Tesserent Limited

TNT Details

Issue of Shares as Part Consideration: Tesserent Limited (ASX: TNT) offers cybersecurity and networking solutions for enterprise, midmarket, and government clients in New Zealand and Australia. On 1 November 2021, TNT issued ~3.43 million ordinary fully paid shares as part of the consideration for the acquisition of Seer Security Pty Limited & Ludus Information Security Pty Limited. Recently, TNT also confirmed the release of ~20.75 million shares from voluntary escrow on 12 November 2021.

Completed Acquisition of Secure Loop: On 7 October 2021, TNT acquired Sydney-based Loop Secure and strengthened its Cyber 360 capabilities with the addition of Loop Secure’s Managed Security Services. The acquisition will add an annualised revenue of ~$18 million and an EBITDA of ~$2.25 million to the company’s financial results.

Q1FY22 (Ending September 2021) Highlights:

• The company recorded ~$26.9 million turnover in Q1FY22, up 78% YoY and ahead of the budget.
• The operating EBITDA rose to ~$2 million in Q1FY22, a rise of 351% on pcp due to improved operating leverage and reorganised contract pricing & margin recovery.
• TNT posted positive operating cash flows of ~$0.6 million in Q1FY22.
• During the quarter, TNT raised ~$25 million capital via an institutional placement of equity to finance Loop Secure’s acquisition, pay deferred consideration on previous acquisitions, and deploy funds for other identified strategic acquisitions.
• In Q1FY22, TNT largely completed the integration of business units purchased in FY20 and FY21. It is engaging with the current and prospective customers across its Defend, Detect, and Cloud service divisions to cross-sell services and address critical security issues in customer networks and infrastructure.

Quarterly Growth in Turnover (Analysis by Kalkine Group)

Key Risks: The company faces the risk of technological changes, COVID-19 uncertainty, and cyber security risk. It faces credit risk and interest rate changes on borrowings and cash flows.

Outlook:

• The company will conduct an online AGM on 19 November 2021.
• TNT targets to grow its market share in Government (including Defence), Critical Infrastructure and Industry, and Financial Services markets.
• It plans to grow its IP portfolio to increase high-margin product and service offerings.
• It plans to deepen its customer engagements and grow its average number of services per customer.
• TNT will deploy its acquisition strategy to expand on Cyber 360 capabilities and aims the business integrations to optimise synergy efficiencies and expand cross-sell avenues.
• TNT intends to explore overseas expansion possibilities across the UK, USA, New Zealand, and Canada.
  

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 ~23.07% in the past three months and a negative return of ~39.39% in the past nine months. The stock is currently trading lower than the 52-weeks’ average price level band of $0.185 - $0.440. 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’ median EV/Sales multiple, considering the impact of business seasonality in Q1FY22, avail of second debt facility of ~$20 million in April 2021 for acquisitions & working capital, COVID-19 uncertainty, integration & cyber security risks, etc. For this purpose of valuation, few peers like Integrated Research Limited (ASX: IRI), Bravura Solutions Limited (ASX: BVS), Linius Technologies Limited (ASX: LNU), and others have been considered. Considering the current trading levels, growth in Q1FY22 financial metrics, expected growth of Australian cyber security market, expected contribution of Super Loop revenue in FY22, successful integration of key acquisitions, valuation, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the closing market price of $0.200, as of 9 November 2021.

TNT Daily Technical Chart, Data Source: REFINITIV  

OpenLearning Limited

OLL Details

Issue of Shares: OpenLearning Limited (ASX: OLL) deploys an expandable online learning platform for education providers and provides an e-marketplace of courses for learners. On 28 October 2021, OLL issued ~1 million ordinary shares for Nil consideration owing to the grant of incentive options to consultants.

Q3FY21 (30 September 2021) Highlights:

• The platform revenue registered an increase of ~186% YoY in Q3FY21 to $0.825 million.
• The Software-as-a-Service (SaaS) customers on the platform rose to ~196, up by ~37% year over year.
• OLL posted an ARR (annual recurring revenue) growth of ~15% YoY to ~$1.414 million in Q3FY21.
• The company reported acceptance of offers from ~86% of University of New South Wales (UNSW) students for the UNSW Transition Program Online (TPO) in March 2021.
• The company collected ~$1,338 million of cash receipts from customers, depicting a 71% YoY increase in the quarter.
• The launch of CS101, a new technology upskilling program, started in October 2021 has over 50 learners already enrolled and has industry partnerships with Microsoft, Chronosphere, Alibaba Cloud, and Canva.
• OLL held ~$4.233 million cash on hand as of 30 September 2021.

Growth of SaaS Customers; (Analysis by Kalkine Group)

Key Risks: The company faces the risk of corporate & University partnerships, COVID-19 uncertainty, higher investment from the education providers in online learning. It faces technological changes and technical glitches to run its tech platform smoothly.

Outlook:

• OLL has expanded its addressable markets with the TPO being now recognised by six universities in the UK, Australia, and New Zealand markets. The students have already enrolled for the September intake, applying for November 2021, and 2022 scheduled intake.
• OLL plans to add the Design and Life Sciences streams and expects to complement the Actuarial Studies, Physical Science, and Commerce streams. It plans to transition TPO towards a business-as-usual delivery model and continuously improve upon it.
• The company plans to increase its Platform Subscription and invest in Program Delivery via partnerships with universities and enterprises.
• OLL expects the execution of usage-based pricing in the last two quarters, which will have a favourable impact in the mid-term.
  

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 OLL gave a negative return of ~35.17% in the past three months and a negative return of ~35.17% in the past six months. The stock is currently trading near its 52-weeks’ low level of $0.093. 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 some discount than its peers’ median EV/Sales multiple, considering its negative cash outflows, COVID-19 risk, continuing trend of negative margins & ROE. For this purpose of valuation, few peers like Reckon Limited (ASX: RKN), Schrole Group Limited (ASX: SCL), ReadCloud Limited (ASX: RCL), and others have been considered. Considering the low trading levels, increase in platform revenue, SaaS customers, cash receipts in Q1FY22, upside in valuation, growth in addressable markets & enrolment uptakes of TPO in August & September, expected positive impact of pricing in FY22, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the closing market price of $0.094 as of 9 November 2021.

OLL 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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