Why has the Tesserent (ASX:TNT) share price dropped more than 50% in 2021?

Tesserent is in the boom industry of cybersecurity. We take a closer look at its recent activities.

| More on:
Digital screen depicting padlock overlaid on circuit board

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Tesserent Ltd (ASX: TNT) is the largest pure-play cybersecurity company listed on the ASX, but the Tesserent share price has been in decline of late. It's shares have slumped from a 52-week high of 44 cents in January to today's price of 21 cents. 

This amounts to a drop of more than 50% and while the fall can't be attributed to one factor, it is worth taking a closer look at the recent activities of the company.

Acquisitions R Us

In a 2020 interview with the Australian Financial Review (AFR), Tesserent chairman Geoff Lord believed the company would be able to generate 25% of the growth needed organically, while the remaining 75% would come through acquisitions. Previously, Lord was the founder of the successful tech business, UXC.

True to his word, by December 2020, Tesserent had made five acquisitions including Ludus, Airloom, Seer, iQ3 and New Zealand's Lateral Security. Additionally, Tesserent spent about $22 million on purchasing the managed security services business of Secure Logic.

Last month, Tesserent made further investments in cybersecurity startups TrustGrid and AttackBound. The purchase marks Tesserent's intention to enter into a software-as-a-service (SaaS) based technology offering. According to the company's announcement, the purchase was executed through a mix of $1.5 million in cash and $1.5 million in shares at a purchase price of $0.2345 per share.  

In most instances, debt is the price for growth, especially via an acquisition strategy. Consequently, as at the end of December 2020, Tesserent had $9.91 million of debt, up from$3.45 million a year ago.

Acquisitions are known to spook some investors. As with Tesserent, the nature of an acquisition transaction, is that the acquiring firm either pays in cash, and or issues equity, this dilutes the value of the existing shares.

…but everything is tracking nicely

Despite the drop in the Tesserent share price, the company's latest quarterly report highlights an increase in earnings before interest, tax, depreciation and amortisation (EBITDA) to $1.7 million for the quarter. It also reported a 21.4% EBITDA increase quarter on quarter. The report has Tesserent targeting a $150 million turnover by 30 June. 

According to the business, it's well placed to deliver on its acquisition strategy growth plans, with $7.7 million in available cash at the end of March. The report also states that it plans to increase its market cap from $200 million to $300 million-plus and become profitable by next year. 

Government and corporate tailwinds

Tesserent is also riding some government and corporate tailwinds.

Cyber ransomware attacks have become the grim reaper of Australian business. In March this year, the AFR reported more than half of Australian businesses were hit by attacks on their computer systems. Apart from disruption and repair costs to systems, 54% of businesses paid their attackers, but a quarter of those did not get their data returned.

In May 2021, ANZ institutional banking boss Mark Whelan told an annual banking summit (as quoted by the AFR): "The number of attacks had escalated during the pandemic to the point where it was receiving 8 to 10 million attacks a month".

Tailwinds are coming from the government as well. In the recent 2021 budget, Prime Minister Scott Morrison announced $1.67 billion in existing defence funding would be spent over the next decade to boost cybersecurity capabilities.

It is also now mandatory for enterprises with $3 million of revenue or more to report cybersecurity breaches. The Australian Cyber Security Centre is projecting the cybersecurity industry to grow from $5.1 billion in 2019 to $7.6 billion in 2024. 

Additionally, a recent PWC survey found that 40% of Australian businesses plan to increase their cybersecurity resources over the next year.

According to Tesserent, it currently partners with 43 out of the top 100 companies on the ASX.

Tesserent share price snapshot

The Tesserent share price has dropped, but investors will no doubt be hoping it is on track to deliver on growth projections.

In the last 12 months, the Tesserent share price has increased by 215%, outperforming the S&P/ASX 200 Index (ASX: XJO) which delivered a 21.5% increase.

Motley Fool contributor Frank Tzimas owns shares in Tesserent Ltd. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Share Fallers

Person with thumbs down and a red sad face poster covering the face.
Share Fallers

Why Collins Foods, Domino's, Iluka, and Zip shares are falling today

These shares are ending the week in the red. What's going on?

Read more »

A man looks down with fright as he falls towards the ground.
Share Fallers

Why 29Metals, Guzman Y Gomez, Mesoblast, and Pilbara Minerals shares are falling today

These shares are having a tough time on Thursday. What's going on?

Read more »

a man weraing a suit sits nervously at his laptop computer biting into his clenched hand with nerves, and perhaps fear.
Share Fallers

Why DroneShield, Goodman, Hansen, and Pilbara Minerals shares are dropping today

These shares are having a tough time on hump day. But why?

Read more »

A man holds his hand under his chin as he concentrates on his laptop screen and reads about the ANZ share price
REITs

This ASX 200 stock just tanked 4% amid a $1.9 billion sale

Millions of Goodman shares were just sold off.

Read more »

A young man clasps his hand to his head with his eyes closed and a pained expression on his face as he clasps a laptop computer in front of him, seemingly learning of bad news or a poor investment.
Share Fallers

Why Collins Foods, Macmahon, Northern Star, and Predictive Discovery shares are dropping

These shares are having a tough time on Tuesday. But why?

Read more »

Frustrated stock trader screaming while looking at mobile phone, symbolising a falling share price.
Share Fallers

The worst ASX 200 shares to own in November unmasked

These three ASX 200 shares were best avoided in November.

Read more »

Shot of a young businesswoman looking stressed out while working in an office.
Share Fallers

Why Findi, GQG, Netwealth, and Northern Star shares are tumbling today

Let's see why these shares are starting the week in the red.

Read more »

Three guys in shirts and ties give the thumbs down.
Share Fallers

Why Ampol, Findi, Humm, and Star Entertainment shares are dropping today

These shares are having a tough finish to the week. But why?

Read more »