Undervalued Potential @<10% FZO mcap

For HC members this morning who may have missed my post late last night

Market is generally aware of Family Zone (FZO) but Tesserent (TNT) is a very under the radar stock trading below 10% of FZO's mcap (similar like BIQ was trading at 10% of BUD mcap before BIQ price shot up subsequent to my posting) and the increasing importance cybersecurity plays in the decision making of enterprise CIOs.

I called out 3DP when it was 4c now 14.5c, I called out K2F when it was 11c now 32c and I called out CT1 first at 1.9c and a second time at 2.7c and now at 3.8c. IMO I believe TNT should at least be at 14c making this a potential 2x bagger. DYOR.
TESSERENT (TNT)
SUMMARY ANALYSIS
MCAP: $7M @ 6c
Business : Tesserent (TNT) provides world-class managed security services based on their proprietary security platform to help organisations defend against cybercrime. TNT has developed a security infrastructure platform known as MSSP platform which enables delivery of Security-as-a-Service (SECaaS) on a subscription basis to small and large organisations to protect their computer networks. TNT offers a comprehensive security managed service solution (sourcing best-of breed technologies and overlaying them with TNT’s MSSP prorprietary platform) from its 24x7 state of the art Security Operations Centre in Melbourne. SECaaS packages security services for a customer’s computer infrastructure include firewall, authentication, anti-virus, anti-malware/spyware, intrusion detection and security event management, amongst other services. Unlike traditional Internet security model in which conventional hardware is sold upfront and software is sold as a perpetual licence with upfront costs (and ongoing support fees), TNT’s SECaaS model provides subscription based recurring revenues.

TNT via its direct salesforce and its channel partners provide SECaaS to over 190 organisations and have customers in 11 countries and territories. Its customers include BMW, Toyota, Nintendo, The Good Guys, Reece and Maxitrans.

Within the Internet security industry is the Managed Security Services Provider (MSSP) market, which is the key market of interest for Tesserent. Gartner defines “MSSs as the remote management and/or monitoring of IT security functions delivered via remote security operations centres (SOCs), not through personnel on-site.” Gartner forecasts the MSSP IT Outsourcing market worldwide will increase from US$12.5 billion in 2014 to US$26.9 billion in 2019, a compound annual growth rate of 16.5%.

What to like about TNT?

• Under the Radar Stock
• Outsourcing of Security Services offered by TNT under a SECaaS model offer immediate & real value propositions to its customers (i) lower costs , avoiding need for own in-house internet/network security staff which are costly (ii) single point of accountability end-to-end security services solution to a single party for all enterprise security needs (iii) cyber threats are evolving and require cyber threat intelligence and knowledge that TNT can provide (that in-house resources have limitations to keep pace)– the greatest threats are the unknown unknowns (what you don’t know) (iv) enterprises can focus on what they do best in their core business and leave the security experts to worry about keeping their systems/networks safe

Feedback from customer testimonials
https://tesserent.com/why-tesserent/video-testimonials/

• A key feature of the MSSP Platform is its ability to coordinate a wide range of threat intelligence data from many of the world’s leading cyber-security data providers and distil this data into actionable information that is immediately disseminated to each customer’s network. New threat intelligence created from the analysis of this information is then fed back to all of TNT’s customers globally thereby ensuring that each customer’s network benefits from the new knowledge.
• Cyber security is a real threat and challenge and foremost on the minds of most CIOs. According to Intel Security, cybercrime is a growth industry and in 2014 they estimated the likely annual cost of cybercrime to the global economy to be US$400 billion. The number of security incidents is rising,5 with PWC’s Global State of the Information Security Survey 2015, an annual survey of 9,700security, IT and business executives across more than 154 countries, showing that the number of detected security incidents has risen since 2009 at a compound annual growth rate of 66%!
• TNT’s SECaaS business model is real, proven and tested with over 190 organisations using it worldwide including blue chip customers and is serviced from its 24x7 state of the art Security Operations Centre.
• Margin for SECaaS is high at circa 60% and the best parts of its revenue model are (i) it tends to be ‘sticky’ with MSSP renewals forming a larger annuity revenue base over time (ii) its offering to both small and large enterprises are fairly standard so additional sign-on contracts can accrue very profitability with the same security monitoring crew / overheads and once revenue covers overheads, the business can well scale up profitably
• IPO at 20c in 2016 and now trading at just 1/3 of its IPO price

Market cap of $7m significantly undervalues TNT’s SECaaS business and its potential. TNT has recorded $5.4 annual revenues (without including an additional $5m of unbilled revenues) , about $2m cash in hand with a mcap/revenue ratio of just 1.3x which is significantly lower than other cyber security related businesses trading on the ASX (see Table below). Even Whitehawk a soon to be listed online cybersecurity company with negligible revenues is commanding an IPO valuation of $13.9m.

	Column 1	Column 2	Column 3	Column 4	Column 5	Column 6	Column 7	Column 8
0	PEER COMPARISON
1		Issued shares (m)	Current Price	Market Cap (m)	Annual Revenue(m)	Mcap/Rev	NPAT (m)
2	SENETAS (SEN)	1081.18	$    0.110	$ 118.93	$ 17.60	6.76	$ 2.88
3	COVATA (CVT)	637.00	$    0.039	$    24.84	$   0.67	37.08	-$    5.76	est annual
4	FAMILY ZONE (FZO)	121.40	$    0.630	$    76.48	$   7.04	10.86	-$ 5.59	est annual
5	TESSERENT (TNT)	117.00	$   0.060	$ 7.02	$ 5.40	1.30	-$    3.46

• Revenue and profit figures for CVT and FZO are estimates derived from their App 4C and presentation material. I believe $7m annualised revenue for FZO is also a tad generous. TNT figures from actual from annual report.

• What is interesting going forwards is TNT’s recent launch of Cyberbiz, a comprehensive suite of cyber security managed service offering catered to the SME businesses including 2 million SME enterprise audience market in Australia alone. It delivers enterprise grade security that TNT has historically provided to its larger customers, packaged in a way that makes it accessible to the SME market. This segment of the market remains poor serviced with regard to state of the art cyber security and Cyberbiz is to be marketed through partnerships with Dell and Telstra Business Centres as well as TNT’s domestic and international channel partnershttps://www.youtube.com/watch?v=8JZQji8ahTk (catchy ‘how exposed is your business” ad campaign)Cyberbiz is offered to SME market at an affordable packages that range from $199/mth to $599/mth.Calc: $200/mth (lowest fee) x 12 x 2 million SME (in Aust only) x 0.5% (10k customers)= $24mSo if Cyberbiz is implemented successfully, the potential can be enormous for the relative value standing of TNT at this present time.
• If Cyberbiz can secure just a 0.5% of SME market in Australia alone, that can translate to a potential annual annuity revenue of $24m and $14.4m Gross Margin @60% margin.
• https://cyberbiz.com.au/
• Management has skin in the game with the MD holding over 30% of the stock. No ridiculous performance shares as you have with FZO and numerous other tech companies. It is the MD’s interest not to have CR as he would have to fork $ to avoid dilution so a CR is unlikely unless absolutely necessary.
• While the cyber security market can be competitive with many solution offerings, the increasingly connectivity across enterprises devices and networks will become more complex over time and with the ever evolving challenges posed by cyber security threats, outsourcing can only become the most viable and cost effective option for enterprises to embrace and TNT’s MSSP SECaaS model represents a compelling proposition on those grounds.IMO, without even including the potential value of Cyberbiz, TNT should conservatively already be having a market cap of at least $16.5m (for a more reasonable mcap/revenue ratio of 3) which equates to 14c making it a > 2x bagger potential in the very near term. At 14c, TNT would be trading at just 65% of Covata’s mcap and 21% of FZO’s mcap. News indicating success on the Cyberbiz front could IMO further re-rate its market cap to $30m range. In 2018, TNT’s management has also made it its priority to home in on investor relations efforts to bolster market awareness of TNT’s potential and its undervaluation (which the Chairman himself expressed in the Annual Report).

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Data Winners Holdings: 3DP K2F* LNU BIQ* BTH IXU CT1* SKF
Other Potentials: GSW YOJ 4DS FFG OOK DUB TNT* PIQ* TTT

Summary Analysis for *stocks available at respective stock forums