Senetas Corporation Limited

SEN Details 

Development of First Quantum Resistant Network Encryption Solution: Senetas Corporation Limited (ASX: SEN) is a provider and developer of high-performance cyber security solutions within Australia. It offers a SureDrop application to provide data sovereignty and security against malware and zero-day threats. As on 6^th December 2021, the market capitalization of the company stood at ~$71.42 million. SEN recently announced the development of its first quantum resistant (QR) network encryption solution to secure the government and business network against the potential threat of quantum computing. It has added QR features on its available hardware network encryption platform which offers customers hybrid encryption (old + new features) in a single platform. This new solution is estimated to generate revenues as quantum computing threats surface. The company plans to distribute this solution in Australia and New Zealand through its distributor Thales.

YTD FY21 Trading Update & FY20 Results: As per a recent address by the management in a corporate presentation, SEN informed about the sales of the 100Gbps encryptors, custom algorithm devices (first order shipped post approvals) & SureDrop (a small order with 2 customers currently in November) flowing in the YTD FY21. With the controlling stake in Votiro in FY20, the company has established footprint in North American market and transacted for initial sales of the product. It has also upped its stake in Votiro through a US$1 million loan earlier in FY21. The revenue from the sale of contract rose by 6.06% to $22.60 million for the year ended as on 30 June 2020. Due to the lower cost of sales during the year, Senetas had a higher gross profit of $19.64 million and gross margin of 87% for FY20. However, it registered a higher net loss after tax to shareholders amounting to $1.08 million in FY20 vs $0.46 million in FY19. The cash flows from operating activities amounted to $170k due to higher cash payments to suppliers & employees. The company ended FY20 with a robust balance sheet with $15.71 million of cash and cash equivalents balance.

Income Statement, FY20 Highlights (Source: Company Reports)

Secured 2 Key Deals for Distribution of Encryptors:  Post the September quarter, Senetas sealed an order of ultra-high speed 100Gbps Ethernet encryptors, the CN9000 series via Thales (its global vendor) for a total value of US$2 million. These devices ensure the safety of data in transit of a Middle Eastern government agency. Senetas is also expecting approval on its pending European certification and custom algorithm encryptors for Eastern Europe to expand the overall market avenues. In another important business update, SEN informed ASX of entering into a deal with Verizon Australia to distribute Senetas’ certified high-assurance encryptors while offering security solutions to Verizon’s government and enterprise customers.

Outlook: The company remains focused on its R&D endeavours on developing and investing in quantum readiness and quantum proof cyber security. Despite the current COVID-19 pandemic, the company expects decent sales growth in FY2021.

Stock Recommendation: The stock of SEN gave a positive return of 8.62% in the past three months and a positive return of 23.52% in the past six months. The stock is trading higher than its 52-week average price level band. The stock of SEN has a support level of ~$0.053 and a resistance level of ~$0.068. On a TTM basis, the stock of SEN is trading at an EV to Sales multiple of 2.6x, lower than the industry median (Technology) of 7x, and thus seems undervalued. Considering the results of FY20 & YTD FY21 update, growth in orders for new encryptors, increased stake in Votiro & growth outlook of its CDR technology, the commencement of sale of customer algorithm in Eastern Europe and orders for SureDrop, and valuation, we give a ‘Hold’ rating on the stock at the current market price of $0.061, down by 7.576% on 6^th January 2021.

SEN Daily Technical Chart (Source: Refinitiv, Thomson Reuters

Sensen Networks Limited

SNS Details

Raised $7.15 million Capital via Placement: SenSen Networks Limited (ASX: SNS) is a provider of AI data intelligence data analytics and video analytics software solutions to smart transportation systems and gaming customers across the world. As on 6^th January 2020, the market capitalization of the company stood at ~$80.66 million. The company has got access to $7.15 million capital by way of issue of a non-underwritten placement of 57.2 million shares at $0.125 per share to institutional and high-net worth investors. It plans to accelerate growth strategy for its international customers, especially in the US. It will deploy funds to hire staff in marketing, BD & sales initiatives, for higher inventory and invest in R&D. VGI Partners Investments Limited Fund has become a new substantial shareholder with this capital placement. The new shares will be placed at equal rank with the current fully paid ordinary shares in the company. On 4^th December 2020, SNS notified ASX of lapse of unlisted options – a mix of general and LTI incentive options. These options have been lapsed in accordance with the terms of issuance of these options.  

Acquired Business of Snap Network Surveillance Pty Limited (Snap): In a move to expand and penetrate deeper in the US market, SNS has purchased Snap’s business assets including its IP for $1 million. Snap provides AI-enabled multi-camera tracking software for surveillance situations. SNS will issue 9.8 million equity shares at $0.1012 per share as consideration for the purchase. The deal empowers SNS to integrate the Snap technology into its proprietary platform to provide innovative products to the customers.

Trading Update for September 2020 & YTD FY21: SNS affirmed revenue contracts for more than $5.6 million in FY21. It generated cash receipts of $1.1 million consecutively for the third quarter. The cash inflows from operations stood at $1.455 million, and R&D tax credits earned for $355k. The total of POCs, new customers & agreements and orders received in September, all amounted to approx. $650k in upfront and $177k in annual recurring revenues (ARR), sealed in via long-term contracts. It has gained new customers, expanded orders from existing customers, and has a robust sales pipeline and growth strategy in place. SNS closed the quarter with a $2.3 million cash balance.

Cash Flow Statement, September 2020 Highlights (Source: Company Reports)

Outlook: SNS will offer SenForce mobile parking enforcement, SenSign audit solution, Gemineye mobile and fixed deployments to its new smart city customers on board in FY21. It plans to continue investing in the R&D initiatives such as to add new features in apps, file new patents, new technological developments, and partnerships to co-develop technologies. It has many free and paid POCs and trials underway to convert into long-run agreements in the upcoming quarters.

Stock Recommendation: The stock of SNS gave a positive return of 104.81% in the past three months and a positive return of 109.87% in the past six months. The stock is trading near to its 52-week high level of $0.185. The stock of SNS has a support level of ~$0.161 and a resistance level of ~$0.185. On a TTM basis, the stock of SNS is trading at an EV to Sales multiple of 21.1x, higher than the industry median (Software & IT Services) of 8.4x, and thus seems overvalued. Considering the significant rise in the stock price over the past three months, current trading levels, and TTM Valuation, we are of the view that most of the positives of the company are already absorbed in the stock price. Hence, we suggest investors to wait for better entry levels and give an ‘Expensive’ rating on the stock at the current market price of $0.170, down by 2.858% on 6th January 2021.

SNS Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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