At this time of year it is not uncommon to see articles, opinion pieces and analysis of the year that’s been. These articles often turn to what the year ahead might hold. There was an interesting piece in The Age which discussed a series of (low) potential Black Swan events.
Regardless of the likelihood of events like those included in the article, there is a strong theme currently in the market and in the news which centres on cyber security. The greatest threat of terrorism today could very well be a cyber-attack. We are moving towards an increasingly digital world through personal devices, cars, financial infrastructure and personal identity.
Companies, governments and private citizens will increase spend on this technology, and companies that produce the technology and evolve quicker than the others stand to gain. The cost of not getting this right far exceeds any charge a software company could impose. It is this point that makes companies like Senetas Corporation Limited (ASX:SEN) an attractive stock.
SEN deal in data encryption for high speed networks. The technology they have developed can secure this data without effecting performance, and is self-described as ‘defence grade’. Clients include US military systems, and the money havens otherwise known as the Swiss Banks. The technology has secured the all-important NATO certification, and is deployed across 25 countries suggesting reasonable market diversification.
But it’s not the technology itself that I want to sell you. The story here, for us bold retail investors is the stock, SEN. This may have popped on a few of your radars, as the price movement has been significant since July. In 10 days back in July the group put on nearly 70%, before dropping back down a little bit. Currently it is trading 300% higher than about 12 months ago.
The group is still pursing growth so dividends are not the game here. The good news is that the business is already profitable, and continues to invest revenue back into product development. Going back to that July jump excitement, a key reason behind that was the projected profit figures which were revised to $5.7m – $6m. The even better news was that the group went on to acheive a profit figure of 6.02m, which was 240% up from the prior year.
These figures were underpinned by two key revenue sources. Firstly sales were up 41%, validating demand for the product and demonstrating the growth potential of this technology. The second was a 55% uplift in maintenance services revenue. This figure will continue to grow as sales increase. The other great news here is the cash on hand, which sits at over $15m, which will assist in product development and continued growth.
The strategy moving forward of course centres on R&D, product development and product enhancement. But beyond that SEN has partnerships to help drive distribution around the world. Gemalto is one of these partners, which gives access to a sales force set across 44 countries. Working with Gemalto will be key to the success as they push their products into markets which currently have low penetration.
SEN’s own profit forecast is ‘strong moderate growth’. This would suggest the 240% uplift we saw FY15 won’t be repeated in the coming year. While keeping that in mind, the group has market leading technology in a space that will command significant expenditure from massive companies, and governments over the coming years. It’s one for the watch list, and gives a taste of a growing tech company that many Australian investors feel starved of.
Want more of this great stuff? Put your email below and we can alert you first.