FirstWave Cloud Technology Limited

FCT Details
 
Net Cash Flow Positive Position in Q3FY20: FirstWave Cloud Technology Limited (ASX: FCT) is a global cyber security company, that delivers Security as a Service solutions to its clients. The company recently announced that the voting power of a substantial shareholder, Perennial Value Management Limited, increased from 6.47% to 8.02%. In another update, David Acton was appointed as a Non-Executive Director, with effect from 17^th June 2020.

Capital Raising Update:On 12^th June 2020, the company completed a capital raise amounting to $14.9 million. The retail component of its 4 for 5 accelerated pro-rata non-renounceable entitlement offer raised ~$9 million at 4.5 cents per share. On 22^nd May 2020, the company announced the completion of the institutional component of the offer, which raised a total of $5.9 million at 4.5 cents per share. Proceeds from the capital raising will be utilized to fund the company’s projected operational and investment expenditure, with an aim to make forward plan projects cash flow break-even in December 2022.

Q3FY20 Cash Flow Highlights: During the quarter ended 31^st March 2020, total cash inflows amounted to $6.6 million, comprising prepayment worth $4.6 million from a major customer, receipts of $0.6 million from other customers, and other income amounting to $1.4 million. Cash outflows during the quarter constituted operating cash payments of $4.2 million and investing cash payments amounting to $0.8 million. At the end of the period, the company had a cash balance of $5.8 million, with a positive net cash flow position of $1.6 million.


Operating Cash Flow (Source: Company Reports)
 
Cash Flow Forecast:For Q4FY20, the company expects cash outflow in the form of staff costs amounting to $2.7 million, cost of sales amounting to $1.2 million and administrations and corporate costs of $1.4 million.
 
New Product Launch: In April 2020, the company launched a new Remote Worker Cyber Security product offering on its proprietary Cloud Content Security Platform to protect users from cyber-attacks while working from home or remote locations. With this launch, the company updated its addressable market opportunity for FY20 to $1.88 billion. Moreover, it offers growth in the product portfolio and an opportunity to sell to a bigger market and generate material revenues.
 
Growth Opportunities: Shortly, the company is planning to deploy its first sovereign platform outside Australia, with completion expected either in Q4FY20 or early Q1FY21. The company has 20 active opportunities in the pipeline under the Cisco OEM Agreement. Its international parts are progressing well through the addition of new partners and expansion of business through new deals and offerings. According to its best judgment, the company expects FY20 revenue amounting to $8.3 million, down 6% on pcp. For FY21, revenue is estimated at $11.4 million, up 37% on pcp. FY22 revenue is expected at $26 million, up 134% on pcp.
 
Key Risks: The above numbers were issued not as a guidance, but to quantify the potential conversion of the line of sight revenue to booked revenue in the short term in an uncertain market. Some of the underlying assumptions included getting back to business by Q2FY21, adequate availability of funds, no change in level and location of resources, etc. In the current unprecedented times, the fulfillment of the above conditions/assumption can be a challenge for the company.
 
Stock Recommendation: The stock of the company gave positive returns of 46.67% in the last one month and is currently trading below the average of its 52-week trading range of $0.053 - $0.263. In 1HFY20, the company has a gross margin of 54.4%, as compared to the prior corresponding period margin of 52.8%. Considering the recent capital raise, recent product launch and the increase in the addressable market, decent cash position, a pipeline of opportunities, price movement, and current trading levels, we advise investors to wait for the positive catalysts to drive the stock. Hence, we have a wait and watch stance on the stock at the current market price of $0.115, up 4.545% on 23rd June 2020.
 
 
 
FCT Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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