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ASX:WHK

WhiteHawk Ltd

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ASX:WHK
- WhiteHawk Ltd
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$0.011

Last Price

Investment Memo:

WhiteHawk Ltd (ASX:WHK)

- LIVE

Opened: 18-Dec-2023

Shares Held at Open: 8,406,087


What does WHK do?

WhiteHawk (ASX:WHK) is an ASX-listed, USA based cybersecurity micro cap, providing cyber risk products, services and solutions.

What is the macro theme?

Global cybersecurity threats are growing and businesses and governments are ramping up spending on their cybersecurity defences.

Increasingly state sanctioned, or state-tolerated actors are involved in major attacks, meaning cybersecurity has never been more important.

We expect capital to continue to flow towards cybersecurity companies that can seal long term contracts with large companies.

Our Big Bet for WHK

“WHK becomes a $500M technology company by securing new contracts and partnerships as legislation and public pressure force governments and companies to invest in cybersecurity”

NOTE: our “Big Bet” is what we HOPE the ultimate success scenario looks like for this particular Investment over the long term (3+ years). There is a lot of work to be done, many risks involved - just some of which we list in our WHK Investment Memo. Success will require a significant amount of luck. There is no guarantee that our Big Bet will ever come true.

Why did we invest in WHK?

Six years to work out the kinks and build a pipeline of sales

We have been Invested in WHK since the company’s IPO in 2018.

In this time WHK has developed its product, reputation and relationships in the market.

Importantly, over this time WHK has developed a pipeline of sales, for contracts that take time to deliver.

WHK has recently said that its sales pipeline is worth US$22M. If WHK can convert roughly a quarter of that pipeline over 2024 we think that would put it on a good footing for sustained financial performance.

Coming off a low base WHK is primed for a re-rate

As of writing this note WHK is capped at just ~$6.6M.

At these levels, we feel that the company is coming off a low base and has a chance to significantly re-rate if it can finally deliver a string of material contracts.

Strong management team

With a deep connection to US government organisations, WHK’s team has a proven ability to sign big contracts with big organisations

Large Contract Sizes

WHK is slow to progress deals, but when they happen they are generally for large $ contracts, with big organisations that are sticky customers.

Cybersecurity continues to be a strong thematic

In the 2024 Australian CEO survey, “Cyber risk” was classified as the number one thing keeping CEOs awake at night.

The rate and frequency of cyber attacks is increasing, and we expect that large organisations will be allocating more resources to cyber protection.

What do we expect WHK to deliver?

Objective #1: More Contracts, follow through

WHK management has proven they can sign contracts and partnerships with top tier large organisations, but so far new deals have taken a long time to get signed. We want to see the effort of the last few years in building the pipeline come to fruition, with WHK delivering the following:

  • At least one contract worth more than $1.5M annually
  • Increase the contract size of an existing contract
  • Win a new large organisation contract

Objective #2: First material revenue from channel partnerships

WHK has already signed some interesting partnership deals (Dun & Bradstreet, Amazon Web Services, Sontiq, Peraton) which have great potential. We want to see the first revenue coming in from these partnerships.

Objective #3: Proof of value (POV’s leading to larger multi-year contracts)

WHK is now signing proof of value contracts (smaller contracts which identify product value based on customer use cases) - we want to see WHK successfully convert several POV’s to larger contracts.

Objective #4: Deliver ~US$4M in the 2024 annual report

Objectives 1,2 and 3 will lead to the ultimate goal of growing revenue, for a stronger share price performance we want to see WHK grow its revenue.

With US$672K in receipts from customers in the September 2023 quarter and a new US$1.2M a year contract with a US “Top 5 Global Social Media Company”, as a baseline we want see WHK deliver at least ~US$4M in its 2024 report and be operating cashflow positive for at least two quarters.

What could go wrong?

Sales Risk

Deals continue take a long time and investors lose interest, alternatively loss of key contracts

Market Risk

The market could sell off or a bear market could continue for longer than expected taking the WHK share price down with it.

Competition Risk

The cybersecurity industry is a competitive space. Other companies may step in and take key clients.

Funding / Dilution risk

WHK like all small caps is subject to funding and dilution risk.

Capital raises can lead to dilution and may take place at a discount, reducing the value of WHK shares.

Capital may not be available depending on the market, and may need to be secured through a variety of instruments which can undermine the financial and share price performance of the business.

What is our investment plan?

We have been holding WHK for a few years now, increasing our position on multiple occasions since we announced it to our Portfolio in May 2019.

While it has been a disappointing journey over the last two years, we believe WHK can finally turn things around, and deliver a re-rate on one or more large long term contracts and follow through with increased sales from its large pipeline.

Our plan is to increase our position if WHK do another equity capital raise, “averaging down” on our Entry Price, and we will look to top slice if WHK can deliver a re-rate from these lows.


Disclosure: Disclosure: S3 Consortium Pty Ltd (The Company) and Associated Entities own 8,406,087 WHK shares at the time of publishing this memo. The Company has been engaged by WHK to share our commentary on the progress of our Investment in WHK over time.

Our Investment Summary

Date of Initial Coverage

01-May-19

Inital Entry Price

$0.097

Returns from Initial Entry

-89%

High Point

364%