Stocks’ Details
 

Vortiv Limited

 
FY20 Key Financial Highlights: Vortiv Limited (ASX: VOR) is a technology-based company, primarily focused on cybersecurity and cloud infrastructure and security. In FY20 for the period ended 31 March 2020, the company revealed its key milestones pertaining to its transformation journey to become profitable and strengthening its foothold in the cloud and cyber security business. During the period, the company reported $11.5 million in revenue, up a whopping 98% from the prior corresponding period. The increase in revenue was on the back of repeat business and recurring revenue stream from a loyal client base. Further, higher spending from top clients along with robust growth in the cloud and cyber security market aided the results. EBITDA for the period stood at $1.6 million, up from $0.1 million reported in the year-ago period. In FY20, the company reported $1.4 million in profit before tax, which increased from $0.1 million reported in FY19.  Net cash flow from operations in FY20 stood at $1.7 million, up from $0.7 million reported in the year-ago period. The company exited the period with a cash balance of $1.1 million, with net assets and total debt amounting to $22.1 million and $0.79 million, respectively.
 

FY20 Key Financial Highlights (Source: Company Reports)
 
Future Expectations & Growth Impetus: The company remains on track to deliver services to clients and secure new business amid the COVID-19 led crisis. The company expects to deliver a robust June 2020 quarter result on the back of a loyal customer base and robust revenue stream. Based on the current backlog of customer contracts signed to date, VOR expects revenue to be in the range of $3.6 to $3.8 million and EBIT to be between $0.5 and $0.6 million for the coming quarter. Further, the company’s core business is built on successful acquisitions in the cloud and cyber security, which remains a key catalyst. Management predicts 15-20% per annum market growth in Australia, which is expected to reach $16 billion by 2021.
 
Risk Analysis: As a technology-focused business, the company might face issues relating to managing security and taking care of customer data. Further, loss of any potential customer due to market competition and foreign currency fluctuation as a result of international operations poses a threat to its financial aspects.
 
Stock Recommendation: The stock of the company went up by 19.44% in the last one month. Currently, the stock is trading slightly above the average of its 52-weeks trading range of $0.06 - $0.34. The company remains on track to invest in research & development. On the valuation front, the stock is trading at an EV/Sales multiple of 3.1x as compared to the industry median of 4.1x on TTM (Trailing Twelve Months) basis. Considering the above factors, current trading levels, valuation on TTM basis and anticipated growth in the cloud and cyber securitybusiness, we give a “Speculative Buy” recommendation on the stock at the current market price of $0.215 as on 6 July 2020.
 

Family Zone Cyber Safety Ltd

 
June Quarter 2020 Key Highlights: Family Zone Cyber Safety Ltd (ASX: FZO) is a technology-based company focused on cyber safety. The company is involved in addressing the increasing demand to protect online data and manage digital lifestyles. During the June quarter, the company added 598 schools and 358,000 students onto the Family Zone platform. Out of these, 482 schools and 214,000 students were added under contract, depicting FZO’s largest sales quarter. Notably, at the of the quarter, the company had 2,456 schools live on the platform, up 165% year over year.  Further, the company ended the quarter with 910,000 licensed students, an increase of 108% from the prior corresponding period.
 


Key Trends (Source: Company Reports)
 
Change in Director’s Interest: Recently, the company stated that Tim Levy, a Director of the company, has acquired 1,071,429 Remuneration Performance Rights, 1,250,000 Executive Performance Rights, 300,000 Employee Performance Rights and 1,000,000 SP Performance Rights. FZO also revealed that he disposed 3,878,610 Class C Performance Shares. In another update, the company stated that it has issued 500,000 Options for a period of three years under the Employee Share Option Plan and cancelled 10,499,998 Class C Performance Shares. Also, the company notified the market that Regal Funds Management Pty Ltd, has become a substantial holder of the company, with a voting power of 5.45%.
 
FZO Raises 10M to Capitalise US Growth Impetus:  Recently, the company also advised the market that FZO successfully raised $10 million in a heavily oversubscribed placement to hasten US education growth driven by higher demand for cyber safety in online learning, due to the current Covid-19 pandemic. Also, the company stated that it has appointed Mr Matthew Stepka, a leader and former VP of Google, as a Non-Executive Director.
 
Key Risks: The company is exposed to various risks such as financial risk, credit risk, and liquidity risk. Further, the company is subject to changes in regulations imposed by local or state governments. Also, stiff competition from peers along with foreign exchange fluctuations are few other potential headwinds.
 
Stock Recommendation: The stock of the company went up by 83.87% over a period of one month. Currently, the stock is trading near its 52-weeks high level of $0.305. Debt to Equity multiple of the company stood at 0.24x in Dec’20, higher than the industry median of 0.03x. On the valuation front, the stock is trading at an EV/Sales multiple of 15.3x as compared to the industry median of 4.1x on TTM (Trailing Twelve Months) basis. Considering the above factors, current trading levels, valuation on TTM basis and business prospects, we have a wait and watch stance on the stock at the current market price of $0.28 per share, down by 1.754% on 6 July 2020.
 

Tesserent Limited

 
TNT Strengthens its Canberra Capabilities:Tesserent Limited (ASX: TNT) is engaged in providing cyber security and networking solutions to customers in Australia, UK, and Korea. In a recent update, the company stated that it has significantly strengthened its Canberra business via north security | digital’s appointment to the Defence Industry Security Program (DISP) along with a robust deal signed between Tesserent and McArthurAssociates Pty. Ltd. (MCA). 
 
March Quarter 2020 Highlights: During the quarter ended 31st March 2020, the company reported an uplift of 137% in revenue on the previous quarter, with continued growth expected in the years ahead. Receipts from customers in Q3 went up by 214% on the previous quarter, with cash at the end of the period amounting to $5.19 million, which was up 39% from the last quarter.
 

Performance Highlights (Source: Company Reports)
 
Outlook and Growth Impetus: The company targets $40 million in revenues p.a. run-rate by 30 June 2020. The company also expects to meet its FY20 full-year revenue budget of $22 million, including a contribution from the acquisition of Pure Security and north BDT. This is supported by a number of goals, including strong organic growth across all business units, potential strategic acquisitions, continued integration of the acquired businesses, etc. Also, the company remains on track to integrate recently acquired business into TNT, along with the implantation of Tesserent’s Cyber 360 strategy. The company has also secured new business wins of more than $5 million. Further, the company’s long-term contracts with multiple Federal Government departments and agencies and multi-year managed security services income is expected to drive financial performance.
 
Key Risks:Due to COVID-19 outbreak-related disruptions, hackers and cybercriminals are taking benefit of the pandemic-led hype and using it to steal passwords and data. Thus, evolving cyber threats pose risks to the company’s financial aspects. The company is exposed to various other risks such as financial risk, credit risk, currency fluctuation risks and liquidity risk.
 
Stock Recommendation: The stock of the company generated a return of 34.37% in the last one month and is currently trading above the average of its 52-week trading range of $0.025 - $0.110. Debt to Equity ratio of the company stood at 0.46x in Dec’20, higher than the industry median of 0.03x. The company has an EV/Sales multiple of 6.0x, which is higher than the industry median of 4.1x on TTM (Trailing Twelve Months) basis.Considering the performance in Q3FY20, growth expected in the coming quarters, plans in pipeline, current trading levels, and valuation on TTM basis, we have a watch stance on the stock at the current market price of $0.086 as on 6 July 2020.
 

Senetas Corporation Limited

 
SEN Converts Notes into OrdinaryShares: Senetas Corporation Limited (ASX: SEN)is an information technology security products and services company, which is engaged in high-speed data encryption safeguarding sensitive data for government and industry. On 3 July 2020, the company stated that USD 8 million convertible notes (Notes) subscribed for in Votiro Cybersec Global Pty Limited, have been converted into ordinary shares.
 
COVID-19 Update: The company had informed the market that it is witnessing no supply chain disruption or delay as a result of the coronavirus outbreak.  The company has been afloat and is seeing no change in the demand for its encryption products. The company’s forward sales pipeline also remains strong in the current uncertain scenario. The company finds it too early to gauge the COVID-19 impact and has executed a plan to permit employees to work remotely. Further, as at 31 December 2019, SEN has ~$14 million in cash, with no debt, thus depicting a strong financial position.
 
1HFY20 Key Highlights: During the period, the company’s operating revenue grew by 7.5% year over year to $10.6 million while gross profit grew 20.2% year over year to ~$9 million. Gross profit margin stood at 85%, as compared to 76% reported in the year-ago period.Results were positively impacted by robust growth in Japan and North American markets. Further, an increase in gross margin signifies lower inventory transfers to Thales during the period.Notably, the key focus during H1FY20 was progressing certification for the 100Gbps encryptor and making changes in response to demands from end customers who have been testing the encryptor in their network environment.
 

1HFY20 Key Financial Highlight (Source: Company Reports)
 
Outlook: Going forward, the company’s highly innovative and responsive R&D capability remains the company’s core focus and will be the major driver of growth prospects and increased profitability. The company’s latest products namely SureDrop, its virtualised encryption solutions, and soon to be released hardware encryptors, are likely to provide growth impetus over the medium term.
 
Key Risks: The company is likely to be impacted by disruption in the ordering patterns for products from customers undergoing network upgrades. Increased competition in the market, failure to respond to the ever-changing data security market, cyber thefts, and other financial risks, remain potential headwinds.
 
Stock Recommendation: The stock of the company generated returns of 11.63% over a period of three months and is currently trading below the average of its 52-week trading range of $0.038 - $0.09. SEN has sufficient cash to withstand the issues relating to the coronavirus pandemic. The company has an EV/Sales multiple of 1.8x, which is lower than the industry median of 4.1x. Considering the aforesaid facts, performance in 1HFY20, strong balance sheet position, and current trading levels, wegive a “Speculative Buy” recommendation on the stock at the current market price of $0.056, up 16.67% on 6 July 2020.
 
 
Comparative Price Chart (Source: Refinitiv, Thomson Reuters)

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