Ann: Quarterly Activities/Appendix 4C Cash Flow Report, page-37

Hi mate, it's a basic heuristic revolving around what I understand to be the approximate long run mean for cybersecurity stocks.

It may be too bullish, it may be too bearish.

All I know is share price follows earnings - and as a proxy for a pre-profit SaaS business, revenues.

Their client base is sticky (evidenced by the low customer churn rate) dominated by government agencies and major players in the Defence Industry Base, because there are tailwinds requiring the use of services provided by archTIS and only a few other companies worldwide. Their services are required as a compliance tool to allow businesses to continue getting government contracts, in an environment where defence and cybersecurity are major concerns for the western world.

We also know the business has forecast a minimum increase in annual revenue of 60% (assuming nothing further), with visibility over a potential doubling of annual revenue for FY23.

With the business' network effects moat, the switching costs, high barriers to entry, existing customer base (and exhibited customer retention), forecast growth (which only assumes existing contracts) and ongoing tailwinds emphasising the need for their offerings, with limited competition - and potentially on the cusp of cashflow neutrality, creeping over into profitability - I don't see why using 16x is absurd as a starting point simply for discussion.

I do think being in the single digits is too bearish, and I also think being in the 20s is too bullish.

Even at 10x (for a business with forecast (read contracted) revenue growth of at least 60%), it seems a bit pessimistic. However, for the sake of discussion, 10x gets you to 28.4c - a 72% premium on the prevailing price.