Mark Watson-Mitchell brings to the attention of readers two cyber-security firms that have caught his eye.
Almost daily as we read our newspapers or gaze at the news on television, we are forever being informed of how computer hackers have got away with crypto fortunes, pension savings, property sale proceeds or the like.
Just last weekend we were told of how hackers lifted £2.4m from the Dutch Rijksmuseum transaction with a London art dealer for a painting by John Constable.
The cyber security market is enormous and still growing fast.
For any company or commercial organisation network there are continual threats of security incidents and corporate data breaches.
Such threats to the security of a network include malware residing in the memory of computers; the increasing sophistication of ransomware; distributed denial of service attacks; structured query language injections; machine learning-enabled attacks; insider threats; and man-in-the-middle attacks.
The in-house IT department may well not have sufficient experience or knowledge to be able to defend corporates from such attacks. The sophistication of threats is outpacing the capability and capacity to respond.
As operations get ever more complex it is obvious that there is a driving demand for specialist cyber-security solution providers.
Competing effectively in an increasingly globalised and interconnected world means that organisations now need to consider how information security can be embedded within business processes. Safety has to be built into their operations enabling companies to manage, monitor and protect core data and information assets.
So, the specialist providers offer their services either on an ‘ad hoc’ basis, as ‘one-offs’, by way of an overall software license or through a ‘software as a service’ model.
As I detailed last week when profiling D4T4 Solutions (LON:D4T4), I really do like this latter model – the SaaS offer. DDoS, which is the distributed denial-of-service protection, is a similar service model.
I love to see annual recurring revenue building up in a company’s balance sheet.
The two companies that I am profiling today are Corero Network Security (LON:CNS) and Shearwater Group (LON:SWG).
Both companies are software and computer services operations, both are steeped in cyber security, both are loss-making and both have big potential.
However, the larger Shearwater is probably a year or two in advance of Corero in revenue and earnings potential.
Shearwater has 22.12m shares in issue, of which the board owns 18% of the equity, while major holders include Secarma (13.2%), Schroder Investment (9.6%), Killik & Co (5.5%) and Fidelity (3.6%).
Corero has 494.9m shares in issue, of which the directors own nearly 39% of the equity, while professionals include Premier Miton (13.2%), Juniper Networks (9.9%), Sabvest Capital (7.3%), and Herald Investment (7.0%).
In the last year Shearwater shares have been up to 327p, but are currently 245p, capitalising it at £54m. While Corero, valued at £21m, is currently 4.2p, having been up to 10.9p during the last year.
Shearwater is estimated to have had an 87% jump in revenues to £44m to end-March 2020, with a £0.3m loss. Corero to end-December 2019 saw a steady $9.7m of sales and a $6.6m loss.
This year broker’s estimates are for £49.9m sales for SWG and a £1.5m profit, while Corero could do $16.1m revenues and a smaller $4.9m loss.
Last year 61% of Corero was ARR, with 51% plus estimated for this year.
Investing in either company is a risk while both are loss-making. The ‘penny stock’ offers gamblers a higher risk, while SWG is already off and running.
My end-2020 target prices are 6.5p for CNS and 310p for SWG.