Bulletproof Networks (BPF)

While BPF does not cater to the value metrics I espouse, I managed to get in at 25c in the last few days of 2014, buying an initial block of shares.  While it’s by no means a value stock (with plenty of “tech bubble” hype around it – the “C” word [cloud] features heavily in their literature), I’ve identified companies with similar business models before, and done quite well.  The 2 key companies being BigAir (BGL) and Amcom (AMM).

 

I could write a PhD thesis on the stock selection strategy of scalable annuity revenue businesses, targeting companies that have just broken even and continue to grow, while maintaining a fixed or semi-fixed cost base.  Your revenue is reliable – every month you pump out the same invoices to your clients.  You know how much infrastructure and how many people you need.  You know how much revenue will come in the door.  And every month, you add new clients, and generate more invoices.  Because your cost base is somewhat fixed (the infrastructure is a sunk cost), your incremental cost of adding new clients is very low.  Congratulations, you now have a (hard-earned) license to print money.

 

So let’s take a look at BPF’s numbers:

FY14 revenue: $18.3M

EBITDA: $2.9M

Underlying NPAT: $450k

Percentage Annuity Revenue: 85%

As an IT industry insider, I can confirm that cloud is here to stay, and will become a bigger and bigger part of many organisations’ IT spend.  Funnily enough, my prediction is that while companies will buy more IT, it will cost them less, as cloud and managed services lets them buy on demand rather than purchase infrastructure and hire a bunch of people to run it.

Don’t believe me?  10 years ago, every server in an organisation’s IT department was a separate physical box.  Then VMware came along, allowing you to mash a bunch of physical servers into a single cluster, and run each server on the cluster as a virtual machine, using only the capacity needed.  Most organisations nowadays are 80-90% virtualised, and the next logical step is to put at least 50% of your applications and data into cloud-based infrastructure.

 

Microequities have just published a report on BPF, which I encourage you to read.  It requires a membership which is free.  Microequities have rated BPF a Strong Buy with a price target of 33c.

 

Finally, BGL recently acquired Pantha corp, a DevOps and consulting company focused on cloud migrations.  Not only will this be earnings accretive, it will create some great cross-selling opportunities, and provide an additional differentiator for organisations wanting to migrate their infrastructure to the cloud.

 

I’m optimistic about BPF’s future, and I’m anticipating strong profit growth in the years to come.