Clearer on the eye...SEN originally listed on the ASX as Secure...

Clearer on the eye...

SEN originally listed on the ASX as Secure ID-Net in 1999. SEN has recently been included in the ASX S&P 300 index, and aims to be included in the ASX/S&P200 in the next three years. Senetas is the world’s leading high-speed network encryption hardware company and aims to be the leading Australian technology company

Senetas Corporation Limited (SEN) provides encrypted, high speed network solutions worldwide and delivers specialised enterprise information consulting services to Australian companies. Senetas has two main areas of business: Security Solutions and Enterprise Services.

SEN's security enterprise management expertise includes hardware encryption devices, systems availability, data storage control, physical location, security management, systems connectivity and communications. Clients include government departments and agencies in Australia and overseas.

SEN’s Enterprise Services business covers vendor-independent professional services with four areas of specialty: Enterprise Financial Management, Business Intelligence systems, Enterprise System Management and Software Development. Clients include several of the largest companies in Australia.

We like this stock for five main reasons:

· SEN has an 18 month lead in research and development compared with its nearest competitors. This is a very positive factor because the company operates in a niche market in which barriers to entry are substantial
· The company says it will continue to heavily invest in research and development by recruiting more engineers and by spending $550,000 to establish a robust testing laboratory
· SEN’s main encryption product, the CTAM CypherNet, provides the company with a competitive edge because it provides both network high performance and high security
· The company’s new flagship product, the Ethernet data encryptor, which is to be released by the end of this year has already been selected by a major Australian government department, which bodes well for the product’s prospects
· SEN’s partnership with SafeNet, a global encryption product manufacturer and distributor, provides the company with a channel to target the US and other international markets
· SEN is actively marketing to increase broker coverage for its shares. Senetas is already covered by research from two broking houses and other broking houses are expected to initiate coverage in the coming weeks. This will be share price supportive because the company’s profile exposure with institutional fund mangers is expected to grow as a result
· SEN operates in a booming industry as more public and private operators are willing to spend big money on data and infrastructure security due to increasing attacks by hackers and and terrorists

Further points worth mentioning:
· NPAT in 2005 was $10m out of revenues of $22m, hence an outstanding margin ratio of 45%
· With Shareholders Equity at $31m, ROE for 2005 is a healthy 32%
· SEN is currently sitting on a reserve of $16.5m of cash
· The company is debt free
· SEN generated a strong consolidated operational cash flow of $3.3m in 2005 compared to a consolidated operational cash flow of only $71,476 in 04

We believe the projected earnings growth rate implied by the current share price is conservative in light of the outstanding growth prospects of the company. Our model targets $1.10 as a minimum level, which represents an increase of 64% on today’s closing price