Covata — Moving forward

Covata — Moving forward

Covata has raised A$2m from institutional and retail investors, bolstering its cash position. The company is making progress with the development of its data security platform, and plans to launch a beta version by the end of the current quarter. New customer contracts have been signed for SafeShare and CipherPoint and the company has a growing sales pipeline.

Katherine Thompson

Written by

Katherine Thompson

Director

Covata

Moving forward

Software

QuickView

17 January 2018

Price

A$0.048

Market cap

A$28m

Share price graph

Share details

Code

CVT

Listing

ASX

Shares in issue*
*Excludes 57.1m shares in employee loan share plan

580.0m

Business description

Covata’s SafeShare software enables users to share data securely within their businesses as well as with external parties. The software uses identity, policy and key management to protect data wherever it goes. The company is headquartered in Australia and post the CipherPoint acquisition has 22 employees.

Bull

Established Australian government customers.

Restructured cost base.

Redefined product roadmap.

Bear

Low level of revenues.

Not yet cash flow positive.

Acquisition risk.

Analysts

Katherine Thompson

+44 (0)20 3077 5730

Bridie Barrett

+44 (0)20 3077 5700

Covata is a research client of Edison Investment Research Limited

Covata has raised A$2m from institutional and retail investors, bolstering its cash position. The company is making progress with the development of its data security platform, and plans to launch a beta version by the end of the current quarter. New customer contracts have been signed for SafeShare and CipherPoint and the company has a growing sales pipeline.

Funds raised

The fund-raising announced by Covata in October raised A$425k via an institutional placing (9.0m shares at 4.7c per share) and A$1.637m via a retail offering (34.8m shares at 4.7c per share). Covata had net cash of A$4.5m at the end of Q118; in Q218, it expects a total cash outflow of A$2m (before revenues and interest income) and an R&D tax credit receipt of A$1.5m. Based on these numbers, Covata should have a net cash position of at least A$6.0m by the end of Q218.

Making progress with platform and contract wins

Covata expects to launch the beta version of its DSP platform, CovataSecure 1.0, by the end of Q218. It recently made SafeShare available on Microsoft’s Azure cloud platform and has since signed up a new customer to use SafeShare via Azure on a three-year subscription. The Macquarie Telecom partnership agreement has been renegotiated – with 23 government departments using SafeShare via this agreement, we anticipate a positive impact on revenues from Q218.

CipherPoint contribution

The acquisition of US data security software company, CipherPoint, completed on 25 August. Covata’s Q218 cash outflow forecast includes the CipherPoint cost base, and at the AGM management confirmed that it had generated revenues of US$142k since acquisition. Earnout payments are based on CipherPoint generating revenues of at least US$300k in H118 and US$500k in FY18. In October the company announced that a US franchised sporting association had signed up for a CipherPoint Eclipse perpetual licence plus annual maintenance.

Tracking the milestones

There are no forecasts available; to track progress we would look to monitor contract wins, user numbers and cash burn and, in the longer term, progress towards completing the DSP. The company has confirmed that it will shortly start reporting certain KPIs (customer and user numbers) and, in the longer term, will report additional SaaS-type metrics including churn and recurring revenues.

Historic financials

Year
end

Revenue
(A$m)

PBT
(A$m)

EPS
(c)

DPS
(c)

P/E
(x)

Yield
(%)

06/14

0.4

(9.8)

(4.4)

0.0

N/A

N/A

06/15

0.3

(27.5)

(8.4)

0.0

N/A

N/A

06/16

0.4

(14.1)

(3.1)

0.0

N/A

N/A

06/17

0.4

(10.2)

(2.0)

0.0

N/A

N/A

Source: Covata

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Disclaimer

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Covata and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investments Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison's solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are "wholesale clients" for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document.
A marketing communication under FCA rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research. Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a "personalised service" and, to the extent that it contains any financial advice, is intended only as a "class service" provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited ("FTSE") (c) FTSE [2017]. "FTSE(r)" is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE's express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Research: Industrials

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