Companies around the world are working to defend themselves against hackers and
other security risks that cost corporations billions of dollars each and every
year. As hackers, viruses, denial of service attacks, and worms become ever more
prevalent, IT departments are diligently upgrading software systems and
installing new solutions to prevent catastrophic and costly events.
One key area of concern is secure file management and file transfer. There are a
wide variety of solutions in place for very small businesses, with numerous
corporate solutions priced in the sub-$500 range. At the same time, there are
plenty of high end enterprise solutions on the market for large corporations in
the +$20,000 range. But there is a void of attractive and affordable enterprise
level server solutions for small to medium sized businesses.
Enter GlobalSCAPE (OTC BB: GSCP), a software firm focused on file
management solutions for businesses and consumers. Founded in 1996, the San
Antonio-based firm is known for its popular CuteFTP software, which facilitates
the FTP transfer of files from computers to servers. In recent years the company
has been working to grow its revenues and customer base by moving away from FTP
software to secure server-side applications. With computer security currently a
major issue for IT departments at companies big and small, we believe
GlobalSCAPE is targeting a large potential market with the right tools at the
right time.
Historically, 95% of the company’s sales have come from retail products, versus
less than one-half of revenues today. Moving forward, CEO Charles Poole plans to
grow GlobalSCAPE by continuing to focus on enterprise server solutions. He
believes the company can continue to gain market share in this sector,
especially as more and more companies and IT professionals become concerned
about potential security issues that could be crippling for business. As
GlobalSCAPE continues to build additional modules for its solution, the company
can sell more product to new clients, while at the same time upselling previous
purchasers additional modules.
In mid-January, GlobalSCAPE announced that the company now expects fourth
quarter 2005revenues to grow 54% to the range of $1.8 - $1.9 million, with net
income of $1.2 million, or roughly $0.08 per share. In the first nine-months of
2005, GlobalSCAPE reported net income of $1.077 million on revenues of $4.965
million. The company’s current guidance puts full year 2005 revenues at $6.8 -
$6.9 million, and net income at $2.3 million, or roughly $0.15 per share.
We believe GlobalSCAPE is an established business (nearly a decade old) that is
finally beginning to experience some meaningful growth and expansion.
Historically, the company has been focused on selling software to end-users at
relatively low prices over the Internet, and issuing the user a copy of the
software for download. The company became an established leader with a well
known brand, CuteFTP.
In our opinion, GlobalSCAPE should be able to grow revenues to $8.5 million.
With continued operating leverage we expect net profit margins to grow to 35%,
or $2.975 million. With 15 million shares outstanding, we expect the company to
earn $0.20 in 2006.
Shares of GlobalSCAPE are attractive, trading at a multiple of 13-times 2005 EPS
guidance, and just 10-times our 2006 EPS estimate. Investors should be aware
that GlobalSCAPE is a micro cap company with a market capitalization of just $30
million. In recent months shares have been quite volatile, soaring as high as
$4.90 back in October, and then to $3.20 in early February on relatively light
share volume.
We find shares of GlobalSCAPE attractive below $3.00. After following this
company for six-months, we expect shares could break out following future
quarterly financial results or due to increased guidance, and we would look to
lock in some profits on any significant price breakout. Our longer-term share
price target is $4.00, a modest multiple of 20-times our 2006 EPS estimate.
