At the time of writing, shares in the developer of encryption security solutions are up 12.2% to 6.4 cents.

Senetas performance update

In today's release, the company delivered a robust result for the first half of the 2021 financial calendar.

For the period ending 31 December, subject to auditor review, Senetas achieved revenue growth of $12.5 million to $12.8 million. This reflects an increase of more than 30% on the prior corresponding period (pcp). The company highlighted strong sales of its 100Gbps encryptors, and growing market presence in the Middle East and Europe as key drivers of the result.

Senatas forecasts total group revenue to come in around $14 million to $14.4 million. This includes its interest in Israeli cybersecurity firm, Votiro, and represents a lift more than 30% on the first half FY20 period.

The company projects underlying earnings before interest, tax, depreciation and amortisation (EBITDA) to be in the range of $3.8 million to $4 million, up more than 170% on the same time last year.

Total group EBITDA, including Votiro, is predicted to stand at $1.3 million to $1.4 million. Consolidated group net profit after tax (NPAT) for H1 FY21 is estimated to be $0.2 million.

The company will release its final half-year results along with an update on its outlook on 26 February.

How is Votiro tracking?

After investing $8 million in Votiro during late 2018, Senetas is starting to reap the benefits.

Currently, the Israeli firm is conducting trials with a number of large north American organisations to supply its cybersecurity technology. The global leader is well-recognised for protecting government and businesses from malware and ransomware attacks.

In addition, a Fortune 500 company has selected Votiro's secure file gateway to be deployed. The unnamed customer will use the technology to protect its 50,000 users from malware intrusions. It's estimated that the contract is valued roughly US$250,000 per year over a 3-year term.

Management commentary

Senetas chair Francis Galbally welcomed the update, saying:

The demand for software protection against such threats is now only starting to emerge and Senetas believes this growth will be considerable and will translate into an opportunity to grow a substantial annuity business

The board is pleased that Votiro is achieving the expected results and growth that it targeted when we made our initial investment.

Senetas share price summary

The Senetas share price has stayed relatively flat over the course of the past 12 months, down 4%. Its shares have been up and down through the year, falling to a multi-year low of 3.8 cents, and rising to 7.9 cents.

Based on the current share price, Senetas has a market capitalisation of $67 million.

The post Why the Senetas (ASX:SEN) share price is surging 12% today appeared first on The Motley Fool Australia.

What does Senetas do?

Senetas is a developer of high-performance encryption security solutions. The company's hardware network encryptors aim to protect business and government agencies from damaging security breaches and cyber attacks.

In addition, Senetas' services segment offers its customers absolute control over file sharing and data sovereignty through its platform 'SureDrop'.

What did Senetas announce?

Senetas advised it has secured its largest ever single order for its ultra-high speed, 100Gbps ethernet encryptors through its global distributor, Thales. The CN9000 series product will be deployed to secure a Middle Eastern Government agency's data in transit. 

The gross value of the new order is approximately $2 million. However, after allowing cost of goods and margin to Thales, net revenue to Senetas will be a lesser amount which the company did not disclose.

Unsurprisingly, Senetas CEO, Andrew Wilson, was pleased with the size of the order. He pointed to the realisation of a considerable opportunity that has been building over the past 12 months, and is now delivering. He commented:

With our increased presence in this market, and the potential for new opportunities via the pending European certification and custom algorithm encryptors for Eastern Europe, we continue to see exciting opportunities to further expand the market for Senetas products and expect good growth from these regions over the medium term.

About the Senetas share price

The Senetas share price is down almost 10% from a trailing 12 months. Although the Senetas share price has recovered from its March low of 3.8 cents, it has been a bumpy ride of late for shareholders with fluid gains and falls greater than 15%. With today's increase in the Senetas share price, the company has a market capitalisation of around $72 million.

The post Senetas (ASX:SEN) share price soars 16% on new order appeared first on The Motley Fool Australia.

Social distancing will be in place for a while. This is going to have an impact on hospitality, discretionary retail, shopping centres and entertainment stocks. The issue is whether coronavirus impacts are fully priced into the bourse. Few companies have given guidance so far, so questions remain about whether share prices really reflect how results will play out this earnings season.

The relative strength index (RSI) indicates the ASX 100 swung from overbought to over-sold during February. It then reverted to the mean, where it's been since early April, suggesting fair value is around 4,500 points. But analysts are much more bearish. In a note to clients, Elliot Management's Paul Singer speculated the value of the ASX 100 could still halve, which indicates the bottom may actually be around 2,967 points.

Longer term, Australia is in a good place relative to many countries, in terms of the way we're weathering the COVID-19 crisis. There may be an opportunity for Australia to assume a leadership position in the new global order by hunkering down and re-starting tech-led manufacturing. 

Looking towards earnings season

Some analysts say the market has become much more rational after panic selling in the first month of the crisis. Even though volatility has reduced, there are still clear winners and losers in the current climate.

Financials, resources and health care make up almost 60% of the S&P/ASX 200 Index (ASX: XJO) and the market's direction is largely determined by the vagaries of these sectors. The issue is whether the value of stocks in these industries already account for risks, such as low interest rates and bad debts (notwithstanding the pandemic is largely good news for health stocks). Resources businesses have long-term contracts in place. So any disruption to Australia's relationship with China, which relies on our iron ore in particular, won't affect miners in the immediate term.

Alex Jamieson from AJ Financial Planning says the market should head higher at the back end of this year:

"We have an 18-month price target of 6,000 on the ASX 200. But, as with any recovery, there will be pullbacks along the way. It wouldn't trouble us if the ASX 200 did touch 4,900 points. It's a normal part of the market process."

This dip would also be a buying opportunity.

Other commentators note the ASX could perform better than overseas markets, especially the US.

"I'm very bearish on the US economy and relatively bullish on the Australian economy," says Rivkin Securities' Shannon Rivkin. Rivkin is avoiding local tourism companies that rely on international travel and companies exposed to the US economy.

"The government has likely prevented a longer shutdown and greater economic pain through its health policies and stimulus. But we're avoiding banks and property stocks simply because the downside is high if things remain depressed," says Rivkin.

"REA Group and Carsales have low gearing and can withstand the pain for a while. We're also [targeting] names exposed to recurring revenues that haven't seen customers desert them," he adds.

He says artificial intelligence leader Appen Ltd (ASX: APX), investment platforms Hub24 Ltd (ASX: HUB) and Netwealth Group Ltd (ASX: NWL) and enterprise software firms as TechnologyOne Ltd (ASX: TNE) are in this category.

He's looking for well-priced opportunities and targeting companies that have had painful revenue hits but are likely to return to normal relatively quickly. They also need balance sheet strength to survive. Crown Resorts Ltd (ASX: CWN), Ramsay Health Care Limited (ASX: RHC) and Transurban Group (ASX: TCL) are in his sights.

Raising the bar

Across the stock exchange, companies have taken the opportunity to raise capital to ensure they have the balance sheet strength. PAC Capital's Clayton Larcombe says these are good opportunities for investors, but he emphasises the importance of choosing wisely.

"We used the NAB capital raise to increase weighting to banks. But we've moved away from property as we anticipate upcoming headwinds, with the exception of storage and warehousing assets which are likely to be in demand. We see strong upside to REITs with these investments in their portfolios," says Larcombe

Larcombe has also just bought into National Storage REIT (ASX: NSR)'s capital raise because it offers exposure to sub sectors like self-storage for residential and commercial customers. This service will be in demand as businesses close or store stock while shut, and people move out of rental properties.

"The market clearly agrees. The book was filled in hours and I expect strong upside. But we've sold Lendlease shares. It's a great company with quality assets. But there's value elsewhere," says Larcombe.

Messy earnings season

​Earnings season is going to be a disaster for many businesses, especially those in retail, most commercial property firms and hospitality and entertainment outfits. We've already seen the bank bloodbath, with dividends slashed or completely annihilated.

But it's not all bad news. Expect earnings to hold up for tech companies like data centre and cloud storage group NextDC Ltd (ASX: NXT) and Goodman Group (ASX: GMG), which has warehousing and logistics clients such as Amazon, resilient earnings and a growth outlook. 

"In resources, Rio Tinto, BHP Billiton, OZ Minerals and Independence Group will do ok. Consumer staples like Woolworths, consumer discretionary like JB Hi-Fi and health care stocks like CSL and ResMed will also hold up. Telecommunications services firms like Telstra, commercial and professional services like Brambles and software and services companies like Altium are likely to have ok earnings," says Ausbil Investment Management's Paul Xiradis.

Ready for a rebound

Turning to the outlook for the rest of the year, Xiradis has his bet on a U-shaped recovery: "[b]ut what this looks like across the equity market differs by sector and company. Balance sheet strength trumps everything."

Like Rivkin, Xiradis is looking for quality companies whose earnings have come undone from COVID-19 restrictions but that are due for a recovery. He also likes Ramsay Health Care and Transurban, in addition to Sonic Healthcare Limited (ASX: SHL), SEEK Limited (ASX: SEK), Afterpay Ltd (ASX: APT) and Qantas Airways Limited (ASX: QAN).

"We expect to see V-shaped rebounds in their earnings as customers return with gusto as lockdowns are eased. Lendlease, export and building products steel producer BlueScope Steel and natural gas company Santos, which has been temporarily impacted by the fall in oil prices, are worth considering," says Xiradis.

Repositioning the nation

Looking long-term, the pandemic has given the world a massive shake-down, which could see a new world order emerge. Australia's response to the virus has been among the best in the world, which could see us move up the world order. But commentators stop short of suggesting we could enter superpower ranks.

Australia makes up between 1% and 2% of the global market and less than 1% of the global population. So it's unlikely we'll ever become a superpower in the traditional sense, but segments of our technology sector will continue to do well, led by success stories such as Altium Limited (ASX: ALU). 

"These businesses will continue to disrupt. But the local tech sector is unlikely to rival Silicon Valley or China's equivalent Shenzhen in size or scale," says Jamieson. Healthcare market darlings like CSL Limited (ASX: CSL), ResMed Inc (ASX: RMD) and Cochlear Limited (ASX: COH)will also continue to do well.  

"Our country will display pockets of brilliance in a few listed companies, similar to any high education, small population nation," Jamieson argues.

Larcombe notes a superpower is defined as having the capacity to project power and influence anywhere in the world through economic, military and cultural means. He adds:

"We can't compete with the US or China. But we can cultivate strategic industries to build our influence. IT and advanced manufacturing could be big winners for Australia." 

He cites CSIRO's view that over the next 20 years Australia's manufacturing industry should evolve into a highly integrated, export-focused ecosystem. "In this space we like Appen. We see favourable prospects for Weebit Nano, a leader in next gen computer memory technology."

The proposed Central Station Tech Hub, Sydney's version of Silicon Valley, will underpin a shifting policy focus towards the tech sector. Says Larcombe:

"A stronger tech sector is strategically vital in projecting military might. Warfare will increasingly be played out online and protection from foreign cyber interference will play a key part in national defence strategies."

A local name in the space is Senetas Corporation Limited (ASX: SEN), which provides encryption technology. Icetana Limited (ASX: ICE), which uses machine learning to deliver analytics solutions for large scale surveillance networks, should also benefit in this environment.

So while Australia may not be the next US or China, there's plenty of potential for lesser-known and well known listed businesses to generate returns as the world navigates through the pandemic and beyond.

The post In a post-COVID world, could Australia be the next superpower? appeared first on The Motley Fool Australia.

• Revenue of $21.3m, compared to $18.97m
• Profit before tax and one offs $3.86m
• Statutory profit before tax $320k, compared to $4.43m
• Net loss after tax $463k, compared to profit of $1.95m
• Will pay a cash dividend of $0.000462 per share worth around $0.5m
• No debt and $17.9 million cash on hand

Andrew Wilson the CEO of the cyber-security company commented: "Whilst our Net Profit for FY2019 has been impacted by the first time recognition of Senetas's share of the Votiro loss, changes to the nature of our R&D rebate and some other non-recurring items, our underlying operating profit excluding these items has seen strong growth over the prior year."

Looking at its latest appendix 3B regulatory filing Senetas has a high 1.081 billion shares on issue to give it a market value around $80 million based on a 7.4 cents per share price.

The balance sheet is in decent shape and the company sits in the growing space of cyber security.

It has also been profitable in the past so it's the kind of business some small-cap enthusiasts might want to do some further research on. 

Other small caps in the software space include Serko Ltd (ASX: SKO) and Alcidion Group Ltd (ASX: ALC). 

The post Senetas share price lower as it swings to small loss appeared first on The Motley Fool Australia.

Four shares that have failed to follow the market higher today are listed below. Here's why they have sunk lower:

The Alumina Limited (ASX: AWC) share price is down 3.5% to $2.28. The bauxite, alumina, and aluminium company's shares have come under pressure today due to general weakness in the materials sector. Brexit uncertainties appear to be weighing on the sector today after British MPs voted against prime minister Theresa May's Brexit plan.

The Orocobre Limited (ASX: ORE) share price is 3% lower at $3.25. Investors have been hitting the sell button ahead of the lithium miner's quarterly update release on Thursday. Late last year Orocobre advised that it had experienced a significant decline in the sale price of its lithium. I expect management will provide an update on whether this price weakness has continued into 2019 in tomorrow's update.

The Regis Resources Limited (ASX: RRL) share price is down approximately 3.5% to $4.75. Almost all of Australia's leading gold miners have dropped deep into the red today after the gold price continued its decline. Now that market volatility has died down, investors appear to be selling safe haven assets like gold. This has led to the S&P/ASX All Ords Gold index falling 2.1% today.

The Senetas Corporation Limited (ASX: SEN) share price has dropped 3.5% to 8.1 cents after the encryption technology company advised that it expects to recognise an impairment to the carrying value of its unlisted investment in Smart Antenna Technologies in its first half accounts. The Senetas board intends to write down the balance sheet carrying value of the investment from $1.89 million to nil after the business went into administration.

The post Why Alumina, Orocobre, Regis Resources, & Senetas shares are sinking lower today appeared first on The Motley Fool Australia.

Three shares at the small end of the market that have climbed more than most today are listed below. Here's why they are on the rise:

The Auscann Group Holdings Ltd (ASX: AC8) share price is up 5.5% to 67.5 cents after providing a market update with its quarterly report. According to the release, the cannabis company has successfully completed the pilot production of its final dose form cannabinoid hard shell capsules. As a result, the company can now move the production process into a commercial facility in preparation for Australian market and export supply in 2019. This means that AusCann will be generating revenues in the not so distant future, though time will tell whether these revenues will be meaningful.

The Lepidico Ltd (ASX: LPD) share price has climbed over 6.5% to 1.6 cents after the lithium company announced positive drilling results from its Youanmi project in Western Australia. According to the release, the assay results from its maiden reverse circulation drilling program have confirmed a significant lithium mineralisation. Management has advised that these encouraging results have led to a follow-up drilling program being planned. This will test its successful targets to ascertain the geometry and resource potential of the pegmatites.

The Senetas Corporation Limited (ASX: SEN) share price us up almost 5.5% to 9.9 cents. This morning the developer and manufacturer of multi-certified, defence-grade data encryption solutions announced that its successful restructure has allowed its board to declare the first dividend since 2012. The Senetas board has declared a final unfranked dividend and also a special unfranked dividend, much to the delight of the company's long-suffering shareholders. This represents a total cash distribution to shareholders of approximately $4 million.

The post These small cap ASX shares are on the rise on Tuesday appeared first on The Motley Fool Australia.

If you've never heard of these tech stocks it's time to put them on your watchlist.

Prophecy International Holdings Limited (ASX: PRO)

Prophecy International designs, develops and distributes computer software applications and services for the corporate marketplace with offices in Australia, the US and UK.

Any company in the cyber security realm is one to watch, as companies worldwide are forced to reassess and redefine their cyber-security situation on a daily basis.

Prophecy's share price is at 63c per share today, and the company has been struggling to find a foothold in the industry in the past couple of years, with performance out of its SNARE and eMite products falling short of expectations in FY17.

However, a February 8 announcement revealed preliminary first-half FY18 results are expected to show a strong improvement over the same period last year, with unaudited financials forecasting sales revenue of $5.89 million and $1.06 million EBIT – representing a 24% growth against the same period last year and a 58% increase of EBIT vs first half FY17 results.

Prophecy has been working behind the scenes to forge strong industry partnerships in the hope these connections will open up additional markets for the company in the future.

Rhipe Ltd FPO (ASX: RHP)

Subscription software provider Rhipe Ltd has enjoyed a steady upward swing in share price over the last year, opening today up 4.5% at 93c per share. That's up from 45c at the same time last year.

Rhipe works with world-leading software vendors, providing subscription for products such as Microsoft, VMware and Citrix as well as consulting and support to companies transitioning their own clients to cloud and subscription-centric business environments.

It's an interesting niche, and a specialised one, with Rhipe being recognised as ARN's Software Distributor of the Year and asserting itself as a market leader for cloud and service provider software licensing in Australia and New Zealand with recent expansion across South East Asia.

Rhipe's first half FY18 results presentation early this month reported an EBITDA of $2.8 million a profit after tax of $1.1 million and a 22% growth in group revenue since FY17.

With service providers making the transition towards cloud computing business models globally, it will be interesting to watch Rhipe's progress over the next few years in this obvious growth sector.

Senatas Corporation Limited (ASX: SEN)

Data encryption hardware developer Senetas Corporation provides technology designed to protect government and enterprise information – no doubt a growth area as our reliance on technology grows commercially and personally.

Senetas is beginning to make a name for itself in the competitive encryption hardware industry and was awarded a NATO Certification – providing the company with a strong competitive position and assurance for its customers.

The company has experienced slow, but consistent growth in the last few years, with the share price opening today up 4.35% to 12c a share – up from 0.09c at the same time last year.

On January 23 Senetas announced NPBT of $2.2 million, with further earnings growth expected in the second half – underpinned by projected sales from custom algorithm products.

Senetas will release its half-yearly report on February 26 and it will be interesting to see if results reach expected targets.

The post 3 ASX tech shares I think growth investors should be stalking appeared first on The Motley Fool Australia.

Four shares which haven't let that hold them back are listed below. Here's why they have climbed higher today:

The Cleanaway Waste Management Ltd (ASX: CWY) share price is up 2.5% to $1.51. The waste management company's shares were given a lift this week by a broker upgrade from UBS following its takeover offer for Tox Free Solutions Limited (ASX: TOX). The broker believes its shares are worth $1.64.

The Galaxy Resources Limited (ASX: GXY) share price is up 5.5% to $3.61. The lithium miners have come under heavy selling pressure due to profit taking after they rallied significantly higher. I suspect that bargain hunters may be swooping in today. I think the lithium miner is about fair value now.

The Fortescue Metals Group Limited (ASX: FMG) share price is 2.5% higher to $4.81 thanks to a broker note out of UBS. The broker has upgraded the iron ore producer to a buy rating with a $5.30 price target due to elevated commodity prices and strong free cash flow generation. I agree with UBS on this one.

The Senetas Corporation Limited (ASX: SEN) share price has continued its strong run and is 9% higher to 12.5 cents in afternoon trade. This morning Senetas advised that it has secured the first sale of its ultra-high-speed 100Gbps Ethernet encryptors. According to the release, the purchase was made by a government customer in Western Europe.

The post Why these 4 ASX shares climbed higher today appeared first on The Motley Fool Australia.

At the time of writing the shares of the leading developer of data encryption solutions for enterprise, government and technology service providers are up 9% to 12.5 cents.

This brings its one-month return to almost 40%.

Why are its shares higher?

This morning Senetas advised that it has secured the first sale of its ultra-high-speed 100Gbps Ethernet encryptors, the CN9000 Series.

According to the release, the purchase was made by a government customer in Western Europe. No pricing terms were disclosed.

Senetas CEO, Andrew Wilson, believes this is a major milestone for the company and validates the development of the ultra-high-speed encryptor and its ability to protect high volumes of data being transmitted across ultra-fast networks.

Judging by the market reaction today, investors appear to believe this could be the first of many sales of the CN9000 series.

The post Why Senetas Corporation Limited shares are up 9% today appeared first on The Motley Fool Australia.

Here are three companies that are worth watching…

Integrated Research Limited (ASX: IRI)

The Integrated Research Limited share price has gained about 70% over the past year to close on Tuesday at $3.85.

Integrated Research provides "management solutions for critical IT infrastructure, payments and communications ecosystems" and operates in Australia, Europe, Asia and the United States.

It has banks, airlines and telecommunications companies on its client list.

The company, with a market cap of about $660 million, reported a net profit after tax of $18.5 million, up 16% on the company's financial year (FY) 2016 net profit of $16 million.

Integrated Research also ended FY17 with $14.1 million in cash and no debt and provided a return on assets of about 20%, outperforming the sector.

Senetas Corporation Limited (ASX: SEN)

Senetas Corporation Limited designs, develops and manufactures data encryption hardware which is aimed at protecting sensitive data networks.

The Melbourne-based company, with a market value of about $108 million, also has a presence in Europe, Asia and the United States and counts government agencies among its clients.

The company's share price took a beating earlier this year when it dropped from 19 cents in late January to 10.5 cents in February as it lowered its profit guidance.

For FY17, Senetas reported a net profit before tax of $5.26 million, within a previously announced guidance range.

The Senetas share price closed on Tuesday at 10 cents.

Brainchip Holdings Ltd (ASX: BRN)

The Brainchip Holdings Ltd share price has dived in the past month, dropping from 24.5 cents to close on Tuesday at 18.5 cents, as the company sought to raise $21.5 million in capital.

Brainchip raised the funds through a placement which comprised of almost 120 million shares, about 12% of its post placement share issue which sits at nearly 970 million.

Brainchip, intent on cracking the artificial intelligence market, develops software to be used in self-driving cars and provides software and hardware solutions that cater for civil surveillance, gaming, facial recognition and visual inspection systems.

The post 3 hot ASX tech shares to watch appeared first on The Motley Fool Australia.

While the big banks have been today's biggest positive contributors, the utilities and industrials sectors have failed to keep up with the broader market.

Four shares that have suffered a terrible start to the week include:

Capilano Honey Ltd (ASX: CZZ)

Shares of Capilano Honey have crashed more than 4.1% today as investors continue to digest the company's first-half result which was released last Friday. Although sales and earnings growth was fairly subdued, the market is undoubtedly more concerned about the lack of positive cashflow from operations. One positive investors can take from the result was that the company's export strategy is beginning to gain traction with Chinese exports increasing by 87% in the half.

Santos Ltd (ASX: STO)

Santos shares have dropped more than 0.7% today after the company announced that it had only managed to raise $201 million from retail shareholders as part of its share purchase plan. The driller was looking to raise as much as $500 million, but its recent share price performance meant that this was always going to be a difficult task. Successful applicants will now be issued new shares at $3.94 per share.

Senetas Corporation Limited (ASX: SEN)

Shares of Senetas have crashed 8.7% today after the encryption hardware company released a disappointing market update.  The company will now deliver a 30% decline in first-half profit before tax as a result of customers delaying their orders due to network upgrades. Although Senetas believes these delays are temporary, it did note that sales tend to be quite 'lumpy' and this is likely to impact full-year profitability.

OFX Group Ltd (ASX: OFX)

Despite enjoying a very solid rise last Friday, shares of OFX have come back under pressure today with a fall of more than 5%. The market is still clearly weighing up the value proposition on offer after the company issued a disappointing update last week. As highlighted here, there are a number of reasons why investors might want to steer clear of OFX for now, although further share price falls could make it worthy of further investigation.

The post Why these 4 shares are feeling the heat today appeared first on The Motley Fool Australia.

Today's decline is the result of a disappointing trading update which revealed that first-half profit before tax is expected to come in between $1.25 million and $1.3 million. This equates to a decline of around 30% on the prior corresponding period.

Management believes the drop in half-year profit is largely the result of some of its biggest customers undergoing network upgrades.

This has impacted the timing and quantity of its sales in the short term, with management remaining confident that sales will pick up once network upgrades are completed.

However, at this point in time it is unclear when these network upgrades will complete. As a result management has provided full year guidance of net profit before tax of between $5 million and $6 million, compared to $7 million in FY 2016.

Whilst this isn't the news that shareholders wanted to hear today, FY 2017 could still finish on a high.

As Senetas' sales are "lumpy and for a large dollar value" if these network upgrades complete earlier than expected then the company could end up delivering year on year profit growth in FY 2017.

But despite this I would probably give it a miss at this point in time. At 21x trailing earnings its shares are by no means cheap, especially if earnings growth has stalled.

For now investors may be better off skipping the technology hardware industry and looking at shares in the software industry such as Altium Limited (ASX: ALU) or WiseTech Global Ltd (ASX: WTC).

The post Why small-cap star Senetas Corporation Limited was hammered today appeared first on The Motley Fool Australia.

Mitula Group Ltd (ASX: MUA) aggregates online car, job and house ads on its websites and has a presence in 49 countries. It makes money through displaying Google AdSense adverts and also by charging third party sites directly on a cost per click basis.

As my colleague Tom Richardson said in this article, Mitula is well placed to benefit from the growth of the digital economy, particularly in the developing world. Another attractive feature of Mitula's business is that it can easily expand into new verticals, leveraging its existing user base whilst incurring little additional cost. To this end, the company has recently launched a fashion vertical in Spain.

Aerial mapping company Nearmap Ltd (ASX: NEA) is a very simple business. It sells high resolution aerial photomaps to businesses under a Software as a Service (SaaS) model. Nearmap regularly updates its maps and users are able to view up to date images and monitor changes over time.

Nearmap enjoys a couple of major competitive advantages as a first mover. Firstly, it can spread capture and R&D costs over a large and growing user base, and secondly its vast historical database cannot be replicated.

The company has recently expanded into the giant US market and this venture is still in its investment phase which has temporarily suppressed group profits. Meanwhile, the Australian business is growing strongly and generated $11.7 million in free cash in 2016 after paying for all product and technology investments.

Senetas Corporation Limited (ASX: SEN) makes hardware which robustly and rapidly encrypts data so that it can be safely sent between different locations. The company's products are certified by four major authorities and are among the most advanced of their type in the world. Certification is important to customers and can take years to achieve so represents a barrier to entry for potential competitors.

Senetas' products are distributed by European company Gemalto, a global leader in data security. It will be interesting to see if the new "EU-US Privacy Shield" agreement, which requires all EU corporations to protect transmitted data, will boost sales in Europe this year.

I wouldn't be surprised to see growth in 2017 given revenue rose 150% between 2013 and 2016. Gross margins are over 80% and so most of any incremental revenue will fall to the bottom line.

The post 3 growing tech small caps you need on your watch list appeared first on The Motley Fool Australia.

• Revenue up 19.3% to $19.3 million
• Net profit after tax (NPAT) up 29.9% to $5.2 million
• Closing cash $20.9 million and no debt
• Operating cash flows $5.2 million

Why the sell-off?

The following paragraph contained in the commentary section of the report may explain yesterday's sell-off:

"… some of the delayed US Federal Government sales will now not proceed as some agencies move from a SONET to Ethernet network over the next 3-4 years. Growth in Senetas' maintenance revenue from FY2017 may moderate as the higher cost SONET maintenance contracts roll off throughout that period. However, the Company expects that its lower cost Ethernet encryptors will replace the existing SONET encryptors in those updated networks."

The US Federal government would represent a major customer for Senetas and the company seems confident of winning the business back following the transition to Ethernet. However, the above comments suggest that even if Senetas does retain the business, the replacement products would be lower value than those currently installed.

In 2014 Gemalto, a European company, acquired Safenet, a US firm and previous distributor of Senetas' products. Since then Senetas has seen a marked improvement in sales, particularly to corporations, thanks to Gemalto's broader distribution network. However, sales to government customers have dropped off and Senetas is looking to work closely with Gemalto to reverse this trend. To this end it was reassuring to hear that Gemalto has now completed the,

"Split of US Federal Government business into (a) separate entity."

Commitment to R&D

Unlike some technology companies, Senetas expenses rather than capitalises all of its R&D cost. Despite spending an extra $1.4 million on R&D this year, the company achieved a strong improvement in NPAT on a relatively modest rise in revenue. This was possible because of the company's impressive gross profit margins which were 83% in 2016.

The profit result was assisted by $2.1 million in R&D rebates from the government and once revenue exceeds $20 million the company will no longer be eligible to receive these. Senetas recorded $19.3 million in revenue in 2016 and so it is quite possible that the company will surpass $20 million in 2017. Once revenues exceed $20 million then the tax rebate, which is equal to 45% of R&D spend, becomes a tax offset worth 40% of R&D spend lowering the company's effective tax rate to just over 20%.

Outlook

Senetas is "extremely positive" regarding the outlook for the data security sector in general, but said that its revenue growth is hard to predict. This is due to long sales lead times and customers' reluctance to disclose purchase details. Given industry tailwinds and with new world class products planned for release in 2017, Senetas looks to have a bright future.

The post Senetas Corporation Limited: Does yesterday's sell-off make it a buy? appeared first on The Motley Fool Australia.

I'm also a big fan of small caps because they offer the potential for outsized returns. Here are three baby technology stocks that I bought recently.

Senetas Corporation Limited (ASX: SEN) makes hardware that encrypts data so that organisations can send valuable information across networks without fear of it being stolen. Historically, Senetas' customers were mainly governments for whom data security has always been an imperative. However, regulatory changes and rising cyber-crime means that private companies are increasingly buying its products.

The cyber-security industry is highly competitive but Senetas has spent decades developing its technology and consequently it is hard to replicate. For example, Senetas encryptors are certified by more leading, independent government testing authorities than any other products of their type. Also, they don't noticeably slow down the network unlike many other encryption solutions.

Senetas generates the bulk of its revenue from one-off hardware sales which means profits can be lumpy and the stock was sold off after the company reported a fall in earnings for the first half of 2016. However, in July Senetas announced that profit before tax (PBT) for the full year would be $6.8 million to $7.1 million versus $6 million last year. This result is even more impressive when you consider that R&D expenditure rose $1.6 million during the year to accelerate the launch of the company's new high speed product.

Hub24 Ltd (ASX: HUB) provides award winning software to the financial planning industry. In the recent Investment Trends May 2016 Planner Technology Report, the HUB24 platform was ranked in second place overall and first place in the Value for Money category.

In October 2015, industry heavyweight IOOF Holdings Limited (ASX: IFL) made a takeover offer of around $150 million for HUB24 which was still unprofitable at the time. Although the bid was ultimately unsuccessful, it highlights the value of HUB24's technology.

In the short time since then, the company has grown funds under administration (FUA) from $2.1 billion to $3.8 billion and reported that earnings before interest and tax (EBIT) were positive for the last quarter of 2016. Retail FUA surged 94.1% during the year to $3.3 billion and growth is accelerating with record net inflows of $579 million posted in the June quarter.

HUB24 charges recurring fees based on FUA but has a relatively fixed cost base. As more planners switch to HUB24's best in class solution and superannuation contributions continue to rise, most of the incremental revenue will fall to HUB24's bottom line. This bodes well for the next few years given the company looks to have finally reached profitability.

Nearmap Ltd (ASX: NEA) provides high resolution, frequently updated aerial images through its online platform under a subscription based model. It is a highly scalable business that enjoys significant competitive advantages thanks to its wide geographical coverage and vast database of images that can be used to track landscape changes over time.

Nearmap disappointed investors last year when it failed to achieve its target of at least $30 million of revenue in Australia by December 2015. However, recent management changes appear to have revitalised the company and Australian revenue was up by 32.2% to $7.8 million for the third quarter of 2016.

Perhaps more significantly, there are early signs that Nearmap's recent expensive foray into the giant US market could work out. The region has now recorded three consecutive quarters of revenue growth since the company captured its first sale in 2015. The good news for investors is that despite this, the current share price does not appear to factor in any chance of Nearmap succeeding in the US.

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After all, a target price upgrade shows that an analyst following a particular company has found something that makes them think the company should be worth more.

That is what has happened with Catapult Group International Ltd (ASX: CAT), ResMed Inc. (CHESS) (ASX: RMD) and Senetas Corporation Limited (ASX: SEN) this morning, with all three earning broker upgrades. But does that automatically make them a buy?

Catapult Group

Bell Potter lifted its price target on Catapult Group by 18% to $3.85 today, while Morgans recently increased its own price target by 21% to $4.29. Coincidentally, the shares hit an all-time high of that amount today, which represented an 8.9% lift on yesterday's closing price.

Catapult Group recently announced a capital raising and two strategic acquisitions that should enhance its product offering to customers. Catapult Group is a great business and it seems there is still plenty of room for the company to continue growing, but investors do need to be mindful of how much they're paying for the shares. Investors who are committed to buying may want to start off with a smaller target allocation in case the shares do pull back from here.

ResMed Inc.

ResMed Inc. is a company that manufactures and distributes products for the treatment of sleep-related breathing disorders, including sleep apnea. The shares are currently trading for $8.76, up 2% on yesterday's closing price.

Credit Suisse upgraded its own price target this morning to $9.15 per share – a narrow 4.5% above today's price. ResMed is a quality business but, before investors buy, they should also take a look at rivals Somnomed Limited (ASX: SOM) and Fisher & Paykel Healthcare Corp Ltd (ASX: FPH).

I find SomnoMed particularly interesting. Operating in the same industry, it is a smaller company than ResMed Inc. but produces a cheaper and less invasive product. While its product is also capable of monitoring patient compliance with treatment prescriptions, SomnoMed is a company well worth checking out and may have greater upside potential than ResMed.

Senetas Corporation

After slipping to a 52-week low last week, Senetas shares have been on fire following an earnings update from the group. The shares have soared 49% since hitting that low and are trading 8.3% higher today alone at 13 cents. The earnings upgrade is also likely what led Bell Potter to raise its price target by 6.7% to 16 cents.

Indeed, the earnings guidance provided by the company is certainly better than what the market had expected, and the shares could be worth a closer look today as a result.

However, investors need to keep in mind that the company is still in the early stages of its development and could well experience setbacks in the coming months and years. This is by no means a risk-free bet.

The post Brokers upgrade these 3 shares: Which ones should you buy? appeared first on The Motley Fool Australia.

Doing their fair share of the heavy lifting have been four shares in particular. Each has produced a strong finish to the week, much to the delight of their respective shareholders. Here's why they climbed higher:

BlueScope Steel Limited (ASX: BSL) shares are up over 5% to $8.26 following the release of an earnings update late in the day yesterday. BlueScope reported that preliminary unaudited underlying EBIT for the year ended 30 June 2016 is expected to be around $570 million following a strong second half. Higher margins across its international businesses, as well as a turnaround in Asian steel prices were largely to thank for the strong result.

BlueScope Steel shares are up over 12% in the last two trading days.

Senetas Corporation Limited (ASX: SEN) shareholders will be smiling this weekend after its share price rocketed 33% higher to 12 cents. Today's gain comes on the back of a positive update which revealed that it expects full year net profit before tax to be between $6.8 million and $7.1 million, beating its previous guidance by between 36% and 42%. The high assurance encryption hardware manufacturer will report its full year earnings on August 26.

Senetas shares are still down by 33% so far in 2016, despite today's gains.

Structural Monitoring Systems plc (ASX: SMN) shares are higher by almost 6% to $1.89 after it announced a major update with one of the world's leading aviation original equipment manufacturers. As well as this news the company reported that Boeing has approved its technology for the centre wing box application employed in its Delta/Boeing programme. This now allows all 737-NG operators worldwide to use its comparative vacuum monitoring sensors to replace existing ground-based, time intensive inspection protocols.

Structural Monitoring Systems shares are up over 435% in the last 12 months.

Whitehaven Coal Ltd (ASX: WHC) shares jumped nearly 13% higher to $1.66 after the coal miner reported record coal production for the 2016 financial year. The company revealed full year production was 20.5 million tonnes, which was a 30% increase on the previous year. The coal miner stated that it sold 20.1 million tonnes of coal in FY 2016, an increase of 44% year on year. Of these sales 84% was thermal coal and the remaining 16% was metallurgical coal.

Whitehaven Coal's share price is up a massive 123% in the last three months.

The post Why these 4 ASX shares rocketed today appeared first on The Motley Fool Australia.

Hardly a household name, Senetas provides high assurance encryption hardware designed to protect data while it is travelling between sites. Its customers include governments and businesses such as cloud, data centre and network service providers.

Indeed, the shares have been on a rollercoaster ride over the last 12 months, trading as high as 22 cents in July 2015 and a low of just 8.7 cents as recently as yesterday.

In a similar situation to that facing other small-cap tech businesses such as Prophecy International Holdings Limited (ASX: PRO), investors were worried about slowing growth at a time where growth should really have been ramping up.

Operating revenue rose just 7% during the first-half of financial year 2016, while net profit after tax (NPAT) actually fell 18% to $1.59 million. It also guided for full-year net profit before tax (NPBT) of $5 million at the time.

However, a stronger-than-expected sales result in June has significantly boosted that result. Senetas now expects NPBT to be between $6.8 million and $7.1 million, topping that guidance by between 36% and 42%.

The company also said its new 100Gbps high assurance encryptor is due to commence customer testing in August, with a release planned for later in 2016. Investors can expect more information regarding the full-year results around 26 August, but until then, things are certainly looking better for Senetas.

The post Why the Senetas Corporation Limited share price soared 39% today appeared first on The Motley Fool Australia.

Younger investors have the advantage of time on their side and this means they can afford to have a higher proportion of their portfolio in speculative or higher risk shares.

On the other hand, capital preservation will be more important for older investors and this means only a small proportion of their portfolio should ever be allocated to speculative shares.

While most people would associate speculative shares with unprofitable biotechnology and exploration companies, I think speculative shares can apply to a whole range of companies from different industries.

With that in mind, here are three shares that I would classify as speculative that could be worth a closer look for risk tolerant investors:

Cash Converters International Ltd (ASX: CCV)

Cash Converters is actually quite profitable, but I would still put it in the speculative basket for now.

The shares have been absolutely pummelled over the past couple of years as a result of the company having to deal with a wave of problems ranging from class actions, negative press and legislative changes.

This uncertainty is still lingering around the company at the moment and investors are now waiting to see how the latest Queensland class action claim plays out.

If Cash Converters can come out of the case relatively unscathed then I think the shares will be significantly re-rated as the underlying business is still growing quite strongly. The shares are currently trading on a price-to-earnings ratio less than 7, assuming the company can match its first half net profit after tax figure of $15.9 million.

Senetas Corporation Limited (ASX: SEN)

Senetas is a small-cap technology company that provides high-speed data encryption hardware designed to protect the digital information of governments and businesses.

Cyber security is becoming an increasingly important issue for companies and Senetas is building a solid reputation in the segment.

The shares have been punished since the start of the year following a profit downgrade and now trade at 10.5 cents a share – down more than 52% from its 52-week high of 22 cents.

Although profits are expected to remain flat for the remainder of FY16, profit growth could accelerate in FY17 as a number of new products are expected to be launched.

Mobile Embrace Ltd (ASX: MBE)

Mobile Embrace is another small-cap technology company that operates in the growing mobile advertising and payments market.

The company has partnered with some of the world's largest consumer brands and telecommunications companies and this has resulted in extraordinary revenue growth over the last few years.

Unfortunately, this hasn't been reflected in Mobile Embrace's share price with some investors feeling disappointed with slower-than-expected profit growth.

Despite this, I think Mobile Embrace is well placed to maintain its growth trajectory and this should eventually be reflected in a higher share price.

The post 3 speculative shares worth a second look appeared first on The Motley Fool Australia.

Negative sentiment and trading updates punished a few companies however, and their share prices headed south. Here's why:

Senetas Corporation Limited (ASX: SEN) shares crashed 25% to $0.14 after the company announced that previously forecast profits for the first half of 2016 were unlikely to materialise as a result of some temporary sales disruption from the company's partner Gemalto, as well as delays to key government contracts.

Senetas now expects to earn Net Profit After Tax (NPAT) of between $1.7-$1.8m for the first half of 2016, compared with $2.8m in 2015. Second half profit is expected to come in on par with or slightly higher than the same half last year, for a total result of $5m for the 2016 financial year.

Despite the fall, Senetas shares are still up 84% for the year.

TFS Corporation Limited (ASX: TFC) lost 7.5% to $1.29 on no news today as an unusually high number of shares changed hands. 3.7 million shares were exchanged, compared to volume of 300,000 – 1  million shares on a normal day in the past couple of months.

The volume was high enough for the company to receive a price query from the ASX, to which TFS replied that it had no information to explain the trading in its securities. TFS reaffirmed its 2016 guidance for a 5%-10% increase in its Cash Earnings Before Interest, Tax, Depreciation and Amortisation (EBITDA).

Interested investors should check TFS announcements over the coming week or so to see if any major shareholders have been selling down.

Reject Shop Ltd (ASX: TRS) fell 7% to $10.74 on no news and average volume today, although that's nothing for existing shareholders who have seen prices as low as $5.11 and as high as $12.12 in the past 12 months.

There has been little to note from the company since its annual report in August last year, and investors appear to be waiting for the first half update in mid-February before deciding which way to jump on the stock.

OZ Minerals Limited (ASX: OZL) dropped 4.6% to $3.84 along with falls at a number of other gold miners after small falls in the price of gold and a rise in the value of the Australian dollar. Investors also remain uncertain about commodity markets in general, and Oz Minerals shares have lost most of the gains made after a positive quarterly report made last Thursday.

Fellow gold miners St Barbara Ltd (ASX: SBM) and Sandfire Resources NL (ASX: SFR) lost 14% and 4.9% respectively.

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