Nothing new in this update.  Key takeaways:

1) On rack to achieve previously announcd revenue and profit guidance.  

2) Reduced valuation of TSI India business - This was always going to occur, and the market did not seem to realise the value of the business anyway.  A presentation of the business was attached.  Presumably, this presentation is being used as part of the sales process, as the TSI India business is up for sale.  

3) Highlighted the secular trends of cyber security being a massive tailwind for the business.   

In recent IT news (June 18, 2020), https://www.itnews.com.au/news/nsw-govt-pours-16-billion-into-digital-549406, it was reproted that the NSW Government is intending to spend $240 million – or $80 million a year – to improve the government’s cyber security capability, building on the last significant funding provided in 2018. 

It will go towards securing existing systems, deploying new technologies and increasing the government’s cyber workforce. 

Cyber security continues to be a thorn in the side for what is otherwise a leading digital state, with most agencies struggling to meet new requirements under the government’s cyber security policy. 

At $240 million over four years, Dominello said the new funding was the “biggest single cyber security investment in national history” - the federal government’s 2016 investment was $230M over four years. 

He said the funding will “strengthen the government’s capacity to detect and respond to the fast-moving cyber threat landscape" and make NSW the “cyber security capital of the Southern Hemisphere” 

Perrottet said the “record investment in technology recognises that digital infrastructure is as important as transport infrastructure to the state’s economic growth". 

Cloudten Industries (part of Vortiv Group) counts the NSW Govt. as a key client, having been awarded approx. $880 k in IT projects for the NSW government (refer attached) over the past 12 months.  Potentially, contract awards may well incease by a factor of 3-4x over the next 3-4 years, should Cloudten continue to win work at the current rate / share.  

Vortiv released results overnight.  Key takeways:

1) Profit before tax of $1.4M.   EPS = 0.9 cents per share (PER = 14.5)

2) Demand for services reportedly unaffected by COVID-19.

3) On target to report record result for Q1 2021 as previously reported.  

4) $1.7 million operating cashflow for the year, with $1.7 million in cash as at May 15 2020.  

Vortiv, named after the Norwegian goddess Vor. Vor was wise and inquiring, so that nothng can be concealed from her (source: wikipedia).  

Vortiv plans to emulate Vor, protecting their clients with their cyber security and cloud skills, and is benefitting from strong tailswinds as enterprises race to modernise their IT infrastructure in the cloud based world.  

Vortiv consists of two core businesses, Decipher Works, and Cloudten.  These two businesses are gradually being intergrated, and are professional services bsuinesses that advise and assist their enterprise clients improve their cyber security, and transition to the cloud.   The businesses have AWS accreditiation, and relationships / expertise in identity management/enterprise security.   

The businesses are heavily reliant on their team's expertise and client relationships, which is a strength and a weakness.  Vortiv is capital light and can grow rapidly, but it can only do so if it can retain its key people.   As with consulting businesses, key personnel loss is the most significant risk to the business.  

The key personnel in the Decipher Works business remain, and are contracted to remain in place until around August 2020.   They have a board position, and own 3% of Vortiv individually.  Should they depart, the thesis is busted. 

For Cloudten, one of the two founders left arfter a failed initiative to startup a London office.   However, the remaining founder remains, and has strong incentives to remain a the helm until 2022.  

Vortiv's value to Decipher Works and Cloudten founders is provided through operational and strategic management to help the businesses drive organic growth, freeing up the founders to do what they do best.    That is the theory, and the most recent results show early signs it is working.  

FY2020 profit before tax is reported to be $1.4M, on $11.5 M revenue.  Revenue is forecast to grow 20% in FY2021, with EBITDA margin expansion to +20%.  

Furthermore, VOR have a non-core interest in TSI India, which they are seeking to divest.  This should raise at least $5M, but it is  not an ideal time to sell a business, and it is uncertain when this transaction will occur.  

VOR is not a high quality, high moat business that can scale and grow indefinately.   But it is profitable, with some oeprational leverage at least initially, and showing promising growth in the short term, and at a good price.    

Its success is reliant on retaining its key staff, and developing future leaders.  This has proven a challenge to professional services businesses over longer time frames, and it is the key risk to watch. 

DISC - I HOLD.   

Vortiv own 25% share in TSI India, an owner and operator of some 15000 or so ATMs in India.   TSI India generated $15M AUD in revenue, and $1.7M in profit.   

VOR have a valuation of around $9 million on the balance sheet for this investment, however, I don't think the share price reflects the value of this business. 

VOR are seeking to sell out their stake, and apparently the majority owner is looking to sell out as well.   If they can get $6 million or more for the business, It will understandably have an impact on the share price of a company with a market cap of $18 M.  

Given, VOR are on track to achieve at least $2M PBT this FY, and may benefit from a +$6M "windfall", it looks good value.