Let’s start a dedicated thread for F-Secure Oyj… for this company known to many Finns, which I believe is currently “flying under investors’ radars”.
The company is at an exciting stage in implementing its strategic shift towards becoming a service-based (SaaS) cybersecurity company. The first interesting aspect is specifically this Q3/2018, when cautious signs of growth in corporate security (SaaS) should begin to appear. F-Secure’s advantage seems to be its solid expertise and the strong cash flow generated through existing products as it moves toward a SaaS focus (cf. many newer SaaS companies like Efecte).
Another interesting aspect is the stock’s affordable valuation right now (€2.7)… Inderes’ comprehensive report (03/2018) mentions right at the start that this is a difficult company for investors to understand. I also believe that because of this, many have failed to follow it… which is partly reflected in the current price.
Below is the investment case in a nutshell (Inderes). In my opinion, the advantages are a moderate overall risk level, high level of technical expertise and brand recognition, a business model moving in a more scalable direction, and a strengthening megatrend:
Edit: Finally, a recent news item (Oct 4, 2018) regarding the cooperation agreement between F-Secure and Zyxel concerning routers.
I’m such a boring guy that I always look at the numbers first.
€2.74 share price * 158.798739 million shares = €435.11 million market cap.
Rolling 12 months:
€171.9 million revenue
€10 million operating profit
€5.7 million net profit
€66.8 million equity. 8.3% return on equity.
The company has probably fallen into some kind of cyclical slump. History shows better returns on equity and margins. I remember when people paid tens of euros a month for their antivirus software. A radical change has occurred in culture, as people now readily agree to be spied on by all kinds of parties. I’ve heard that many companies don’t know how to utilize their data, so protecting it (read: protecting your data) probably isn’t a priority. This could change in the future, and this investment case relies on that. While waiting for that, the stock is expensive.
It’s worth reading that extensive report, which explains how the fair value range determined by professionals is formed when looking at the company as a whole (the range from pessimistic to optimistic is approximately €3.4 - €4.4).
In relation to that, I consider the price of €2.7 to be reasonably affordable. However, it’s true that purely looking at earnings-based multiples, it is expensive… and the competition is fierce.
I’m in, but with a small weighting for now. In my books, the positives come from the importance of the industry, its European nature, and the (seemingly) good compatibility of the MWR deal. On the other hand, caution is warranted by the (in my opinion) late strategic shift to enterprise cybersecurity and potential over-investments in the industry.
The consumer business could be a cost-effective option for this stock in the long term. I don’t really believe in selling computer antivirus software to end-consumers, but security integrated into devices or home automation by the manufacturer, for example, could be an interesting sales channel. However, the need for security (and the drawbacks of lacking it) are clear, so one would think someone would have an interest in paying for protections.
I also have Sense at home. In the beginning, it felt a bit like being a beta tester and the product gave a strong impression of being unfinished, but now the quality has improved, and I’ll probably renew my subscription just to show support.
Could someone clarify: when Inderes’ company-specific report states net profit, have any expenses (other than taxes) been deducted before it’s reported? For example, would money spent on marketing, growth, and other things have been deducted from the net profit? F-Secure’s net profit in the 2018 report is 1.1, and in 2019 it’s 6.3. That’s a pretty big difference in profit. So, could such a large difference be due to some expenses that have been deducted from the profit?
Our forecast for net income for 2018 and 2019, which indeed deducts all business-related expenses and taxes, is the €1.1 million and €6.3 million you mentioned. Percentage-wise, the change in profit is large, but on F-Secure’s scale, the absolute profit level will be low in the coming years due to the company’s growth investments in corporate cybersecurity. The net income percentage for 2019 is below 3% in our forecast. If the company’s strategy is successful, profitability should also gradually rise towards the end of the 2018-2021 strategy period, thanks to the company’s scalable product business. In the long run, we estimate that the company should reach a net income percentage well over 10% after the current investment phase. When looking at the company’s development in the coming years, the growth of corporate cybersecurity revenue is the most important value driver for the share.
Judging by the share price reaction, no positive earnings report can be expected tomorrow.
So I should probably put on my buying pants, as the prices are already attractive.
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Wouldn’t this F-Secure suit some similar operator? Otherwise, F-Secure probably won’t become anything more than a great promise, even though the products are quite good (in use).
F-Secure has been the subject of many acquisition speculations, and it has also acquired other companies. The Q&A section, Q&A F-Secure, very well illustrated F-Secure’s competitive landscape and competitors. So, which of those players could be ones that:
Am I totally wrong if I remember reading somewhere that F-Secure isn’t a potential acquisition target because one person, Siilasmaa, owns almost half of it?
F has been a publicly traded company for 20 years. The price is now attractive. Would Risto be eager to sell now (this is his first company)?
I don’t think so.
In addition, there has been a lot of free publicity lately (Lahti IT attack, YLE’s Digital Scammers).
