Five Tech Stocks Leveraged to Security and Communications

The growing role that technology is playing in the deployment of security and communications solutions has spurred a number of companies to list on the ASX.

Whether it is in the physical realm or online, the risks associated with intrusion, interception and data breaches now require ever-increasing levels of sophistication. What’s more, most of today’s solutions are not exclusively hardware or software, rather, an integrated combination of the two.

We’ve put together a snapshot of five tech stocks that are servicing the security and communications needs of clients from Australia to the rest of the world. Two of these businesses focus on perimeter intrusion solutions, one company focuses on data encryption and intrusion prevention, while two of the stocks specialise in mission-critical communications systems.

However, one thing they all have in common is that they service a broad range of end-user applications and industries, which for investors, potentially offers exposure to more than one sector of the market.

Notes: (1) Numbers have been rounded to two decimal places. (2) Revenue relates to sales from ordinary activities and does not include ‘other’ income. (3) Net operating cash flow forCY19 is based on annual report data, which may differ from quarterly data due to subsequent reclassification of expenses. (4) Where the company did not provide an explicit result for a certain period, all effort has been made to calculate a value using the difference between two successive periods.
Operating cash flow comparison (SP3, AVA, ELS, MOB)

Spectur Limited (ASX: SP3) – share price: $0.051; market cap: $3.9m

Spectur is an Australian technology developer specialising in a suite of solutions oriented towards security surveillance, deterrence and warning systems.
The company’s products integrate solar-powered cameras, alarms, lighting and a cloud-based IoT platform that relies on 3G/4G connectivity. Spectur also leverages visual AI to deliver bespoke software and user interfaces for its clients.

Spectur’s operations focus on Australia and New Zealand, principally in two key sectors:

  1. Government, utilities and institutional clients
  2. Building and construction industry.

Its products are viewed as solutions for compliance, productivity optimisation and monitoring, even extending to shark alert systems for public beaches. More prominently, Spectur’s technology is intended to deter intrusions and theft from infrastructure or work sites. In the building industry alone, it is thought that 39% of companies experience theft or vandalism each year at a total cost of $2bn.

In terms of its business model, Spectur earns revenue through four streams:

  1. Hardware sales; (cameras, warning systems, custom variants, parts, etc.)
  2. Rentals (cameras, warning systems, custom variants, parts, etc.)
  3. Recurring revenues (data, cloud storage, cyber security, system access, etc.)  
  4. Field services (installations, relocations, servicing, repairs, etc.)
SP3 Revenue

In its most-recent half (1H FY20), Spectur announced revenue growth of 19% year-on-year, however, sales were flat compared with the quarter prior.

In total, 22% of revenue was recurring, while hardware sales (36%) and rentals (29%) underpinned the result. The company did, however, cite a slowdown in hardware sales amid recruitment delays, albeit operational efficiencies helped improve gross profit margins by 5pps to 63%.

The December (2019) quarter also marked the company’s inaugural cash flow positive quarter, but this has subsequently slipped on account of new staff costs and new technology investment.

As a developer of its own technology, Spectur actively invests in research and development initiatives. This includes plans to release its new ‘STA6’ platform in the coming months, featuring extended night sensing, full 360 vision, edge-based AI and improved processing times.

The company anticipates that new sales staff could expand Spectur’s sales pipeline while its new product could support additional revenue growth for the business throughout 2020 and beyond.

AVA Group (ASX: AVA) – share price: $0.17; market cap: $40m

AVA Group is a diversified risk management technology and services company with global operations. The business has a host of ‘blue-chip’ clients on its books including the Department of Homeland Security, US Border Patrol, Australian Federal Police, Australia’s major airports, international oil giants like BP and Shell, banks such as HSBC, plus more.

The company has two main divisions:

  1. Services (AVA Global Logistics)
  2. Technology (BQT Solutions; Future Fibre Technologies)

AVA Global Logistics provides secure international logistics for high-value assets like gold and currency in more than 100 countries. Its client base includes mines, refiners, commodity traders, banks and central banks. Recently, with gold at near-record prices and increasing levels of cash held with banks, management have noted an increase in demand for its full life-cycle services. This is highlighted by a recent 12 month central bank award it attained in mid-May, valued at $2.1m p.a.

BQT Solutions supplies biometric, door lock and smart reader and card systems. Its products, either tailored or shelf-ready, are designed for high-security applications in a number of settings involving militaries, infrastructure sites and commercial premises’.

Future Fibre Technologies (FFT) distributes and installs fibre-optic intrusion detection systems, predominantly to ‘critical’ sites across more than 70 countries. These systems incorporate optical signal processing algorithms and AI to monitor perimeter intrusions. Applications include oil and gas pipelines, utilities, government sites and transport sites. It also offers a conveyor monitoring solution.

AVA Revenue

As shown above, AVA Group has consistently increased its revenue in recent halves. At the same time, it has also grown its gross margins, which have increased 8ppts in 1H FY20 to 49% versus the prior corresponding period. During the most-recent half, both the technology and services divisions posted record revenue contributions and were EBITDA positive. The company has also been able to operate as cash flow positive through some of its recent quarters.

The company has earmarked some current developments as potential tailwinds to continue underpinning revenue growth.

In the AVA Global Logistics division, this includes being awarded preferred supplier status with Moneycorp Bank for secure logistics and cash processing to and from New York.

In the BQT Solutions division, the company recently signed a new Master Distribution Agreement with a major global locking conglomerate for European supply.

Finally, in the Future Fibre Technologies division, the business is in the early stages of fulfilling a contract for the supply of a fibre optic intrusion detection solution with the Indian Ministry of Defence. The value of this contract is at least US$11.9m, with scope for an additional US$3.4m later by way of a potential maintenance contract.

Looking ahead, management have indicated that they believe the current addressable market size for the company’s divisions include US$1-2bn for Future Fibre Technologies, US$0.6-1.5bn for BQT Solutions, and US$0.6-0.75bn for AVA Global Logistics.

Senetas Corp (ASX: SEN) – share price: $0.046; market cap: $49.8m

Senetas is a developer of high-performance encryption security solutions. The company’s product range extends across high-assurance hardware, virtualised encryption for data networks and a secure file-sharing application providing data sovereignty control. For over 20 years the company has deployed its solutions across more than 40 countries to protect clients from data breaches and cyber-attacks.

Recently, Thales has been announced as an international distributor for the company. Management believe this will open the door to expand its customer base. To date, however, Senetas’ solutions are used by governments, defence entities, enterprises, citizens, financial institutes, tech providers, critical infrastructure providers, CCTV operators and more.

Senetas offers three main products.

The company’s CN Series of hardware encryptors are used within public and private networks. They feature designed-in agility for mixed network types and topologies with speeds between 10Mbps and 100Gbps.

CV Series is a software version of the above encryption platform that is network independent and offers Senetas the flexibility of license deployment revenue. It delivers encryption at up to 5Gbps, suitable for cloud, distributed and software-defined networks.

Finally, SureDrop is an encrypted file-sharing collaboration application with 100% data sovereignty, end-to-end encryption security and 100% data location control. Senetas offers deployment on-premises or a SaaS solution.

Votiro is also an additional upgrade for SureDrop. It is an award-winning file-content sanitisation tool offering protection from malware and attacks. Votiro was recently acquired by Senetas, with two months of revenue contributing to SEN’s 1H FY20 result. Once the acquired business contributes to a full half of earnings, Senetas has signalled that it expects to leverage some synergies.

SEN Revenue

With the company looking to promote growth of its 100Gbps CN encryptors to governments and large corporates, whom they have also observed as upgrading their networks to comparable speeds, Senetas has been able to increase sales in this sub-category. However, this has also corresponded with sales in its 10Gbps CN encryptors diminishing, such that recent revenue growth has been offset.

Senetas is not required to publish quarterly activity and cash flow statements, however, in 1H FY20, it noted operating cash outflow of $1.51m. This contrasts with its positive cash flow result across CY 2019, where the company produced a significant cash flow positive result in 2H FY19.

This shift is largely due to the company’s efforts to drive future growth. First, after two years of progress, it is finalising European certification for its products in FY20. It is also investing in the development of transport layer independence capabilities across layers 2, 3 and 4 for hardware encryptors, which it expects to complete in CY20.

Management have stated that the above measures could open new markets for the company, providing upside sales opportunities. At the same time, with Votiro recently recording its first major sales in the North American market amid the recruitment of a new sales and marketing team, plus Japan also underpinning growth in H1 FY20, management have articulated their vision that 2020 could prove transformational in the company’s history.

Elsight Limited (ASX: ELS) – share price: $0.30; market cap: $32.1m

Elsight is an Israeli-based provider of advanced communication technology that securely transmits real-time data, professional 4K and audio transmission over cellular networks in mission-critical environments. Its use is suited for video surveillance and security, unmanned vehicles, governments, first responders, aviation and mobile telecoms.

The company’s product portfolio consists of three main solutions.

Its Rider product is a single-channel communication device with secure distribution at a lower cost. The company pitches this as a solution for security and transport, plus recording, monitoring and transmitting vehicle activity. Elsight’s Multichannel product is a high bandwidth communication device offering adaptive data transmission over multiple network channels. It may communicate live data, video and audio in real time, from any location. Both are B2B product offerings.

In fact, this technology was used to protect the US Vice President by Israeli Police and Military, while Elsight has also fulfilled orders from the likes of Traffilog, Alrena and acted as the sole supplier to a key Israeli defence agency.

More recently, however, Elsight has refocused its efforts on its HALO product. HALO is a cloud-based customer solution for the OEM market and small drones. It is a smaller version of the aforementioned B2B technology, whereby it may be integrated into any IoT device for secure, real-time transmission and streaming of 4K quality data.

ELS Revenue

Management believe the pivot towards HALO will help achieve scalability of the broader business. This shift in focus helps account for some of the declining revenue noted in the second half of 2019, where sales declined 59% year-on-year. Cash flow, meanwhile, has remained somewhat steady over recent quarters, averaging a cash operating outflow of US$0.6m per quarter since Q4 2018.

Following the market launch of HALO in recent months, much of the focus has been on successfully fulfilling proof of concept trials. More recently, the company has begun to convert these proof of concept trials into commercial contracts, with Elsight taking orders from Israel Aerospace Industries and an unnamed drone manufacturer, plus appointing Agile Defense as a US reseller.

In terms of its outlook, the company has indicated that it believes demand will be underpinned by the growing prominence of cyber security, data privacy interest and the need for secure data transmission services. As the emphasis will be on commercialising HALO, Elsight will be targeting large growing market verticals including security cameras, drones, autonomous vehicles and fleets, handheld devices, utilities, telecoms and the automotive robot industry. As many of these would be new segments, they would prove a new source of income if captured.

Mobilicom Limited (ASX: MOB) – share price: $0.074; market cap: $19.1m

Mobilicom is a developer of 4G Mobile MESH private networking technology used by governments and enterprises around the world. It designs, develops and delivers these communications solutions for mission-critical and remote mobile private networks that can operate without the need for existing infrastructure. This technology has applications in unmanned platforms, disaster relief and public safety, as well as offshore and remote areas.

The company also provides end-to-end hardware equipment, software and integration services for commercial and industrial drones and robots. It services this segment via its SkyHopper business, where it has customers in the likes of Israel, UK, France, US (Honeywell), Taiwan, Canada, South Korea (Samsung) and across Europe. During 2019 Mobilicom sold products to 30 new and existing customers in this division.

MOB Revenue

Since listing in May 2017, Mobilicom has worked to steadily increase its revenue, servicing a greater number of high-value contracts. The company recently won a contract valued in excess of $2m from Elbit, a leading global drone supplier often engaged by defence and homeland security businesses throughout the world and with more than $3.6bn in revenue per annum.

As part of the contract, Mobilicom has been nominated vendor of choice for controllers of tactical drones and is now working to deliver a batch of controllers to Elbit. This contract is set to run through CY20 and CY21, providing mid-term revenue. In addition, management have also expressed confidence that they expect further orders from Elbit in due course.

Elsewhere, the company as sole provider, delivered a commercial drone upgrade solution for an after-market add-on to the Israel Ministry of Defence, worth more than $1m. Mobilicom also attained its first order from an Australian technology developer for communication and controller products to be integrated into drones and robots that have been used by Australian’s Home Affairs and Defence departments.

Furthermore, Mobilicom has also fulfilled orders for Bird AeroSystems, a leading provider of airborne surveillance solutions, with its MCU communication units deployed to aircraft, sea vessels, ground response vehicles and mobile command posts.

Finally, the company has also serviced the fifth largest telecommunications company in the world, NTT, in Japan. Management have pointed out that they expect multiple ongoing orders each year for the company’s MCU product kits, which would be in addition to its order backlog valued at $2.1m as at the end of the first quarter of 2020.


The information contained on this website in no way reflects the opinions of Stock Brief nor its associates. All information is provided for general information purposes only. It does not constitute an offer to sell or a solicitation to buy any security or other financial instrument. The information provided is not general or personal advice and you should assess whether said information is appropriate to your needs, or seek advice from a financial advisor. You may require detailed and/or up-to-date information to consider the merits of any prospective investment in a stock mentioned on this site, therefore, you should not rely on the above information to make a decision with respect to any investment discussed.

While every effort has been made to ensure the accuracy and completeness of data used throughout this report, no guarantee is given nor responsibility taken by Stock Brief nor its associates for errors or omissions and said parties do not accept responsibility in respect of any third-party information or advice given in relation to or as a consequence of anything contained herein.

Get your free copy of the All Tech Index eBook

If you want to see all the ASX tech stocks in an easy-to-read PDF format, download the complete version of the All Tech Index eBook for free below!

Done. Your delivery is on its way!
Hmm… something's wrong with your email