Strong Existing Revenue Drives Future Growth in Cyber Security
Recently, Tesserent launched CyberBiz, targeting the two million small- to medium-sized businesses ('SMBs') in Australia. Tesserent has identified a growing need for cyber security services for these sizes of enterprise, which hackers are increasingly targeting due to the generally lower levels of cyber protection among SMBs.
More specifically, Australia's Privacy Amendment Act 2017 (which takes effect on 22 February 2018) is likely to significantly impact SMBs. The Act requires that all Australian government agencies and businesses with an annual turnover of $3 million (or more) per annum notify the Office of the Australian Information Commissioner, as well as any potentially impacted clients, should a significant data breach occur. Aside from the damage of such a breach to a business's reputation, the Act's strict reporting requirements mean that any lack of adherence to them can attract significant fines.
Analyst comment: recently, a number of high profile, large-market-capitalisation technology companies on the ASX have created high expectations that were not subsequently delivered upon. The results were twofold: a sell-down of those companies, and closer questioning by investors of the claims of other entities in the sector.
Tesserent, on the other hand, has neither hyped its products nor generated unrealistic expectations. Rather, the company has focused on expanding its business, achieving strong growth in revenue year on year ($5.4 million FY17 (actual), $6.5 million FY18 (TSI estimate)).
With its foundation firmly in place, Tesserent has now embarked on a growth strategy with CyberBiz, targeting the two million SMBs increasingly in need of cyber protection for the reasons outlined above.
Given the significant market potential, we believe that CyberBiz - even on a conservative view - could be a long-term driver for Tesserent (TSI 5-year forecast = 5,000 clients = $20 million in revenue). CyberBiz being a mainstream product, it is also likely that the company will enjoy increased market exposure over time.
Industry: cyber attacks on governments, corporations and individuals are now so commonplace that the cyber security industry as a whole is approaching revenue of US$86 billion per annum.
The largest subsector of this industry is MSaaS (US$12 billion per annum and growing at 14% a year), which involves outsourcing cyber security to professionals who specialise only in the provision of this service.
Privacy Amendment Act 2017: this legislation could cripple a company lacking sufficient cyber protection, since not only would public disclosure of a breach harm its reputation but failure to adhere to the stringent requirements of the Act in reporting a breach could result in it receiving a substantial fine.
The information should not be the only trigger for your investment decision. We strongly recommend you seek professional financial advice whenever making financial investment decisions.
Valuation: we initiate coverage on Tesserent with a valuation of $0.25/share (current SP $0.08).
To view the video, please visit:
About Tesserent Ltd
Tesserent Ltd (ASX:TNT) is a specialist in managed cyber security. Tesserent has built its own platform for the delivery of managed cyber-security, which it deploys for the management of its own customers and also licenses to partners around the world to enable them to deliver effective cyber-security management to their customers.
About The Sophisticated Investor
The Sophisticated Investor is a new equity investment tool which seeks to assist investors in becoming more informed in their investment decision making. We show and tell investors about a company in a series of short, informative videos. We possess specialist equity analyst skills and are complemented by video professionals. We conduct site visits and interview management, in a way most investors simply aren’t able to access. We promote long term value creation for investors by employing detailed financial analysis and intrinsic value calculations.
Adam Kiley trading as The Sophisticated Investor ('TSI'), (AR No. 458224), is an authorised representative of Intelligent Financial Markets Pty Ltd (AFSL No. 426359). The information contained in this communication is intended as general advice only. Your personal objectives, financial situation and needs have not been taken into consideration. Accordingly, you should consider how appropriate the advice is (or is not) to your objectives, financial situation and needs before acting on the advice. The information in this communication should not be the only trigger for your investment decision. We strongly recommend you seek professional financial advice whenever making financial investment decisions.
Conflict of interest
TSI does and seeks to do business with companies featured in its articles and videos. As a result, investors should be aware that TSI may have a conflict of interest that could affect the objectivity of some articles or videos. Investors should consider TSI articles and videos as only a single factor in making any investment decision. The publishers also wish to disclose that they may hold stock in some companies featured in their articles and videos, and that any decision you make to purchase the stock of a company TSI profiles should be made only after you have initiated your own enquiries as to the validity of any information contained in those articles and videos.
TSI will only initiate coverage of a company that passes our internal investment checklist. Once a company has passed this checklist, we will initiate coverage of that company and follow up with ongoing updates and commentary on its activities. Articles and videos produced and published by TSI are NOT Research Reports in terms of ASIC Regulatory Guide 79.
The Sophisticated Investor