Tesserent Limited

TNT Details

Issuance of Securities: Tesserent Limited (ASX: TNT) offers a comprehensive suite of cyber security and networking solutions to government, enterprise, and mid-market, customers. On 24 December 2021, TNT issued ~38.61 million shares at $0.175 per share as part of the consideration and completion of the acquisitions of Pearson Corporation Pty Limited and Claricent Pty Limited.  

AGM & Key Metrics Update: 

• TNT registered a significant increase of ~372% in FY21 on a YoY basis in turnover resulting from organic and non-organic growth. The company is ambitious in meeting its short-term ambitions and growing organically and through multiple strategic acquisitions rapidly.
• The turnover and divisional EBITDAC increased by ~67% YoY and ~150% YoY, respectively, on a year to date (YTD) FY22 basis (ended October 2021). The divisional EBITDAC included record levels of organic growth ~41% YoY on a YTD22 basis.
• The operating cashflows have been reported to be positive since the start of FY21. TNT had ~$15.2 million net debt as of 15 November 2021.
  

Total Debt & Liquidity Position; (Analysis by Kalkine Group)

Key Risks: The company faces the risk of realisation of synergies from various recent acquisitions, negative forex movements, and persistent COVID-19 uncertainty.

Outlook:

• TNT is progressing on integrating client synergies with the teams of Pearson and Claricent.. The addition of these companies in TNT’s Federal marketplace consolidates the company’s position as one of the leading sovereign suppliers of cybersecurity services to the government.
• In the near term, TNT targets to achieve $200 million in turnover, an operating EBITDA margin of ~15%, and grow its Annual Recurring Revenue (ARR) to ~50%.
  

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 ~3.125% in the past month and a negative return of ~26.66% in the past three months. The stock is currently trading below the 52-weeks’ average price level band of $0.150 - $0.380. 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 continued negative bottom line, higher debt-to-equity ratio, and the risk of forex headwinds & COVID-19. For this purpose of valuation, a few peers like Integrated Research Limited (ASX: IRI), Appen Limited (ASX: APX), Rightcrowd Limited (ASX: RCW), and others have been considered. Considering the low trading levels, growth in underlying business units, rise in turnover, expanded customer base with recent acquisitions, indicative upside in valuation, and associated key business risks, we give a ‘Speculative Buy’ rating on the stock at the closing market price of $0.165, down by ~2.942%, as of 21 January 2022.

TNT Daily Technical Chart, Data Source: REFINITIV 

Silex Systems Limited

SLX Details

Operational Progress: Silex Systems Limited (ASX: SLX) is involved in the monetisation of its SILEX uranium enrichment technology and SILEX Zero-Spin (ZS-Si) project. The AGM 2021 presentation highlighted progress on the projects and business are given below:

• SLX is positioning to accelerate its plan for the commercialisation of the SILEX uranium technology project along-with Global Laser Enrichment LLC (~51% stake in GLE). GLE is building the engineering teams and has hired key executives for the project – Mr. James Dobchuk as the Chief Commercial Officer and Stephen Long as the CEO to lead the project to market.
• SLX completed an equity financing on 1 October 2021. It raised ~$33 million capital at $1.27 per share and issued ~26 million shares. The funds will be used for the commercial pilot demonstration of the SILEX technology in the USA, develop avenues for advanced nuclear fuel production with Global Laser Enrichment LLC (GLE). SLX also plans to scale-up the production capacity of ZS-Si Silicon.
• The ZS-Si Silicon project met its key milestones, including the construction of a prototype demonstration facility. The facility has started operations and done initial testing to produce ZS-Si via its SILEX laser isotope separation process.
• SLX held net assets of ~$51.8 million comprising ~$43.5 million in cash and ~$5.8 million in IQE shares as of 30 September 2021.

Liquidity & Debt Position, Highlights; (Analysis by Kalkine Group)

Key Risks: SLX faces the risk of monetising and protecting its IP, achieving desired project results, regulatory delays, and cost-effective funds for seamless R&D operations.

Outlook:

• SLX focuses on ramping up the GLE joint venture headed by a new leadership team and fostering the SILEX technology commercialisation program.
• SLX is nearing completion of the second stage activities at its Zero-Spin Silicon (ZS-Si) project in early 2022 based on a review of results by JV partners – SQC (Silicon Quantum Computing Pty Ltd) and UNSW (UNSW Sydney). In FY22, SLX plans to focus on stage three activities involving industrial-scale preparation and resourcing and the construction of a commercial pilot production facility.
• Parallelly, SLX is also exploring potential value-enhancing applications of the SILEX technology around medical isotopes.

Stock Recommendation: The stock of SLX gave a positive return of ~24.74% in the past six months and a positive return of ~7.07% in the past nine months. The stock has a 52-week low and high level of $0.860 - $1.970, respectively. The stock of SLX has a support level of ~$1.156 and a resistance level of ~$1.560. On a TTM basis, the stock of SLX is trading at a price to book value multiple of 12.5x, higher than the industry (Semiconductors & Semiconductor Equipment) median of 8.6x, thus seems overvalued. Considering the decent returns in the past months, valuation on a TTM basis, mounting losses, and associated key business risks, we suggest investors to book profit and give a ‘Sell’ rating on the stock at the current price of $1.305, as of 21 January 2022, 10:30 AM (GMT+10), Sydney, Eastern Australia.

SLX 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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