PANW - Tenable: Attractively Priced Consolidator With Improving Fundamentals

2024-06-07 08:42:39 ET

Summary

• Tenable is the leading provider of Device Vulnerability Management solutions.
• They are gaining share in their core VM market, which is growing 10-20% CAGR….
• …and positioned themselves, through acquisitions, to capture opportunities in adjacent markets.
• I expect accelerating billings in 2H, alongside higher OPM and UFCF Margin to shift perceptions of the asset, leading to multiple expansion.

Investment Thesis

Tenable ( TENB ) is the leading provider of Device Vulnerability Management solutions. Slowing growth and concerns over the impact of vendor consolidation in the cybersecurity stack has led to a situation where current price embeds 3-4% 10y FCF Growth. Yet, the company has been gaining share, and recently upgraded its FY24 Revenue Outlook, whilst the end-market seems resilient. I see a potential for >25% return in the next twelve months as they exit the year with accelerating billings, and improved profitability, which will likely result in a shift in investors’ perceptions and an expanded multiple. There is some downside risk at 6x EV/TTM Sales and 4-5% UFCF yield, and with the risk to 2H24, I keep it a small position for now.

The Download

In 2002, Ron Gula, Jack Huffard and Renaud Deraison founded Tenable, as they set to monetise the open-source Nessus remote security scanner Renaud created in 1998. With the release of Nessus 3 in 2005, Tenable closed source the scanner, laying the foundations for a more sustainable business....

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