Tesserent Limited

TNT Details

Acquisition Spree: Tesserent Limited (ASX: TNT) provides full service, enterprise-grade cybersecurity and networking solutions for enterprise and government customers throughout Australia, and New Zealand. Recently, the company informed the market that it has completed the purchase of Pearson Corporation Pty Ltd and Claricent Pty Ltd. In October 2021, TNT also completed the buyout of Loop Secure Pty Ltd to enhance its Managed Security Services, GRC, and Offensive Security. These acquisitions in Australia and New Zealand markets, is expanding TNT’s clients' capability and service offering. 

Managerial Changes: To achieve organic and non-organic growth, the company appointed Kurt Hansen as the company’s CEO. Julian Challingsworth will resign from the Board to join the company as Chairman of Tesserent Innovation to support M&A work and Investor relations. Geoff Lord to also resign from the role of Executive Chairman in TNT.

What do Investors Need to Know?

• Encouraging Turnover Numbers: In 1QFY22, the company’s total turnover in the underlying business soared a whopping 78%, owing to organic growth, go-to-market strategy, and acquisition synergies. On a year to date to October 2021, TNT’s saw a turnover growth of 67% on pcp basis.
• ARR Showing Growth Trajectory: In 1QFY21, the company recorded an increase in the proportion of recurring revenue, which depicts the company’s overall turnover to 42%, compared to 30% at the end of FY20. On a YTD basis to October 2021, ARR stood at 42%.
• Decent Cash Position: In Q1FY22, the company reported positive cash flow from operations of $0.6 million. As at 22 October 2021, the company’s cash balance stood at $16.3 million. With ample cash on hand, the company remains well on track to achieve its targeted acquisitions.

Market Update Highlight; Analysis by Kalkine Group 

Risk Analysis: The company is exposed to the prevailing global uncertainties related to COVID-19 and other geopolitical tensions. Its financial performance might get impacted by caution in buying behaviour. TNT is acquiring many companies, which results in some integration risk. The company is also exposed to forex headwinds.

Expect What?

The company’s talented workforce has reached more than 160, with the acquisition of Pearson and Claricent. This is expected to rise further in 2HFY22. The company completed a capital raise of $25 million, which in turn, will aid the company to finance future potential acquisitions, particularly in upfront cash payment for the purchase of Loop Secure.  Ongoing investment in product innovation to capitalise on new market opportunities, successful integration of its strategic business acquisitions are key growth drivers. 

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 the company has been corrected by ~25.53% in the past three months. Currently, the stock is trading below the average of its 52-week high and low levels of $0.44 and $0.15, respectively. The stock has been valued using an EV/Sales multiple-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 as compared to its peers, considering the global uncertainties, technological changes, forex headwinds, cyber-security threats, etc. For the purpose of valuation, peers such as Bravura Solutions Ltd (ASX: BVS), Adacel Technologies Ltd (ASX: ADA), Reckon Ltd (ASX: RKN) have been considered. Considering the successful integration of its strategic business acquisitions, introduction of new product and services, decent outlook, current trading levels, indicative upside in valuation, and key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.165, as of 10 January 2022, 11:22 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. 

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.

Disclaimer

Kalkine New Zealand Limited is authorised to provide general advice only. The information on this website does not take into account any of your investment objectives, financial situation or needs. Before you make a decision about whether to acquire a financial product, you should obtain the Product Disclosure Statement from the product issuer. You should consider the appropriateness of advice taking into account your own objectives, financial situation and needs and seek independent financial advice before making any financial decisions.