Corero Network Security (LSE:CNS) High Margin Sales Growth

The partnership with Juniper Networks expands Corero’s (LSE: CNS) sales force from just six to hundreds of salespeople.

Selling to a global client base with a growing appreciation of the DdoS (Distribution Denial of Services) sector of cyber security which is expected to expand 70% to £1.7bn by 2022.

A recently won $0.5m order follows a proof of concept trial with extensive evaluation of competitors and follow-on orders are expected this year.

The raising star product is the SmartWall solution that mitigates DdoS attacks in real-time, unlike many of its competitors, which can take more than 10 minutes to detect and successfully defeat an attack. In April £4m was raised at 5.75p to accelerate SmartWall sales and support its marketing activities in the US and Europe. Then Juniper, a $5bn revenue network software provider, supporting this partnership invested $2m into CNS in October at 8.9p a share.

The Interims to June reported a 10% increase in revenues to $5m, which disguises the real underlying DdoS growth. For as the legacy revenue falls away, SmartWall’s (DdoS) revenue improved 39%. EBITDA losses halved to $1.4m benefiting from reducing R&D spend and the increasing high gross margin sales. The gross profit’s margin improved to 77% from 74%.

The Juniper global resale partnership could be transformational in profile and sales. The SmartWall product is synergistic with Juniper’s existing network software and it is being included in the Juniper catalogues. This is high gross margin business and the service renewals are sticky at 93%. We anticipate that demand will accelerate during 2019 as the product becomes more widely recognised resulting in Service Providers, Cloud Providers and Enterprises instigating DdoS mitigation technology upgrade.

For the year to March revenue growth to $14m from $8.5m and a reduction in losses from $8.5m to $5.6m, is expected. We expect a ‘meaningful’ boost to sales in 2019 an estimate that revenue needs to increase by around 30% for CNS to break-even and become cashflow generating. The shares are tightly held as over 80% are with institutions like Miton, Herald and the management.

Financials

A four-year debt facility of £3m is in place to provide additional working capital to finance growth.

Trading Strategy

The access to its global client list could see Corero become a profitable global market leader in 2019 in the real-time DDoS sector of the cyber security market.

Corero Network Security (LSE: CNS)

10.53p (9.5p-11p)

Mkt Cap: £41m

Next Results: Finals to March 2019

Last OMG! Price 8.9p

 

By Jon Levinson has been an analyst, a journalist, a fund manager and is currently a corporate broker. He will strictly never write on corporate clients. His MBA dissertation was on filling the Smaller Companies Equity Gap. When writing the Penny Share Focus he learned that not all that glitters is gold.

 

 

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