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Corero Network: 'Our market is hot and only getting hotter'

The SmartWall Threat Defense System offers internet service providers and hosting companies protection against distributed denial of service, or DDoS for short.

Cyber attacks are becoming much more frequent.

“We are in full swing getting the product out to the market,” Ashley Stephenson, chief executive of Corero Network Security (LON:CNS) told Proactive Investors when he came in to chat last week.

The product in question is the SmartWall Threat Defense System, which offers Internet service providers and hosting companies protection against distributed denial of service, or DDoS for short. 

In very simple terms, DDoS attackers overwhelm their online target with traffic from multiple sources, knocking it out. 

So, if you are a bank, for instance, a successful DDoS attack can result in costly downtime as well as drubbing a perhaps already tarnished reputation.

With the advent of cloud computing, the number of targets has grown exponentially, while raids on networks are becoming more prevalent.

That frequency of attack means that companies require a fully automated service that updates and adapts almost in real time to keep up with threat. That is exactly what SmartWall offers.

“Ours is a hot area and only getting hotter,” Stephenson said. “It is a durable space for the next five years.

“It is busy and people are coming into the space. But the area we are interested in, DDoS, is still relatively sparsely populated.

“There are only a few companies like us that can do what we can do. It is a limited competitive field, so we don’t feel like there is a major threat in this hot space.”

The interim results statement last week revealed that Corero, after a period of investment developing its product, is now primed and ready to roll it out to as wide a possible audience.

Its £5mln fund raise announced on July 30 has equipped the company with the cash required to get the business to break-even.

While the story of the past six months has been one of steady progress, pace appears to be picking up. It won two orders of £450,000 recently, one from a US Internet service provider, the other with a FTSE 100 company, and it also signed a partner deal with Verisign, the domain name and Internet security specialist.

The real tick in the box for SmartWall will come when a tier-one service provider puts pen to paper.

“Large service providers have a protracted validation and testing cycle that might take 12-18 months,” said Stephenson. “But we are hopeful we will have something in the next few months.”

The Corero CEO said the ‘dominant’ sales model currently is a perpetual licence fee with a recurring annuity element, though the industry is moving to the ‘right to use’ licensing, where the permission is renewed each year.

The shares price, meanwhile, has fallen 34% in the past year as Corero has made the investment required to get SmartWall to the market.

The past month has seen the stock starting to tick back up from its lows – but it is fair to say the company’s £24mln market capitalisation doesn’t really reflect the potential of the product.

Validation from a tier-one service provider could give Corero a much-needed bump.

The market also needs to wake up to SmartWall’s potential.

If you have a pen, paper and calculator to hand then go do this short piece of financial maths.

Double the company’s current revenue base. Now using the mean sales multiple for the cyber security sector tot up how much Corero would be worth if it was listed in the US rather than on AIM. 

The per-share valuation is quite startling and perhaps tells us what the business might be worth to a predator.

While this is an interesting mathematical exercise, the reality is it will take time and hard work to get Corero to this point.

Quick facts: Corero Network Security PLC

Price: 12.75 GBX

Market: AIM
Market Cap: £63.09 m

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