year horizon, an adjusted FCF yield of 4.4% would value the company at ~6x EV/revenue, ~23x EBIT, for a potential share price of 100 GBP and an IRR of ~23%.

Finally, a DCF with a WACC of 10% and a terminal growth rate of 1.5% indicates a target price of 90 GBP, implying a potential performance of +160%.

Pessimistic scenario

In this case, my assumptions are based on a ramp-up of the largest accounts (top 10 U.S.) between 20,000 and 25,000 Leakbots per year. By 2027 (fiscal year ending March 2028), Ondo would be working with 5 major insurers, the largest representing ~92,000 units installed (Nationwide), the second 62,000 (Liberty Mutual), and the other three having installed 58,000, 25,000, and 10,000 Leakbots, respectively.

The company would also be working with about fifteen regional insurers, with the number of Leakbots deployed ranging from 500 to 5,500, for a total of ~270,000 sensors deployed in the U.S., compared to ~245,000 Leakbots installed in Europe (vs. ~120,000 at the end of 2024).

At the group level, this would represent a total of ~515,000 sensors installed for revenue of ~£21 million (vs. £4.7 million in 2024e), implying annualized revenue growth of ~65% over the period. At this revenue level, and due to the U.S. ramp-up, the gross margin could reach ~52%, EBIT ~24% at £5 million, net income ~13% at £3 million, and the company should be able to generate ~£4.5 million in free-cash-flows (£6.7 million adjusted for HomeServe debt repayment). Since FCF is impacted by HomeServe debt repayment between 2027 and 2030, I would rather value the company by adjusting for this temporary cost, which does not represent the normative FCF generation of the business. Targeting a FCF yield of 4%, or 25x adjusted FCF, for a high-growth company with a healthy balance sheet and strong prospects in a potentially slowing macro environment seems reasonable. In this case, it would imply an EV/revenue of ~7.5x and an EV/EBIT of ~30x, for a target price of 115 GBP and an IRR of ~48%.

Over a 5-year horizon, I estimate that Ondo could have deployed ~845,000 Leakbots for revenue of ~£38 million, a gross margin of 55%, and an EBIT of £13 million (34.5% margin). This would translate into net income of ~£9.5 million and free cash flow of ~£11.5 million (~£13 million adjusted for HomeServe debt repayment). Valuing Ondo at an adjusted FCF yield of 4%, the share price could reach around 250 GBP, implying an annualized performance over the period of ~48%.

The DCF model indicates a valuation per share of 190 GBP, implying a potential performance of +400%.

Base case

Here, I assume a ramp-up of the largest accounts (top 10 U.S.) between 40,000 and 50,000 Leakbots per year. By 2027 (fiscal year ending March 2028), Ondo would also be working with 5 major insurers, the largest representing ~160,000 units installed (Nationwide), the second 125,000 (Liberty Mutual), and the other three having installed 110,000, 60,000, and 20,000 Leakbots, respectively. The company would also be working with about fifteen regional insurers, with the number of Leakbots deployed ranging from 500 to 10,000, for a total of ~520,000 sensors deployed in the U.S., compared to ~245,000 Leakbots installed in Europe (vs. ~120,000 in Europe at the end of 2024).

At the group level, this would represent a total of ~760,000 sensors installed for revenue of ~£34 million, implying annualized revenue growth of ~95% over the period.

At £21 million in revenue in 2026, this model is the closest in terms of numbers to the ones modeled by analysts currently following the company.

At this revenue level, and due to the U.S. ramp-up, the gross margin should reach ~55%, EBIT ~33% at £11 million, net income ~24% at £8 million, and the company should be able to generate ~£11.5 million in cash flow (£13.5 million adjusted for HomeServe debt repayment). At a 4% adjusted FCF yield, the valuation implies an EV/revenue of ~10x and an EV/EBIT of ~30x, for a target price of 240 GBP and an IRR of ~90%.

Over a 5-year horizon, I estimate that Ondo could have deployed ~1.4 million Leakbots for revenue of ~£68 million, a gross margin of 59%, and an EBIT of £29 million (43% margin). This would translate into net income of ~£23.5 million and free cash flow of ~£27 million (~£29 million adjusted for HomeServe debt repayment). Valuing Ondo at an adjusted FCF yield of 4%, the share price could reach around 550 GBP, implying an IRR of ~70%.

The DCF model indicates a valuation per share of 435 GBP, implying a potential performance of +1150%.

Optimist scenario

In the most optimistic case, Ondo is still working with 5 members of the U.S. top 10 by 2027 and about fifteen regional insurers, with deployments ranging from 500 to 10,000 Leakbots. Nationwide would have installed 188,000 Leakbots, Liberty Mutual 165,000, the third 126,000, and the last two 65,000 and 20,000, for a total of ~865,000 sensors deployed at the group level.

Group revenue would thus be around £39 million, with a gross margin of 55%, an EBIT margin of 35% at £13.5 million, and net income of £10 million (26%). Free cash flow generation would be ~£14.5 million (£16.5 million adjusted for HomeServe debt repayment). At a 4% adjusted FCF yield, the valuation implies an EV/revenue of ~9.5x and an EV/EBIT of ~27x, for a target price of 300 GBP and an annualized potential performance of ~105%.

Over a 5-year horizon, I estimate that Ondo could have deployed ~1.7 million Leakbots for revenue of ~£81 million, a gross margin of 60%, and an EBIT of £36 million (45% margin). This would translate into net income of ~£29 million (36%) and free cash flow of ~£35 million (~£36.5 million adjusted for HomeServe debt repayment). Valuing Ondo at an adjusted FCF yield of 4%, the share price could reach around 680 GBP, implying an IRR of ~80%. This would equate to ~11x EV/revenue, ~25x EBIT, and a P/E of ~32x, multiples that do not seem unreasonable for a company that would then have an annualized revenue growth of ~65% over the last 7 years.

If we compare this to a company like Esker, with a recurring business model and a high-visibility growth profile, the latter was acquired by Bridgepoint for €1.6 billion, or ~50x EV/EBIT (assuming a 15% operating margin in 2024 vs. 12% in 2022 and 9.5% in 2023), while its annualized growth over the last 5 years was 13% (vs. ~50% for Ondo over the next 5 years in my pessimistic projection). Sidetrade is also an interesting comparable. Its average EBIT multiple over the last five years is ~44x (~43x for the median) for a company with annualized growth of 13.5% from 2020-2024.

The DCF model indicates a valuation per share of 550 GBP, implying a potential performance of +1450% compared to the current share price of 35 GBP.

To push optimism even further, if Ondo was to one day achieve a penetration rate at Nationwide and Liberty Mutual close to 40%, as seen in the UK and Nordic countries with more mature partners, the group could aim for over 4 million Leakbots installed in the U.S., all without signing a single new partner. At $60/year per Leakbot (excluding inflation adjustments), this would represent a potential ARR of $240 million.

Given a business model where sales, marketing, and R&D expenses are very low and where gross margin quickly flows into EBIT, the operating margin on such volumes could approach 45/50%. This recalls Adyen in Europe, which benefits from the same operational leverage thanks to its strategy of increasing volumes with large accounts and benefiting from a fixed costs business model.

The latter is currently valued at ~19x 2025e EV/revenue and ~40x FCF.

At 15x ARR, Ondo would thus be valued at ~£2.8 billion, compared to the current market cap of ~£45 million and my optimistic projections at 10x revenue. If we value Ondo at 15x the optimistic 2029e revenue, its share price could reach 900 GBP, a 25x increase over the period.

These kind of numbers could make an investor dream, but we must not forget the "optional" nature of this investment. Nevertheless, this kind of asymmetry between upside potential and downside risk seems to play strongly in our favor.

According to Warren Buffett's famous "punch card" principle, if I could only invest in ten companies for the rest of my life, Ondo Insurtech would be one of them.

Governance

Craig Foster (CEO « quasi-founder ») : Mr. Foster began his career by working for 7 years at Procter & Gamble, where he ended up managing the P&L of Head & Shoulders, the $2 billion revenue brand, as Global Brand Manager based in Switzerland. He then joined the UK insurer HBOS as Chief Marketing Officer before moving to HomeServe in 2013, responsible for product innovation and strategy. It was in this role that he participated in the R&D development of Leakbot in the group's lab.

Gregory Wood (Président) : Awarded the Order of the British Empire in 2017 for his impact in public service, Mark Wood is a veteran of the UK financial industry. He was Head of Treasury Management at Barclays, CEO of Prudential UK and Europe, and then CEO of Axa UK. In 2006, he founded Paternoster - with the support of private equity funds for $500 million - which quickly became the UK leader in bulk annuities.

Kevin Withington (CFO) : Before joining Ondo post-IPO in September 2022, Mr. Withington was CFO of several companies in the insurance sector, such as Barbon Insurance Group, Brightside Insurance, and My Policy. Specializing in insurance for new drivers, the latter company is notably recognized for piloting its activity through the management and analysis of telematics data.

In my opinion, the main potential area for improvement in the company's governance would be to expand and enrich its Board of Directors with other profiles linked to the insurance market, such as technological decision-makers from large customers for example.

Shareholding (as of 28/01/2025)

Hargreaves Lansdown plc: 16,7%

HomeServe Assistance Limited: 10,9%

Premier Miton: 8,3%

Dowgate Capital: 4,8%

Gervaise Heddle: 3,6%

Harwood Capital: 3,6%

Craig Foster (CEO): ~1,7% potentially increasing to ~3.5% post-warrant exercise in 2025

Mark Wood (Président): ~1,7%

Kevin Withington (CFO): ~0,3%

Other employees and insiders: ~3,1%

Brokers retail & flotant: ~56% including Interactive Investor Trading (6,4%), AJ Bell securities (5,1%), Halifax share dealing (3,7%) and Barclays (3,3%). An investor list primarily UK-based to date.

ANNEXES

Customer Testimonials

Jeff Obermayer, Director of Strategic initiatives at Mutual of Enumclaw : « we are really impressed with the performance of the Leakbot program. In the first 6 months, our initial 16k$ investment into it led to a saving of over 150k$ in claims. Our members love the program, particularly those who have experienced the benefit of the Leakbot unit and plumbing services firsthand. »

Sarah Jacobs, VP Personal Lines product at Nationwide : « Our first deployment of Leakbot has gone well so far in Ohio and exceeded our expectations. We have been surprised just how easy our customers find it to install. The Ondo team are great to work with and we see big potential for this across our customer base in the USA. »

Lena Högeldt, CEO of Länsförsäkringar Södermanland : « We’re pleased to already be seeing the benefits of introducing Leakbot on acquisition, retention and claims. Other regional businesses are keen to roll out the activity too. »

Mark Teets, Director Personal Lines at Nationwide : « Our strategy at Nationwide is to Predict and Prevent and we have fully integrated Leakbot into our own platform to do this for water damage in our members’ homes. The result so far have been remarkable. Our ambition at Nationwide is for all of our customers to benefit from this type of Predict and Prevent technology. »

Mark Teets, Director Personal Lines at Nationwide : “Nationwide is committed to fulfilling the promises we make to our customers and that includes paying out claims to make our customers whole,” said Mark Teets, Associate Vice President of Personal Lines Underwriting Strategy at Nationwide. “But in our mind, it’s better to catch these issues early. Water damage can take weeks, sometimes months, from which to recover. Also, many times, the items damaged are family photos, heirlooms…things that just can’t be replaced. These situations can put a lot of strain and emotional stress on the homeowner and their family. Having these devices in place provides a sense of protection that is priceless.”

Bronek Masojada, CEO Hiscox : « We are proud to be the first to market in the UK with Leakbot. The solution is great for our customers, and delivers for us – we can see the results in leaks identified and fixed and losses avoided. We want to get as many devices out to our customers as possible. »

Paul VanderMarck, CTO Sagesure Insurance : « Of all the start-up pitches I saw involving IoT in insurance while at FT Partners, Leakbot stood out as uniquely fir for purpose. So far at SageSure, we have found it performs just as they said it would. The combination of an effective but affordable sensor with expert plumbing services to pinpoint and resolve problems is a compelling solution, and we believe it has significant potential in the US market. »

Penny James, CEO Direct Line : « Escape of water claims can be devastating for our customers and costly for our business. We have rolled out Leakbot on our Select Premier product to provide protection and peace of mind. We are pleased with the initial performance and see real potential across our broader business. »

Jockim Holm, IoT Lead at TopDanmark : « Leakbot is a fantastic solution for TopDanmark. It really works, and we continue to see claim after claim prevented by the proactive approach, and now we can predict the impact in our loss ratio as we roll more devices out. »

Main reasons for the costs difference between the United States and the United Kingdom

The significant difference in the average cost of non-weather water damage claims between the US (approx $14,000) and the UK (approx £7,500) can be attributed to several factors :

· 1. Home Size and Construction Differences

o Homes in the US are generally larger than those in the UK. More square footage often means higher repair costs for water damage, including flooring, walls, and contents.

o US homes frequently use timber-framed construction, which can be more susceptible to extensive damage from water than the brick-and-mortar construction common in the UK.

o Many US homes have basements, which can significantly increase repair costs if flooded. Basements are less common in UK homes.

· 2. Labor and Material Costs :

o Repair costs tend to be higher in the US than in the UK.

o The US often requires more specialized trades for repairs, adding to costs.

· 3. Insurance Market Practices Coverage Differences :

o US homeowners insurance policies cover a broader range of repairs or higher limits, leading to more comprehensive (and expensive) claims.

o UK insurers tend to negotiate more tightly with contractors or employ managed repair networks to control claim costs. This practice is less prevalent in the US.

· 4. Extent of Damage Delays in Detection :

o US homes may experience longer delays in detecting leaks, as some homes lack the dense urban population or close monitoring seen in UK housing. This can result in more extensive damage.

o Extreme Temperatures : In the US, freezing pipes are a common cause of water damage, especially in colder regions. When pipes burst, the damage can be catastrophic, especially in multi-story homes.

· 5. Contents and Lifestyle Higher Value of Home Contents :

o US homes often contain more or higher-value items, such as home theaters, large appliances, and extensive furniture, which can increase the claim cost.

o Higher Expectations for Restoration : US homeowners may expect or demand premium restoration services, increasing claim costs.