October 23, 2002 BUSINESS AND INVESTING > THE SPECULATOR
SPECULATOR: PROPHET MARGIN
Our emerging high-tech stock Senetas Corporation is meeting all its promises and last week surged on some good news of a technology sale to the United States. In this market, however, any good news is an opportunity to sell and I joined the quitters comforted by the knowledge that we can buy back in under the company's announced offer to shareholders. In the meantime, I've taken a 50% profit in five months having bought Senetas at 8¢ (Tech-wreck survivor, May 28) and sold last week at 12¢ when the shares surged as high as 13¢. More than 7 million shares traded in two days after Melbourne-based chairman and chief executive Francis Galbally announced a $3m sale of encrypting software to an unnamed but "large United States government department".
Punters who followed me in but have yet to take a profit should have further opportunities in the next few weeks. When I last looked at Senetas, I wrote: "Out of the corporate wreckage of information technology companies scattered across the stockmarket in that past year or so, some survivors had to emerge. And one candidate for a punt on recovery appears to be Senetas."
Senetas has almost won its spurs and we're in front, thanks to the hard work of Galbally, his team, and chief operating officer and director Alan Munday, an ex-Australian Army officer and computer systems developer who served on secondment to the Pentagon.
In the past year, Senetas has slashed costs and boosted revenue as it radically shifted its emphasis from being an IT venture capital investor to an IT services and investment company with an expanding revenue base.
In the year to June 30, operating revenue rose 78% to $8.8m and total revenue was up 88.5% to $11.5m. The last expected shocks were copped on the chin with a loss of $31.8m, including write-offs of $24.1m on goodwill and the remaining investment portfolio. That left the company with no debts at June 30 and remaining cash of more than $3m.
Late this week, we should see a report of first-quarter trading. That should confirm that the company's wholly owned operating business acquired two years ago, Datum/KUSP, is delivering sustainable and growing revenues and earnings. Revenue from the operating business in 2002-03 has been projected at $15m to $20m with EBITDA of $2m at the lower revenue level. That should see a maiden net profit for the year since goodwill on operating assets has been largely written off and amortisation and depreciation charges are minimal.
The operating business in IT services claims a swag of top-drawer customers, including companies such as Telstra, Shell, Toll Holdings, Smorgon Steel, Transfield, AMP and General Motors-Holden, plus institutions such as the Victorian Automobile Chamber of Commerce, the Victorian Justice Department and the Australian Medical Association.
Senetas has on issue 274.2 million shares, which at 10¢ gives the company a market capitalisation of $27.4m. On October 1, the company announced that all shareholders at October 14 would be offered the chance to take up $1500 worth of new shares at a 10% discount to a weighted average market price to be determined during October. (I'm hoping the offer will be at about 9¢ a share.)
The ASX's new capital-raising scheme, introduced in the past year, of offering all shareholders a parcel of shares at a cost of up to $3000 has some apparent advantages for small shareholders – but not necessarily for larger ones in the short term. Take the case of our biotech holding Chemeq.
That company's shares rose to a high of $3.25 earlier this year before directors in their wisdom offered all shareholders the apparently generous opportunity to take up $3000 of new shares at $2 each. The smarties quit the stock, pushing the price down to near the $2 issue price then replaced their holdings at the cut price. No lasting harm was done: Chemeq later recovered to a high of $3.95. Last week, they were trading at about $3.55.
I expect we'll get back into Senetas at 9¢ to 10¢ before they rise again on an expected run of positive news.
Senetas' major investment remains a 57% holding (up from 53% since June 30 after a debt to equity conversion) in CTAM, with an investment book value of $7.1m. It was this company that pulled off the initial American sale through its multinational affiliate Thales e-Security, with most of the $3m to flow to CTAM.
The subsidiary is a supplier and developer of high-speed encryption technology to secure voice, data and video transmissions over the internet.
Sold
30,000 Senetas @ 12¢ = $3528
(Bought @ 8¢; 15.05.02) SEN.AX SENO.AX SNESF.PK
Material in The Bulletin is protected under the Commonwealth Copyright Act 1968. No material may be reproduced in part or in whole without written consent from the copyright holders. |
