Covata promises to secure data and files through encryption when they are created, and store them in the cloud. The data can be quickly and simply retrieved by employees and customers with access keys, which are stored separately from the data.
If you like to assess companies on the basis of the potential market their products can reach, rather than on their financial performance so far, then data security company Covata Limited (CVT) could be for you.
Established in 2007, Covata has built proprietary encryption technology based around its philosophy of data security. Covata believes that the Internet was meant for data to be shared and thus is inherently insecure: it believes that there is little point in protecting networks and servers with firewalls and virus protection.
Instead, Covata’s business is based around protecting the data.
Covata’s business goes to the heart of the emerging global threat of cyber-security. And as is the way with global threats, they can also be viewed as major global investment themes. That certainly appears to be the way that plenty of investors see Covata.
But at present, Covata is a loss-maker. For the financial year 2014-15, Covata reported $1.8 million in revenue, down 35.6 per cent, and a net loss of $27.9 million, which included $9.9 million of non-cash, non-recurring expenses related to the acquisition of Prime Minerals (its backdoor listing vehicle), and $6.1 million of other non-cash expenses. Covata held $6.0 million in cash at 30 September 2015: the company says it has sufficient capital until mid 2016, excluding any revenue.
Covata promises to secure data and files through encryption when they are created, and store them in the cloud. The data can be quickly and simply retrieved by employees and customers with access keys, which are stored separately from the data.
The encryption process is built into the flagship product, a data and file-sharing app called Safe Share. Data is encrypted and decrypted at the source: access is authorised with each attempt, at the time of access. Every file has its own unique key.
All users and data are managed at the enterprise level: the enterprise never loses control of its data. All access is audited and controlled. Safe Share allows data to be instantly accessed, on a secure basis, by both internal users and remotely by partners and customers. Safe Share keeps data encrypted everywhere, even on a mobile or a tablet: it was created to be device-agnostic, file-type agnostic and network-agnostic.
Organisations have full “data sovereignty,” which means that they control where their encryption keys are stored: on their premises, in the cloud or in a trusted data centre of their choice. Safe Share encrypts and stores virtually any file or any size with simple drag-and-drop: data is encrypted the moment it is uploaded.
Encrypting data at its source means it is protected for the lifetime of the file: the data remains encrypted in all applications, however it travels and wherever it is stored, and it is not decrypted until it reaches the intended recipient. Effectively this means that data can safely travel across untrusted networks. Data that is designated “view-only” cannot be forwarded/re-shared or downloaded.
Safe Share performs an access check every time a request is sent to decrypt a secured data object. Safe Share requires positive verification of identity every time a user request is made to access a piece of data.
The idea is that the platform enables businesses to integrate data-centric security directly into mission-critical workflows and processes. Employees can handle sensitive data and transact business using mobile devices, often outside the safety of their enterprise network, or outside the protection of their home countries’ data use laws. In this way, business can be done from anywhere, at any time, with “real-time revocation” – Safe Share allows the data owner to revoke access to any file, even after sharing. When access permissions are denied, collaborators will no longer have any access to the shared file.
Safe Share’s unique watermark and fingerprint stamp means that proprietary information it handles is fully traceable: this feature provides protection for industries that routinely handle highly confidential and sensitive data, such as the governments, finance and banking, legal and healthcare sectors.
As is the case with other cloud-based software-as-a-service (SaaS) applications, users can at any time receive full analytics and reports on their data.
Covata listed in November 2014 at 20 cents a share after raising $15 million in a reverse takeover of uranium explorer Prime Minerals, in what was the largest “backdoor listing’ (using an existing listed shell) ever seen on the ASX. That price capitalised the company at $74 million. The ASX-listed telecommunications and IT company TPG Telecom (TPM) – which is a Covata customer – took a 15 per cent stake in Covata at listing, spending $10 million.
TPG remains the largest shareholder, ahead of global fund manager Fidelity, which last month tipped $7 million into Covata through a share placement. Fidelity took the entire 37 million shares that Covata’s broker offered to the market, for a 9.6 per cent stake in the company.
In March this year, Covata signed a ten-year global licence agreement (with a minimum four-year term) with IT giant Cisco. The agreement covers the Covata platform and related products, with a focus on delivering the Safe Share technology to Cisco clients, as part of Cisco’s cloud. Covata has established an office in San Francisco to support the Cisco contract (there are also offices in London and Sydney, the head office.)
The Bay Area office is Covata’s second in the USA: in 2012 it opened an office in Washington, DC, to further its aim of becoming a key security service provider to the US government as well. Founder and CEO Trent Telford works out of the Washington office. Covata’s chairman, Chuck Archer, is a very well-known figure in the security field in Washington: he is a former assistant director of the FBI.
Covata already counted a number of Australian federal government agencies – including the Australian Taxation Office (ATO) – as its clients. This year it has also added to its customer base T-Systems, the global IT services and consulting subsidiary of Deutsche Telekom; Colt Technology Services in the UK, which is using Safe Share to enable capital markets participants to securely share data over Colt PrizmNet, its financial services extranet that connects providers of financial content to capital markets firms; and the ASX-listed telco Macquarie Telecom (MAQ), which will to distribute Safe Share to federal government agencies.
Also, in November, Covata completed the testing and G-Cloud framework procurement process to be accepted as a secure file sharing application for the UK Public Sector. (The UK Government has mandated a “Cloud First” approach to IT: in 2012 it launched G-Cloud, which allows UK public sector organisations to find, build and integrate world-class digital services from pre-approved and procured SaaS services with the marketplace achieving strong success since launching.) Covata’s successful G-Cloud application means that Public Sector organisations can purchase Safe Share quickly and efficiently without the need to run a full tender.
Covata shares moved above 30 cents a month after listing, but traded back down below issue price in January. By April – on the back of the Cisco deal – they had surged to 66 cents, but have subsequently traded as low as 21 cents, last month, and are currently at 27.5 cents, which values the company at $123 million.
Covata needs to turn the big deals it has signed – Cisco and T-Systems/Deutsche Telekom – into revenue, and continue to sign others. Covata sees telcos and managed service providers as a major distribution channel – they take Covata’s software and put it in their data centres, and they sell it as SaaS to their customers. The company has the potential to be a global success in data security, and qualifies as one of the small but growing band of Australian-developed technologies that can legitimately be called disruptive. Profitability is some way off, but for investors who understand this reality – and this field of business – Covata has the look of a stock that is going places.
