Corero Network Security

Now here's a interesting company that some investor's might like to research further - Corero Network Security Plc.

Firstly here's a brief description of what the company do from their half-yearly report:-

"Corero Network Security is an international network security company and the leading provider of Distributed Denial of Service (DDoS) and cyber-attack defence solutions. As the First Line of Defense, Corero's products and services stop DDoS attacks, protect IT infrastructure and eliminate downtime. Customers include enterprises, service providers and government organizations worldwide. Corero's appliance-based solutions are dynamic and automatically respond to evolving cyber attacks, known and unknown, allowing existing IT infrastructure -- such as firewalls -- to perform their intended purposes. Corero's products are transparent, highly scalable and feature the lowest latency and highest reliability in the industry."

At first glance it doesn't look particularly appealing since it's loss making, and revenues were down slightly at the half year stage compared with last year, whilst losses had risen. Cash on the balance sheet was $5.3m, but it is burning cash. Earlier in the year they also had to issue additional equity to raise cash for organic growth. Needless to say it's never paid a dividend, and whilst it's net asset value was recorded as around 33p (current share price 18p) it's tangible value is in negative territory. Added to this it's a US company listed on Aim. Whilst I'm a fan of finding hidden gems listed on Aim, I'm only ever interested in British companies. Before you conclude that I'm some sort of xenophobe, I can assure you that I'm certainly not and I'll leave readers to conduct their own research on some of the horror stories that have emanated from overseas companies listed on Aim. My particular lucky escape was RCG Holdings. Truly a case where fact was much stranger than fiction:-

http://michae1mouse.blogspot.co.uk/2011/02/rcg-holdings-brief-encounter.html

So why on earth am I writing about this company given what I've just written above? Well, the half-year results are for 30 June 2013. On the 1 August they completed the sale of Corero Business Systems Limited for a net consideration to the Company of $16.5 million with a profit on sale of approximately $15.0 million. Gross cash on a pro-forma basis at 30 June 2013 is $21.2 million and net cash $15.2 million (approx. £9.2m). This is highly significant since this is not far short of the whole market cap. (£10.5m - figure not checked) of the remaining company. The sale of the CBS business has resulted in the Company becoming exclusively focused in the network security market and has provided the Company with the cash resources to fund the organic development of the network security business. I further notice that they have since used some of this cash to pay off all of their loan notes which held a punitive 8% coupon.

Clearly the group will report a large profit at the end of the financial year from the sale, and will benefit from the cash injection going forward. The outlook statement is encouraging:-

"The Board believes that the network security market remains highly attractive. Specifically, the DDoS prevention market is forecast by Infonetics to grow by over 25% CAGR in the period 2012 to 2017 and IDC forecast the market will be worth $870 million in 2017.

For the year ending 31 December 2013 the CNS division expects to report revenue similar to that for the year ended 31 December 2012.

The Board remains confident in the Group's prospects."

It may be a company worth sticking on the monitor?

As ever, no advice intended or given.