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Tesserent: undervalued Australian cybersecurity stock positioned for strong year

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Australian cybersecurity company Tesserent Ltd. (ASX:TNT) is attracting a lot of investor attention following an aggressive acquisition-led expansion last year.

Although the initial investor enthusiasm prompted by the series of purchases waned a little towards the end of the year, causing share prices to dip, the company’s latest financial results and its newly expanded internet services for the Australian federal government have positioned it for a strong 2022.

The ASX-listed company set out to become a household cybersecurity name in Australia and New Zealand in 2019 and over the next two and a half years went through a dense series of acquisitions. Part of its plan was to focus not only on providing cybersecurity to enterprises but also to Australia’s federal government and to eventually become Australia’s leading name in cybersecurity.

Tesserent has been on the acquisition trail

Plans started taking shape in 2020 and throughout 2021 when the company forged ahead with six different acquisitions. It also pushed its finances to the limit in the process.

In December 2020 Tesserent took a foothold in New Zealand with Wellington-based cyber security consultant Lateral Security (acquiring it for A$2.1 million in cash and A$6.3 million in TNT securities). This was followed up in March with the purchase of Secure Logic’s managed security services business (A$10.75 in cash and A$11.25 million in shares) and the acquisition of Sydney-based Loop Secure in August.

The firm’s final two acquisitions in 2021 took place in December when it bought Canberra-based IT services firms Pearson Corporation and Claricent. The two acquisitions are worth a combined A$33 million (A$28.8 million for Pearson Corporation and A$4.13 for Claricent) and will be integrated into the company’s subsidiary North Security.

Both firms have a leading position in federal government internet security and will move Tesserent up a level as it will be able to complete large-scale multi-year projects. The company can now offer a full range of cyber security services including strategy, consulting and putting together critical controls needed by customers.

To help bridge the financial challenges Tesserent brought on board new chief financial officer James Jones and rearranged how it operates. It also raised A$25 million by placing shares with institutional and professional investors in September.


Strong Q1 results for Tesserent

The acquisitions are already starting to have a positive impact on the company’s bottom line.

In the first quarter of financial year 2022, the quarter ending 30 September 2021, it reported a turnover of AUS$26.9 million, up 78% compared with the same quarter of the previous financial year. The company’s inflows were strong with annual recurring revenue now at 42% of the turnover, up from 30% in the previous year. Operating EBITDA rose to $2 million, up 35% on the year. Although some of the improved numbers stem from the capital raise in September, a good portion of it is recurring income comes from the newly acquired businesses. Since the company’s last financial report it brought two more firms on board and the income from those acquisitions will start showing over the coming quarters.

At the time of writing, the Tesserent share price is 17 cents, down 2.86% on the day and down 5.56% year-to-date. The company’s half year results are due to be published over the coming weeks and will show how well it has incorporated the newly acquired businesses, potentially providing the next buy signal.

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This article does not constitute investment advice. Do your own research or consult a professional advisor.

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