If We HAD To Pick ONE STOCK This Would Be It…

We are often asked… 

“If you could invest in just ONE company right now, what would it be?” Or “If you were to buy ONE stock for your kids/ grandkids what would it be?”

So, here it is! Drum roll please……..

Firstwave (ASX:FCT)

In a nutshell, FCT’s platform enables clients to move their email & data/security from an on-premise environment into a cloud environment.

Firstwave has recently had their email cloud security platform technology globally validated, first by CISCO, then NTT Data UK

The market opportunity is enormous. If they execute well, the revenue can move from ~$10m to $40m in a relatively short space of time. 

For comparison Nasdaq listed ZScaler (US$6.0 Billion Market Cap), just filed US$63m Revenue. 

The current market cap for FCT at $0.24 is a mere $70m. 

Capital injection with funds used to support and grow.  

FCT recently raised A$6.5m via a placement and A$1.2m via an oversubscribed SPP at 28 cents per share. 

Additionally, it renegotiated a customer deal to bring forward ~12 months of revenue, which collectively should generate a cash inflow of nearly ~A$13m in Q4FY19. 

The funds raised will be used to continue developing the business case and more specifically to monetise the ‘Expand’ phase of FCT’s international expansion. 

FCT has traditionally run a very tight cash balance so we are pleased to see the company better capitalised in the short term and in a position to focus on execution rather than capital. 

ZScaler – The best comparison.

One of the best Nasdaq floats in 2018, ZScaler (US$6.0 Billion Market Cap) is a comparable company to FCT. 

More advanced in its delivery, and revenue growth is impressive. Nonetheless, the market is paying a huge price for this growth. 

If FCT rapidly moves through $30m in ARR, the business has significant fixed cost leverage to those earnings. It will also be a US$ growth business, with high recurring revenue that is extremely sticky, which trades on a high multiple here as well.

FCT – Revenue

The company is targeting to grow revenue from FY18 ~$8m to $50m in FY19-21. The company will need to invest $15m in the delivery process. 

They forecast an EBITDA Margin of ~20% ($10m after amortising the $15m overhead). 

Given the background of the company, the management is particularly cautious with guiding the market. However, NTT Data is forecast at $8m-$10m (ARR annualised recurring revenue), and CISCO has a number of Proof of Value trials underway (final process before contract). 

If these CISCO trials convert, it is not unreasonable for them to be much larger than FCT’s entire Telstra revenue piece. It would be disappointing if the CISCO relationship did not deliver $10-20m in the next 12 months. 

The market will have to sit-up and take notice of a company that grows its ARR from around $6m to A$25-30m in the space of 12-18 months. 

Telstra is the gorilla in the room in terms of Australian clients, and FCT has that validation. However, Telstra is dwarfed by the CISCO/NTT client book.

In our view, delivering this revenue growth is the key to a share price re-rating.


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Equity Story Pty Ltd (ABN 94 127 714 998) is registered with the Australian Securities and Investment Commission under Australian Financial Services Licence (AFSL) 343937. General Advice Warning: This research does not constitute a personal recommendation or consider the investment objectives, financial situation or needs of individual clients. Clients should consider whether any advice or recommendation in this research is suitable for their particular circumstances and, if appropriate, seek professional advice, including tax advice.FCT is a current open recommendation to Equity Story clients.

5 responses on “If We HAD To Pick ONE STOCK This Would Be It…

  1. Glenn Beveridge

    I thank you for this tip.. at .275, do you see the price going any lower before rising.. I am a small cap investor new to the market, can I invest long or short term in this stock, and when do you suggest sell at what point.

  2. Mike Hedley

    You talk about revenue growth, but no there is information about ‘how or where the money comes from’!
    I have just had a quick look at their website, and nowhere do I find:
    How do they monetise their income?
    What are the costs?
    Who do they sell to?
    So information on the business model would be helpful.

    1. admin Post author

      Hi Mike, we can’t do all the work for you, this is a tip and will more than get you off the blocks! If you want to know the rest you can join as a member where we go into more depth during the Daily Videos or answer your questions by doing some research yourself.

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