Tesserent Limited

TNT Details

Tesserent Limited (ASX: TNT) is one of the Australia’s leading players in offering end-to-end cybersecurity solutions. The company provide products, services, and strategic advice to enterprise, government, and critical infrastructure clients.

Key Business Updates

• Receipt of Binding Commitments: As announced on 28 September 2021, TNT raised $25 million through Placement to Professional, Institutional and Sophisticated Investors. The new proceeds will be utilized to fund deferred and strategic acquisition cash payments, particularly in upfront cash payment for the acquisition of Loop Secure.

FY21 Financial Performance

• Top-Line Performance: During the year, the company reported $96.7 million in sales turnover, significantly higher than $20.5 million reported in FY20, significantly driven by increased adoption of software solutions amid COVID-19 pandemic.
• Bottom-Line: Normalised EBITDA stood at $9.6 million (excluding non-operating costs and acquisition related costs), relative to a loss of $2.8 million reported in PcP. Normalised NPAT enters positive territory and registeres $4.9 million in profits, relative to a loss of $5.1 million in FY20.
• Cash Flow Position: Cash flows from operations stood positive at $2.668 million relative to an outflow of $3.250 registered in FY20. Aggressive financing activities via debt and equity, net of settlements and related expenses, resulted in $28.498 million inflow under financing activities.
• Financial Position: Amidst positive operating cash flows and increased financing activities, cash balance improved to $14.860 million as of 30 June 2021 relative to $4.350 million as of 30 June 2020. Total long-term borrowings stand at $25.603 million relative to $3.637 in prior year.

YoY Financial Performance; Analysis by Kalkine Group

Key Risks and Challenges

Prevailing global uncertainties related to COVID-19 and other geopolitical tensions along with stiff rivalry from competitors adds on to the woes. Failure to achieve synergies from acquisitions may affect profitability and drain financial resources.

Outlook

For FY22, the company remains positive with the business outperforming budgeted performance, a strong pipeline of renewals and new sales performance. Moreover, a string of deals is expected to offer decent synergies in days ahead. TNT had surpassed its earlier guidance of achieving an annualized turnover run rate of $150 million.

Stock Recommendation

The stock of TNT gave a positive return of ~4.546% in the past one year. The stock is currently trading lower than the 52-weeks’ average price level band of $0.185- $0.440. On TTM basis, the stock of TNT is trading at a P/BV multiple of 3.5x, lower than the industry average (Technology) of 10.2x, thus seems undervalued. Considering the improving revenue streams, robust product pipeline with acquisitions, new product launches, optimistic outlook, current trading levels, valuation based on TTM basis, and key risks associated to the business, we give a “Speculative Buy” recommendation on the stock at the market price of $0.215, as of 30 September 2021, 10:30 AM (GMT+10), Sydney, Eastern Australia.

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

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