HF&G - AUGUST 2021 - ISSUE 19 - APOCALYPSE
This month the IPCC was out with CODE RED. Have we heard this before? Or is this time really different? We also add an Australian cybersecurity stock to our selection.
August was another beautiful month for doom and gloom lovers. If Covid-19 does not get you, now the “Climate” will. In case you had not noticed we are now in “Code Red”. The IPCC published a new report full of scary headlines:
The climate alarmism has not really changed all that much over the last few decades. There’s always only “a few years left” before catastrophic events are forecast. The epic modelling errors we have seen in IPCC reports have now also been repeated with Covid where total charlatans such as Neill Ferguson from Imperial College masquerade as government advisers and experts.
UN PREDICTS DISASTER IF GLOBAL WARMING NOT CHECKED
Another headline…"entire nations could be wiped off the fact of the Earth if the global warming trend is not reversed …”
oh wait, let’s check the date on that: June 29, 1989! We are now 2021 and yet no nations have vanished from the face of the earth. Meanwhile CO2 levels have continued to rise unabated. So nations have not vanished but surely there’s more damage done by mother nature? Not really. In fact, natural disasters are on the decline over the past two decades.
Closing on the topic of climate alarmism is there excellent debunking of the infamous “hockey stick” graph promoted for decades by Michael Mann and other climate nutters. Bottom line: you should care about the environment but you shouldn’t believe all the scare mongering. Humans have adapted for centuries to colder and warmer temperatures and they will do it again.
Cybersecurity: A Real Issue
Unlike Covid, or the never ending Climate Gloom&Doom, an issue that all of us face regularly is concerns about cyber security and how we can protect our personal data as more it moves in the cloud. The amount of cyber theft is skyrocketing so much that last week President Biden welcomed key US executives to the White House to raise the issue.
From techcrunch.com:
There are many listed US companies with market caps in the billions but HF&G prefers to look at small cap ideas and here we have Australian cybersecurity play Archtis (AR9 AU Equity). The company has a market cap of approximately 75 million AUD (54 million USD). There’s no debt and close to 13 million AUD in cash to grow the business.
When investing in small cap companies we are betting on the jockey as much as the horse. Hence, looking at leadership is key. Enter: Miles Jakeman. He founded Citadel Group in 2000 and brought it to the ASX market in 2007. He resigned as its MD in 2016 but remained involved on a board level and successfully sold the company for 503 million AUD in September 2020.
In February 2020 Miles Jakeman joined the board of Archtis which was at the time a cash strapped company with a market cap below 10 million AUD. Subsequent cyber attacks on the Australian government saw the stock rocket higher in the summer months of 2020. HF&G tweeted about the stock at the time…
Early August Miles Jakeman became the Chairman of Archtis. Under his leadership the company’s growth has been sharply accelerating and HF&G can safely say Archtis is on its way to become Citadel Group 2.0.
What does Archtis do? It started as a collaboration between the Australian and US governments after the Iraq war in an effort to securely send the most classified information. Starting from the highest classified level the product has morphed from 100% government use to private customers as well. As more documents are shared in the cloud the trust and verification requirements have risen. Archtis is one of the players trying to improve the security of those documents.
In July 2021 the company closed a transformational deal with Nucleus Cyber where the founder of that company, Kurt Mueffelman, accepted the entire transaction in Archtis shares priced at 0.39 AUD. Archtis closed the month of August at 0.32 AUD.
Last week the company announced its FY21 results.
These growing results were generated from a diverse set of clients. The integration of Nucleus Cyber means it should diversify this set of customers even further.
The focus of Archtis is to grow its Kojensi platform as well as the merged NC business.
Archtis is trading at 15x revenues which is not atypical for a software based business. Clearly the company will need to demonstrate that it can grow its revenue base substantially to justify this multiple but the track record of Miles Jakeman and Kurt Mueffelman gives this business interesting optionality. Therefore we are adding Archtis to our selection.
SELECTION REVIEW
In closing here is an overview of all our stocks. The list is self-explanatory. There are many multi-baggers and few losers. Last month we gave more detailed feedback on many positions so please refer to July’s update for further commentary. Note: three stocks which we sold have been removed from the list for editing purposes.
That’s it for this month. Enjoy September and follow us on Twitter @GreedyHuat for sporadic updates on specific stocks.