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.

Hopeless cases portfolio vs. FTSE-250 - Year end review 2013

Started back in August 2011:-

http://michae1mouse.blogspot.co.uk/2011/08/very-little-research-but-are-these.html

In my update back in late September, the hopeless cases portfolio had just taken the lead despite one total write off. What's the current picture just 3 months later though?

Whilst the FTSE-250 has moved from a percentage gain of 48.9% to 59%, despite a total loss on Game Group and a 59% depreciation on Man. Group., the hopeless cases portfolio has increased it's lead. From a 51.6% gain in September it has now gained 73% in just under two and a half years. In other words, the hopeless cases portfolio leads by 14% points.

By far the best performers remain TCG and ITV up by 283% and 247% respectively. Following on behind is CWC with a current gain of 75%, Vodafone 46% and two purchases of Aviva (reasons explained in previous posts) with gains of 41% and 38% respectively.

I'm not sure what this proves, if anything, but I have found it interesting. Certainly it goes to show that out of favour or distressed stocks can eventually turn out to be the multi-baggers of the future (TCG and ITV), and even the biggest of companies that are watched by a multitude of financial experts can bring handsome rewards. Certainly if you can buy them when they appear to be unpopular e.g. Vodafone. Also bear in mind that VOD has paid excellent dividends over this period with a special dividend to come from it's sale of Verizon Wireless (I'm assuming it hasn't already been distributed?).

I probably won't pursue the comparison any further, but might instead choose a different 'hopeless cases portfolio' in the future to conduct a similar comparative study.

Incidentally, from April 2011:-

http://michae1mouse.blogspot.co.uk/2011/04/watch-out-for-competition.html

"This brings me on to Vodafone. Whilst I don’t invest in large cap. companies, I read in one of today’s newspapers that over the past 10 years Vodafone shares are down more than 17% whilst the FTSE 100 is up nearly 7%.  This is quite an underperformance. Cursory research shows that Vodafone pay a near 5% dividend, it has a modest p/e ratio (from ADVFN data) and a Chief Executive who appears to have a sensible approach to creating shareholder value.

It will be interesting to see if Vodafone moves from being the under-performer to the out-performer over the next few years."

 

Barratt Developments, RSA Group and Firstgroup

For completion, I shall take a brief look at the final three companies on the Sunday Telegraph's share tips list for 2014. They are Barratt Developments, RSA Group and Firstgroup. Please note that my thoughts are based on a fairly cursory glance at the figures, and I'm not saying the Telegraph is right or wrong to tip these companies. As mentioned before, it is rare that tipsters make any reference to the fundamentals of the companies they recommend, and I'm simply adding a few figures. As always stock pickers should carry out their own informed research.

Before I assess Barratt Developments, I should mention that I never buy housebuilders. Rightly or wrongly I class them as a trader's share as opposed to a long term buy and hold. It's a very cyclical industry, and I'd find timing when to buy and sell very difficult.

The chart shows that Barratt is in a clear uptrend, and although the share price has risen substantially from its lows, it is nowhere near it's 2007 high of over £12. The shares are trading above Net Tangible Asset Value (£2.21) which I don't find particularly attractive, and they currently sit on an historic p/e of 45 with last reported EPS of 7.7p. They haven't paid dividends since 2008 (interim of 12.23p). However, prior to that it appears that they had a progressive dividend policy, and in 2007 they paid a whopping dividend of 35.68p which would be a 10.2% dividend compared to the current share price. Maybe they will be able to re-instate the progressive dividend policy in future years. On the face of it, it doesn't look attractive to me, but as I said I'm not a fan of housebuilders and they are subject to the vagaries of both the British economy and the government.

RSA Insurance looks potentially interesting. Clearly the recent profit warnings have taken a toll on the share price which is now at 12 month lows and appears to be falling towards a possible 10 year low (we shall see)? I find it difficult to value insurers, but for income investors the larger cap. insurers usually pay handsome dividends. According to ADVFN's figures, the p/e ratio is currently below 10 and the yield is around 8%, although I suspect this will fall substantially this year given the interim payment and subsequent profit warnings. This is the sort of company I would put on my monitor as having recovery potential, I might wait to see if it falls further before serious consideration though. Aviva is a good example of how these insurance company recovery plays with a record of generous dividend payments can be good investments.

Finally,  Firstgroup also looks like a very interesting recovery play. The share price sits at a 10 year low. It's an easy business to understand, and until recently it boasted a record of being able to increase dividends each year. Following a discounted rights issue it is unlikely to go bust in the foreseeable future. Has it already hit it's share price nadir? Always difficult to know, but I'd bet it's somewhere near, and if it's not going bust then the share price has only one way to go in the longer term. I'd classify this company in the same bracket as RSA, in other words, potentially very rewarding if management can get their act together. If not, then shareholders may benefit from a activist Hedge Fund shareholder (Sandell) pushing for asset sales.

As ever, no advice intended or given. It will be very interesting to re-visit the Telegraph's tips at the end of the year.