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Tesserent - New partnership to rapidly expand CyberBiz

Mar 2018

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Summary - New partnership to rapidly expand CyberBiz

Tesserent Limited (ASX:TNT) is a provider of cyber security services to a range of Australian and international corporate clients. The company recently announced a partnership agreement with the Leading Edge Group to promote and sell its CyberBiz product. Highlights of the announcement include the following. 

  • The Leading Edge Group is one of the largest, specialised, independent IT resellers in Australia, with a client base of more than 25,000 small- to medium-sized businesses (SMBs) throughout Australia.
  • The partnership agreement enables distribution of CyberBiz 24/7 managed security services to SMBs through Leading Edge Computers (LEC), meaning that LEC members can now offer their customers an enterprise-grade cyber security solution.
  • The nationwide CyberBiz launch with LEC goes live in April 2018.

Analyst comment:  this agreement is a win-win situation for all concerned.

 The Leading Edge Group and its reselling network earn a commission from each CyberBiz product sold and, more importantly, their customers receive the aforementioned enterprise-grade cyber security solution, an area in which they are likely to lack specialised skills.

Tesserent, meanwhile, is actively promoted by Australia’s largest independent provider of IT solutions, with its substantial national client base of > 25,000 SMBs. Even at a conservative conversion rate (discussed further in the valuation section below), this should translate into more and quicker sales for Tesserent than we previously predicted.  

Moreover, with the Privacy Amendment Act 2017 now in effect and limited solutions on offer for SMBs, further agreements of this type are likely to materialise in due course.

What is CyberBiz:  Tesserent launched CyberBiz, targeting the two million 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.

What is CyberBiz? Tesserent identified a growing need for cyber security services among Australian SMBs, which generally have lower levels of cyber protection and are thus being targeted more and more by hackers. The company launched CyberBiz with this market segment in mind.

What is the Privacy Amendment Act? Exacerbating the threat to SMBs is Australia’s Privacy Amendment Act 2017, which took effect recently. The Act requires that any Australian government agency or business with an annual turnover of $3 million or more notify the Office of the Australian Information Commissioner, as well as all potentially impacted clients, if a significant breach of its data occurs. Aside from damage to the reputation of the entity caused by such a breach, the strict reporting requirements of the Act mean that any lack of adherence to those rules can attract significant fines. 

Thus, the legislation has significant ramifications for any SMB lacking sufficient cyber protection.

Valuation: our valuation of Tesserent, which we maintain at $0.25/share (currently $0.13)assumed a slow ramp-up in sales over the first number of years (523 – FY19, 1,450 – FY20, 2,700 – FY21), on the basis that market awareness and penetration of any new product take time. However, in light of this partnership alone, our supposition with respect to Tesserent may prove highly conservative in the medium term.   

We will review our valuation when more information on CyberBiz sales is made available.