Tesserent Limited

TNT Details

Acquisition of Stake in Cybersecurity Start-ups: Tesserent Limited (ASX: TNT) is a cyber security and networking solutions provider. It serves customers in the UK, Korea, and Australia (ANZ). As of 21 May 2021, the market capitalisation of TNT stood at ~$211.32 million. On 5 May 2021, TNT announced acquiring a 25% stake in TrustGrid™ and AttackBound™, two cybersecurity technology start-ups. It signed Shareholders Agreement with the start-up firms on 28 April 2021. TNT has paid $1.5 million in cash and issued $1.5 million shares at $0.2345 per share. The cash consideration has been made from its available cash reserves and recently extended a new finance facility with its debt facility provider firm – PURE Asset Management (PURE). TNT has also partnered with the firms to integrate the distribution of their solutions into its Cyber 360 offering for its New Zealand (NZ) and ANZ customers. The company also declared the appointment of Mr Dmitry Samokhvalov as the Head of Engineering and Product in TrustGrid.

Completed Acquisition of Secure Logic: On 19 April 2021, TNT announced its acquisition of Secure Logic, a managed security services provider. The acquisition will lead to addition of a turnover run rate of $9 million and earnings of $4.2 million.

March Quarter (Q3FY21) Results: TNT posted a record turnover of $9.1 million for March 2021 and $21 million for Q3FY21. It also recorded the highest EBITDA of $1.7 million, up by 21.4% QoQ despite factoring in lower revenue from the seasonally slow holiday (New Year/ Christmas) period. The positive cash flow from operations stood at $1.8 million during the quarter. TNT posted record customer receipts of $21.9 million, up 6.3% on QoQ for Q3FY21. TNT held $7.7 million of cash balance at the quarter-end.

Q3FY21 Result Highlights (Source: Company Reports)

Key Risks: The company faces the risk of technological disruptions and technical glitches in the evolving cyberspace. It also bears the risk of seeking large contracts in its operating markets-Critical Infrastructure, Government (including Defence), and Financial Services.

Outlook: Due to recurring revenue, decent pipeline of renewals and new sales avenues, the company expects strong revenue growth in Q4FY21. Considering the current turnover from TNT’s all existing acquisitions, the Group is on track to achieve the desired turnover run-rate of $150 million by 30 June 2021. It will continue to drive the acquisition strategy to widen its Cyber 360 capabilities and market share. TNT plans to build a leading position in the Cyber Education and Converged Security market.

Stock Recommendation: The company’s debt-to-equity ratio went down to 0.27x in 1HFY21 compared to 0.46x in 1HFY20. The stock of TNT gave a negative return of 39.39% in the past three months and a negative return of 48.05% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level of $0.052-$0.44. The stock of TNT has a support level of ~$0.182 and a resistance level of ~$0.22. On a TTM basis, the stock of TNT is trading at an EV/Sales value multiple of 4.9x lower than the industry (Software & IT Services) median of 5.9x. Considering the current trading levels, record growth in cash receipts, record revenue for March 2021 quarter, a robust pipeline of renewals, revenue growth predicted for Q4FY21, and valuation on a TTM basis, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.200 on 21 May 2021.

TNT Daily Technical Chart (Source: Refinitiv, Thomson Reuters) 

Essential Metals Limited

ESS Details

Expansion of Drilling at the Gards Prospect: Essential Metals Limited (ASX: ESS) is a gold and lithium exploration and mining firm. It is operating three gold and lithium projects (100%) in Western Australia (WA). As of 21 May 2021, the market capitalisation of ESS stood at ~$17.67 million. The company has changed its address to West Perth in WA in accordance with the Listing Rule 3.14. On 17 May 2021, ESS received assay results from an air-core drilling programme of 24 holes drilled at the Gards prospect at the Juglah Dome project. It has decided to extend the drilling to a further 700 metres of strike opened to the south of the Gards porphyry (igneous rock). At the Golden Ridge Gold Project, ESS has almost completed an air-core drilling at the AC75, Maximus, and Scandia prospects. At the Pioneer Dome Lithium Project, ESS is continuing with the exploration activities.

A Look at the Q3FY21 (March Quarter) Results: The company recorded net cash outgoings of $290,000 from the operating activities in Q3FY21. It spent $24,000 of exploration and evaluation expenditure on the projects. At the Pioneer Dome project, ESS identified high-priority (32) and medium priority (16) lithium caesium targets. At its Juglah Dome project, ESS received assay results from the drilling at the Golden Shovel, Gards, Moonbaker and Dwyer prospects. It discovered gold intersections from the reverse circulation drilling of 11 holes of the Gards prospects.

During the quarter, ESS signed a JV with Crest Investment Group (“Crest”) for the Blair-Golden Ridge Nickel Project. As per the agreed terms, “Crest” will incur $4 million for four years to earn a 75% interest in the nickel rights. ESS will have a 25% free-carried interest until a decision to mine. During the quarter, ESS listed the options (issued in Q2FY21 via placement and SPP) on the ASX under ASX: ESSO code. It held a cash and cash equivalents balance of $6.23 million as of 31 March 2021.    

Q3FY21 Net Cash Used in Operations (Source: Company Reports)

Key Risks: The company faces the exploration and mining-related risks, stringent compliance with the environmental regulations for lithium and gold mining. It faces the risk of the COVID-19 led uncertainties and operating business within the safety protocols. 

Outlook: At the Juglah Dome project, ESS will interpret and carry out modelling of the assays to determine the scope of the reverse circulation (RC) drilling planned into the porphyry unit and mineralisation potential for strike testing to the south. At the Pioneer Dome project, ESS will commence a drill programme early in Q1FY22 (September Quarter) to expand the current Mineral Resource estimation. It will also test for new mineralised pegmatites in the nearby area. The company expects to receive all assay results from the drilling at the Golden Ridge project till mid- June.

Stock Recommendation: The stock of ESS gave a negative return of 24.16% in the past three months and 3.40% in the past six months. The stock is currently trading lower than the 52-weeks’ average price level of $0.076-$0.180. The stock of ESS has a support level of ~$0.071 and a resistance level of ~$0.108. On a TTM basis, the stock of ESS is trading at a price to book value multiple of 0.9x lower than the industry (Metals & Mining) median 2.7x, thus seems undervalued. Considering the low trading levels, high gross margins, no debt on its balance sheet, drilling targets identified on Pioneer Dome and Juglah Dome projects, valuation on a TTM basis, and associated risks of exploration and operating joint venture projects, we give a ‘Speculative Buy’ rating on the stock at the current market price of $0.091, up by 3.409% on 21 May 2021.

ESS Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

Note: 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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