Market Wire suggested last Friday (Senetas finally surprises on the upside, but is it time to buy) that it may be time to take a stake in long time laggard Senetas following a strong profit upgrade, and in particular given it appeared to have been oversold, trading at circa 9 cents compared with Bell Potter’s price target of 15 cents.
The profit upgrade sent the company’s shares to a high of 12.5 cents on the day and it continued to trade in the vicinity of 12 cents on Monday.
Importantly, record volumes were traded on Friday and this no doubt assisted in flushing out plenty of pent-up selling, a result of the company’s underperformance over a long period of time.
However, the developer and manufacturer of encryption hardware appears to have turned the corner and analysts at Bell Potter upgraded fiscal 2016, 2017 and 2018 forecasts by 31%, 5% and 4% respectively on Tuesday morning.
The broker’s revised forecasts imply earnings per share growth of 13% and 38% in fiscal years 2017 and 2018 respectively.
This suggests the company’s fiscal 2017 PE multiple of 24 is broadly in line with its growth profile. It also represents only a slight premium to the industry group average multiple.
Bell Potter increased its 12 month price target from 15 cents to 16 cents, and there is the possibility that the company’s shares will push up towards this level if management puts the company’s past behind it and continues to surprise on the upside.
There is a growing market awareness of the need for high assurance encryption hardware to protect data, indicating Senetas is in a sweet spot.