Tesserent Limited

TNT Details

Key Takeaways of 1HFY22 (ended 31 December 2021): Tesserent Limited (ASX: TNT) deploys Cyber 360 strategy to deliver integrated solutions for networking and cyber security to over ~800 enterprise, critical infrastructure, and government clients.

• TNT posted a turnover growth of ~72% (YoY) in Q2FY22 reaching ~$36 million as compared to $21.4 million in PcP signalling robust underlying growth in the business and the impact of the acquisitions such as Loop Secure.
• The normalised EBITDA margin has increased from ~7.5% in 1HFY21 to ~8.8% in 1HFY22.
• The company generated positive net operating cashflows of ~$3.23 million in 1HFY22 versus operating cash outflows of $3.87 million in 1HFY21 driven by higher cash receipts and revenue growth.
• The ARR (annualised recurring revenue) as a proportion of yearly sales has been rising strongly, up from ~40% in 2HFY21 to ~44% in 1HFY22.
• TNT held ~$13.45 million of cash balance as of 31 December 2021 compared to ~$14.86 million as of 30 June 2021.

Turnover Growth Trend from FY16-1HFY22; (Analysis by Kalkine Group)

Key Risks: The company needs to protect the data and technical infrastructure from cyber-attacks. Particularly due to the significant events taking place in Eastern Europe, there’s a heightened need for cyber security for TNT & its clients. It needs to invest in technological upgrades, manages forex fluctuations, and adhere to regulatory changes in the continuously evolving technology space.

Outlook:

• TNT aims to deliver greater shareholder value by fostering its acquisition strategy to grow its Cyber 360 capabilities and market share. It plans to increase high-margin product and service offerings via increased innovation and IP expansion.
• TNT focuses on growing footprints in the key market verticals namely Critical Infrastructure, Government (such as Defence), and Financial Services.
• TNT intends to integrate the recent acquisitions into “Capability Business Units” to leverage synergies and increase organic revenue growth via cross-selling.
• Due to the ongoing situation in Eastern Europe, TNT has targeted capabilities to mitigate the cyber-attack risk in its Cyber Enhanced Situational Awareness and Response (CESAR) capabilities.

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 positive return of ~12.12% in the past month and a positive return of ~8.82% in the past three months. The stock has a 52-weeks’ low level of $0.130 and a high level of $0.330. The stock has been valued using the Enterprise Value to Sales based illustrative relative valuation method and arrived at a target price with a correction of a high single-digit (in % terms). The company might trade at a slight discount than its peers’ average EV/Sales multiple, considering the continuing net losses and negative ROE. For this purpose of valuation, a few peers like Integrated Research Ltd (ASX: IRI), Appen Ltd (ASX: APX), Rightcrowd Ltd (ASX: RCW), and others have been considered. Considering the current trading levels, decent returns in the past few months, indicative downside in valuation, and associated key business risks, we suggest investors to book profit and give a ‘Sell’ rating on the stock at the current market price of $0.190 as of 1 March 2022, 10:30 AM (GMT+10), Sydney, Eastern Australia. Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical tensions prevailing. Therefore, it is prudent to follow a cautious approach while investing.

TNT 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.

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