Senetas Corporation Limited

SEN Details

Senetas Corporation Limited (ASX: SEN) was founded in 1999 and headquartered in South Melbourne, Australia. The company along with its subsidiaries provides network data security solutions to the government and business globally. A few of the key products are used in cloud services, data protection, CCTV networks and post-quantum encryption security services.  

Update on Rights Issue: Senetas Subsidiary, Votiro Cybersec Global Pty Ltd (Votiro) has recently raised US $4.6 million through a right issue, the proceeds will be diligently carried out to meet the operational expenses related to sales and other expenses including the engineering expansion for the Current Year 2021. Post this, the SEN’s total investments in Votiro totalled US $12.1 million with a diluted interest of close to 70%, giving the shareholders of Senetas a big reason to participate in a growing US $20 billion criminal enterprise segment, expecting to reach close to US $265 billion by end of 2031.

Financial Highlights for 1HFY21: The Group witnessed a staggering growth in the Revenue from ordinary activities of +34.56% ($14.27 million in 1HFY21 vs $10.60 million in 1HFY20). The company achieved a similar set of growth in its gross profit of close to 35% by recording ~$12.16 million for the 1HFY21. The EBITDA growth was manifolds in 1HFY21 of $1.6 million as compared to the $0.1 million for 1H FY21, giving a strong boost to this bottom line.

Debt and Cash Balances- As of 1HFY 21, the company stood firmly with $13.8 million of cash on hand and with no debt balances on its books.

Financial Performance (Source: Company Report)

Key Risks:

SEN is exposed to foreign exchange volatility which off late the company provisioned ($1.4 million) for the 1HFY21 for the foreign currency translation reserves which contributed 36.10% in the total comprehensive loss for the period net of tax.

Outlook:

Votiro’s (a subsidiary of Senetas) share of revenue was close to $1.5 million and released a strong promising outlook on the same for the coming quarters. The overall segment revenues of SEN are expected to grow over 30% along with the EBITDA to grow above 170%, which is a very promising number to be recorded in coming times.

Stock Recommendation:

The stock of SEN gave a return of ~-2.04% in the last three months and a return of ~-28.36% in the last six months. The stock is trading below the average of the 52-week low price of $0.046 and the 52-week high price of $0.079, implying accumulation opportunity. On a TTM basis, the stock of SEN is trading at an EV/Sales multiple of 1.5x compared to the Industry Median of 5.7x (Software & IT Services), implying undervalued stock. Considering the growth potential in the criminal enterprise market, increased investments in Votiro, the current trading levels, and valuation, we recommend a “Speculative Buy” rating on the stock at the closing price of $0.048 as of 1^ST July 2021.

SEN Daily Technical Chart, Data Source: REFINITIV

Note: The yellow color line in the chart shows the trend line and the purple color line represents RSI (14-period). The green color line indicates 12-period SMA.

EVE INVESTMENTS LIMITED

EVE Details

Eve Investments Limited (ASX: EVE) is engaged in the health, nutrition and wellness sector and is based in Subiaco, Australia. The company is selling its products at a global level especially with key target geographies across the USA, Europe, and China.

Commencement of US Food Distribution: EVE witnessed the first order from the subsidiary of Amazon, Whole Foods Market, Inc. which is a USDA Certified Organic American multinationals supermarket chain. This embarks upon a new journey for the company to start its new products offerings across the USA through the Amazon platform.  

Trading Update for Q3 FY21: EVE has reported an increase in revenue by 21% to reach $1.7 million as compared to the previous corresponding period and a dip in the revenue by 11% on a sequential basis because of the seasonality factor of the tea tree harvesting activities. During the period, EVE launched new lines of Muleka Australia products. While the company is gearing to make several launches at a global level, it garnered a strong cash balance of $4.1 million in its book to carry out the operations smoothly.

Financial Highlights for 1HFY21: EVE reported strong revenues for the 1HFY21 of $1.73 million vs $0.65 million in 1HFY20. It had reported a strong inflows of cash receipts of $2.2 million, which had narrowed the cash outflow from operation to ~$0.623 million in H1FY21 as compared to outflows of $1.21 million in the previous comparable period.  

Financial Performance (Source: Company Report)

Key Risks:

EVE is exposed to foreign exchange volatility which off late the company mentioned unrealised foreign exchange movement losses amounting $37.9K in 1HFY21 vs moderate gains in 2HFY20. The other key risk of the physical possession of the inventory and its logistics issues to export globally. The health care & nutrition sector is currently where the big players are jumping in and started a severe price war, eroding the profit margins and risking the survival of small players.

Outlook:

The company is expanding into the UK and German markets after receiving orders from Whole Foods stores in the US and optimizing its marketing strategies before expanding to various other European markets. It is also leveraging Amazon platform to foray into Japan. The strong growth clocked by Naturally Australian Products Inc in revenue of $1.1 million in Q3FY21, in which the company owns 49% share, is optimistic on the further growth in the coming quarters.

Stock Recommendation:

The stock of EVE gave a return of ~-16.67% in the last three months and a return of ~-44.44% in the last six months. The stock is trading below the average of the 52-week low price of $0.004 and the 52-week high price of $0.014. EVE's prices are consolidating on lower levels and trading in a range of $0.004 to $0.007 for the past 3 months, indicating a downside direction for the stock. The leading indicator RSI (14-period) is trading in an oversold zone at ~28.41 level, further supporting a negative stance. Prices are also sustaining below the trend-following indicator 21-period SMA, acting as a resistance for the stock. Now an immediate resistance for the stock appears at $0.007 level while support is at $0.004 level. Considering the current trading levels with little or no movement, niche segment of operations and ambitious plans of creating and distributing products globally with least supporting financials, we recommend a “Sell” rating on the stock at the closing price of $0.005, up by 25.00% as of 1^st July 2021.  

EVE Weekly Technical Chart, Data Source: REFINITIV

Note: The purple color line in the chart show RSI (14-period), while the green color line indicates 21-period SMA.

Note 1: The reference data in this report has been partly sourced from REFINITIV.

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined: -

• Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

• Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

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