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Tesserent (ASX:TNT)

Solid quarter as Asta transaction nears conclusion

1 Video - Oct 18

Tesserent Limited (ASX: TNT) has provided an update with respect to its quarterly results. Highlights of the announcement include the following.

  • Revenue for quarter – $1.43 million.
  • Customer invoices – $1.44 million.
  • Asta acquisition will expand TNT’s offerings to include cloud technologies, managed services and development of blockchain applications.
  • Acquisition costs – 4 x FY18 EBITDA – expected to result in a purchase price of $3.8 million, to be met through a combination of shares and cash.
  • Shareholder approval for acquisition – AGM in November (indicative timing).
  • Signed MOU with Blockchain Global Ltd (BCG) to develop cyber security platform – first potential transaction for TNT in the blockchain sphere.
Analyst comment: as reported previously, TNT’s major news during the past quarter was its proposed acquisition of Asta. The long-term benefits of the transaction is that it significantly expands TNT’s product offering. In the short term, it means an immediate increase in revenue (TSI estimates the combined group would have generated revenue of around $16 million during the 2017/18 FY).  

The transaction should be complete later this quarter, but already there are signs that the group (TNT/Asta) is operational, as highlighted by the MOU with BCG (which has invested US$200 million+ in more than 50 blockchain-enabled businesses to date). 

Although, the MOU involves TNT providing security for managed services, its core competency, it’s unlikely that the undertaking would have eventuated without Asta’s involvement, given the latter’s experience in the blockchain industry. We anticipate this will be the first of many such transactions in what is a growing sector.

Once TNT concludes its purchase of Asta news flow should increase, given the expanded business offering and consolidation of financial results (for December at least). To view our analysis of the Asta transaction, click on the button above. 

Valuation: we maintain our valuation for TNT at $0.26/share (currently $0.07)in the belief that, once the Asta takeover is finalised (in December) and the new combined revenue confirmed, the company’s share price will re-rate towards our valuation (for full details of that valuation, click on the link above).

Proposed acquisition of Asta Solutions

1 Video - Jul 18

Tesserent Limited (ASX: TNT) has announced its signing of a binding-terms sheet (subject to various conditions precedent) to acquire Asta Solutions Pty Ltd (‘Asta’).  An Australian-based business, Asta has more than 200 clients, serviced by 85+ staff located in Melbourne, Sydney and Auckland. Asta has significant expertise in a number of areas important to Tesserent’s strategy, including cloud technologies, managed services and the development of blockchain applications.  The cost of the acquisition – 4 x FY18 EBITDA – is expected to result in a purchase price of $3.8 million, which will be met through a combination of shares and cash.

Strong quarter as CyberBiz pipeline grows

1 Video - Apr 18

Tesserent Limited (ASX:TNT) provides corporate cyber security services to a range of Australian and international clients. Highlights of the company’s quarterly results include the following.

  • Customer receipts  – $1.32 million during the March quarter ($4.4 million YTD).
  • Has increased CyberBiz channel partners to seven, including the Leading Edge Group (the latter is one of the largest independent IT resellers in Australia, with a client base of more than 25,000 small- to medium-sized businesses (SMBs) nationally, including with Leading Edge Computers Group).
  • Cash position – $1.63 million, with no debt.

Analyst comment: a solid quarter for Tesserent. With year-to-date cash receipts increasing to $4.4 million, the company remains on track to meet our forecast of $6 million for the financial year. In spite of this strong, ongoing sales performance, Tesserent continues to trade at less than 2X Price/Sales (a commonly used valuation technique for the sector), while their global peer group trades at around 4X Price/Sales.

Tesserent’s major focus during the past quarter remained implementation of Cyberbiz, which is targeting the two million SMBs in Australia. For this product, the key highlights of the quarter were the addition of seven new channel partners, who will, among other things, actively promote CyberBiz to their client bases, and first recorded sales revenue (+$100k).

Looking to the quarter ahead, we anticipate more of the same from Tesserent, with cash receipts of around $1.5 million, further focus on reducing operating costs and the addition of more channel partners for Cyberbiz, as it’s the channel partners that will drive long-term sales.

Valuation: we maintain our valuation at $0.25/share (currently $0.10).

New partnership to rapidly expand CyberBiz

1 Video - Mar 18

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.

Valuation Analysis

1 Video - Feb 18
  • We initiate coverage on TNT with a valuation of $0.25 / share.
  • This video reviews our sale, revenue, costing assumptions as well as the valuation methodology applied.

Managed security as a service – Industry overview

1 Video - Feb 18
  • For protection against cyber attacks business can either directly employee staff to work for the company, or alternatively outsource to third parties or what is otherwise known as Managed Security-as-a-Service.
  • We review the benefits of the industry, its size, trends, future potential and Tesserent’s position.

Risk – Are cyber attacks impossible to stop?

1 Video - Feb 18
  • Despite millions of dollars being spent on cyber security by Government & major organisation cyber attacks on these groups is common, which leaves the rest of the market to wonder how they could protect themselves from attacks.
  • We discuss with Tesserent how business can best protect themselves from cyber attacks and if there is a breach what steps should be taken.

Cyber threat to SME & CyberBiz

1 Video - Feb 18
  • SME are increasing under threat of cyber attacks and are arguably more affected as an estimated 60% of SME go out of business within 6 months after an attack
  • In response to this growing demand Tesserent has launched their CyberBiz product, aimed specifically at SME organisation initially in Australia.
  • TNT will use channel partners to help promote their CyberBiz product to business.

Privacy Amendment Act – What does it mean for Australian businesses?

1 Video - Feb 18
  • The Australian government recently passed the Privacy Amendment Act of 2017 which went into effect in February 2018.
  • We examine how this legislation will potential effect Australian businesses.

Initiation Report

9 Videos - Feb 18

Tesserent (TNT.ASX), is an ASX listed company providing cyber security services both in Australia and overseas.  We initiate coverage of Tesserent with a valuation of $0.25 / share.  This report includes:

  • A detailed valuation analysis;
  • A review of the company’s strategy and technology;
  • A review of legislative changes in Australia which effect SME organisations; and
  • A review of the cyber security industry.

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