Tesserent Limited

TNT Details

Issuance of Shares: Tesserent Limited (ASX: TNT) offers comprehensive cybersecurity and networking solutions to corporate and government clients in New Zealand and Australia. On 11 February 2022, TNT issued ~$5.81 million shares at $0.2113 per share as part of the consideration for the acquisition of Lateral Securities as declared to market on 17 December 2020.

Financial Highlights for 1HFY22 (Ended 31 December 2021):

• The turnover grew from ~$21.4 million in Q2FY21 compared to ~$32.3 million in Q2FY22, up by ~51% YoY in 1HFY22 led by organic growth and a revenue increase from a spree of recent acquisitions.
• The growth in EBITDA stood at ~101% on pcp for Q2FY22.
• The EBITDA to cash conversion stood at ~105% of EBITDA – including ~30% conversation rate for Q1FY22 and ~163% rate for Q2FY22, depicting the sensitivity of the cash flows to working capital changes.
• TNT had raised ~$25 million equity in September 2021 to fund strategic acquisitions and is now in the process of integrating the financials and operations with its recent acquisitions of Loop Secure, Claricent, and Pearson. TNT deployed partial proceeds (~$13.2 million) to fund the earn-out payments and deferred consideration on earlier acquisitions.
• TNT’s Government business units and GRC Advisory practices continue to witness high growth and demand in 1HFY22.

Operating EBITDA Margin Growth on PCP, Highlights; (Analysis by Kalkine Group)

Key Risks: The company faces forex headwinds, cybersecurity risk, COVID-19 uncertainty. It risks acquisition synergies and seamless integration from multiple recent acquisitions.

Outlook:

• TNT expects all the three (3) above mentioned acquisitions to be earnings accretive and deliver material shareholder value through new clients, increased scale, and cross selling avenues.
• TNT reported the near completion of the integration of the Brand and Business Units acquired in August 2021. It is now actively engaging with its customers across the Detect, Defend, and Cloud service divisions to explore cross selling avenues and plug in critical security deficiencies in customer networks and infrastructure.
• The management reports that given the highly seasonal nature of earnings in the business (with operating EBITDA in 1H/2HFY21 reported at ~23% / ~77%), it anticipates experiencing similar seasonality in FY22.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The stock of TNT gave a negative return of ~26.31% in the past three months and a negative return of ~47.16% in the past six months. The stock is currently trading near its 52-weeks’ low level of $0.140. The stock has been valued using the Enterprise Value to Sales based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight discount than its peers’ average EV/Sales multiple, considering the risk of synergies from multiple acquisitions, the trend of negative net margins, and negative ROE. For this purpose of valuation, a few peers like Integrated Research Ltd (ASX: IRI), Adacel Technologies Ltd (ASX: ADA), Reckon Ltd (ASX: RKN), and others have been considered. Considering the current trading levels, growth in ARR, margin improvements, whopping inorganic growth, expected synergies and EPS accretion from the acquisitions, and indicative upside in valuation, associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.140, as of 21 February 2022, 10:30 AM (GMT+10), Sydney, Eastern Australia.

TNT Daily Technical Chart, Data Source: REFINITIV 

Integrated Research Limited

IRI Details

Directors’ Acquisition of Shares: Integrated Research Limited (ASX: IRI) develops, implements, and markets systems and applications management computer software for unified communication (UC) networks, business computing, and payment networks. It operates in the USA, Europe, and the Asia Pacific. On 18^th February 2022, Director, Allan Brackin, purchased ~50,000 ordinary shares in an on-market trade for $41,092.37. 

1HFY22 (Ended 31^st December 2021) Results:  On 21 February 2022, IRI published a transcript of its investor conference discussion held on 17 February 2022. The CEO and the CFO highlighted the following results for the period ended on 31 December 2021:

• IRI posted a TCV (total contract value) of $31.7 million, up by ~8% on pcp due to growth in new business (~88% YoY) and SaaS users (~424% YoY) during 1HFY22.
• The cloud and hybrid users on the platform increased by ~424% YoY in 1HFY22.
• The company added ~23 new customers including TR (Thomson Reuters), Bank of New York Mellon, NYPD, and more in 1HFY22.
• In the U.S., IRI is executing a plan to revive growth and experienced some delays during the reporting period.
• IRI reported an adjusted EBITDA of $15.6 million for its on-premises business. It has invested $12 million in developing the cloud IR platform in the last 1.5 years.
• IRI held a net cash position of $9.4 million as of 31 December 2021 versus $5.5 million as of 30 June 2021.

Key Financials, Highlights; (Analysis by Kalkine Group)

Key Risks: The company faces technological changes, higher expenditure on the platform, and product development. Operating in multiple geographies, IRI faces foreign currency risk on purchases and sales denominated in the USD, the Euro, and UK Sterling.

Outlook:

• IRI expects a positive 2HFY22 led by an expected increase in TCV, NPAT on account of new customers added and new product launches. It anticipates new sales traction on the cloud platform, a turnaround in the US business performance, and licence renewals.
• IRI is implementing a multi-phase and multi-year transition to market more relevant solutions and expand its addressable market opportunities to fruition higher quality earnings.
• IRI plans to self-fund its growth in expanding the product set (with SaaS products), higher quality SaaS based subscription revenues, and ARR (annual recurring revenues).

Valuation Methodology: Price to Earnings Per Share Multiple Based Relative Valuation (Illustrative)

Source: Analysis by Kalkine Group

*% Premium/(Discount) is based on our assessment of the company’s NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation: The stock of IRI gave a negative return of ~46.21% in the past three months and a negative return of ~65.19% in the past six months. The stock is currently trading closer to its 52-weeks’ low level of $0.685. The stock has been valued using the Price to Earnings Per Share-multiple-based illustrative relative valuation method and arrived at a target price of low double-digit upside (in % terms). The company might trade at a slight discount than its peers’ mean P/E multiple, considering the decline in revenue, dip in the US performance, continued investment in R&D, and the risk of evolving business model. For this purpose of valuation, a few peers like Infomedia Ltd (ASX: IFM), Nuix Ltd (ASX: NXL), Bravura Solutions Ltd (ASX: BVS) have been considered. Considering the current trading levels, growth in TCV, increase in licence, & subscription fees, expected increase in licence renewals, and more traction on cloud platform, indicative upside in valuation, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the closing market price of $0.695, down by ~7.948% as of 21 February 2022.

IRI Daily Technical Chart, Data Source: REFINITIV 

Dotz Nano Limited

DTZ Details

 Operational & Financial Update of Q4FY21(Ended 31 December 2021): Dotz Nano Limited (ASX: DTZ) manufactures and markets advanced materials for uses in anticounterfeiting, diagnostics, authentication, and tracing solutions.

Business Development Activities:

• DTZ undertook multiple product testing pilots with potential authentication customers across the textile, construction, and packaging industries. For the diagnostic domain also, DTZ is progressing business development activities and clinical trials to aid local regulatory approvals and expand new jurisdictions to increase the sales of its SARS-CoV-2 virus detection technology (Test Kits).
• In Thailand, DTZ granted distribution and promotion rights to World Siam Company Limited (WSG) for the sale of its test kits for three years (3).
• The company has obtained the CE Mark approval for marketing kits in Europe. It is now seeking approval for selling test kits in most new markets such as the US, etc.
• DTZ reported net cash outflow of ~US$924,000 in Q4FY21 and exited the quarter with ~US$4.13 million cash and cash equivalents as of 31 December 2021.

Key Financial Highlights 1HFY21 VS. 1HFY20; (Analysis by Kalkine Group)

Key Risks: The company faces delays in delivery orders due to COVID-19, the pandemic impact on its customers, and dishonour of contracted purchase agreements by certain customers. It faces regulatory hurdles and uncertain clinical trial outcomes during product testing and development.

Outlook:

• DTZ is ramping up product testing and sales development activities for the test kits. It has a growing sales pipeline and expects to enter customer agreements as soon as the negotiations with the potential customers are finalised.
• The company focuses on expanding new sales and distributors for its authentication and diagnostic solutions. It aims to leverage its local network and expertise of its existing distribution partners to grow sales of its diagnostic technology.
• For the US market, it has already filed an initial application and progressing on the application process.
• DTZ is working to prioritize the completion of all necessary quality assurance tests to undertake full scale manufacturing of test kits. It plans to start clinical trials in multiple countries including Italy in the coming quarters.

Technical Commentary: On the daily chart, DTZ prices are trading above the horizontal trend line and taking the support of the same. Moreover, the momentum oscillator RSI (14-period) is trading near an oversold zone at ~30.03, indicating the possibility of rebound in the price. However, the prices are trading below the trend-following indicator 21-period SMA, which may act as a resistance level for the stock. An important support level for the stock, is placed at AUD 0.32 while the key resistance level is placed at AUD 0.425. 

Stock Recommendation: The stock of DTZ gave a positive return of ~9.99% in the past three months and a positive return of ~5.88% in the past six months. The stock is currently trading slightly above its 52-weeks’ average price level band of $0.210 - $0.470. Considering the current trading levels, new distribution contracts signed in Thailand & Malaysia in Q4FY21, a growing sales pipeline, plans to expedite clinical trials in Europe, broad applicability of diagnostic technology across airports, healthcare, and education facilities, technical levels mentioned above, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the closing market price of $0.360, as of 21 February 2022.

DTZ Daily Technical Chart, Data Source: REFINITIV 

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

Note 2: Investment decision 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 Valuation has been achieved and subject to the factors discussed above.

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.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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