BrandShield : House Stock at 20p

Equities Research	Issuer Sponsored - Initiation of Coverage	30 March 2021

House Stock

Current price 20.0p

Technology and Software

Services

United Kingdom

BrandShield+

Ready for prime time

AIM			Continual growth in malicious cyber-attacks is good for only one area of the economy:
Reuters/Bloomberg	BRSD	cybersecurity vendors. This growth, together with BrandShield's strong product set,
Shares in Issue (m)	115.3	proven ability to win and retain blue-chip customers and significant incremental
Market Cap (£m)	23.1	investment in sales and marketing, underpins exciting prospects for the Company this
year and beyond, in our view. Importantly, BrandShield has made a strong start to 2021
Net cash (£m) FY20F	2.2
and we believe will benefit greatly from its recent public listing in terms of credibility with
Enterprise Value (£m)	20.9
potential clients. The Company has high-growth potential and we believe the balance of
Website	www.brandshield.com
mid-term opportunity versus risk is underestimated in its current market price.

Next update
FY20 Results		May 2021
Performance	1M	3M	12M
Absolute (%)	(16.7)	(21.2)	21.2
Rel Index (%)	(17.7)	(25.7)	(5.5)

Relative to FTSE All Share

This material is considered to be a marketing communication and accordingly it has not been prepared in accordance with legal requirements designed to promote the independence of investment research nor is it subject to any prohibition on dealing ahead of the dissemination of investment research. This material is issuer-sponsored and has been prepared pursuant to an agreement between Shore Capital and the issuer in relation to the production of research.

Strong product set for a structurally growing market: The market for online brand protection and ancillary services is poised for significant structural growth, in our view. Organisations increasingly need to defend themselves against fraudulent online activity including phishing, brand impersonation, counterfeiting, IP infringement and executive impersonation. As a result, BrandShield's software solutions are likely to experience growing demand given, inter alia, the Company's established market credentials, high renewal rates, 'done it before' management team and imminent step up in sales and marketing. BrandShield already has a broad range of customers (including some in the Fortune 500 and FTSE100) and increasingly acts for larger customers with dozens to hundreds of brands.

Strong start to 2021: The recent trading update highlighted annualised recurring revenue (ARR) growth of 71% to $3.28m as at 31 December 2020 and continued strong growth in the early part of 2021, with new business signed being "significantly ahead" of last year. Our forecasts anticipate continued positive momentum driving a near 3x increase in revenues from FY20F to FY22F. As sales and marketing costs ramp ahead of further revenue growth, we expect operating losses in FY21F and FY22F and, given the associated cash burn, BrandShield may seek additional growth capital during or before FY22F. Such funds could originate, in whole or in part, from the disposal of the remaining assets from the Two Shields Investments legacy, most notably WeShop, which has a carrying value of c. £3m.

Valuation thoughts: The global cybersecurity market is one dominated by mid- and large- cap companies. It is rare to be able invest in highly promising sub-$100m market cap companies, and equally rare to be able to invest in the segment in which BrandShield operates. At a market cap of £23m, BrandShield is a 'rare gem', in our view. Absent profitability or cash generation, the next valuation milestones will depend on customer and ARR growth. We see positive signs and look forward to further news flow. HOUSE STOCK

Results and Forecasts

		Year to	Revenue	EBITDA	PBT	EPS	Net cash	PER EV/EBITDA FCF Yield DPS	Div
		December	($m)	($m)	($m)	(c)	/(debt)	(x)	(x)	(%)	(p) Yield
							($m)					(%)
Research analyst	2019A	1.8	(1.4)	(1.5)	n/a	(1.0)	n/a	n/a	n/a	0.0	0.0
2020F	2.6	(1.4)	(1.5)	(1.3)	3.1	n/a	n/a	n/a	0.0	0.0
Martin O'Sullivan	2021F	4.3	(3.5)	(3.5)	(3.1)	0.4	n/a	n/a	n/a	0.0	0.0
0207 468 7925		2022F	6.8	(2.7)	(2.7)	(2.4)	2.6	n/a	n/a	n/a	0.0	0.0
[e-mail]							Source: Company Data; Shore Capital Markets

This report is prepared solely for the use of Martin OSullivan

BrandShield+

Investing in BrandShield

BrandShield is a dynamic, innovative and fast-growing software business operating in a structural growth market for online threat intelligence

Online brand protection and ancillary services is poised for further significant expansion

BrandShield is operating in a sweet spot of cyber security

First and foremost, BrandShield is a dynamic, innovative and fast-growing software business operating in a structural growth market for online threat intelligence. Its strong product set, proven ability to win and retain blue-chip clients, significant ARR growth to date and experienced management team represent the firm foundations of the investment case, in our view. We see upside potential through 1) ARR growth momentum driven by significant investment in sales & marketing during 2021 and 2) the ability to win additional blue-chip clients and expanding the cross-sell opportunity within these organisations. Many large global brands require protection from online threats, and the opportunities for BrandShield as a trusted partner are long term and recurring. We believe these factors, together with growing awareness of the threat landscape among BrandShield's existing and potential customers, could drive material upside to our ARR and revenue estimates.

Key points

• Strong product set spanning external threat intelligence and remediation
• • Ability to win and retain blue-chip customers
• Attractive growth prospects supported by structural expansion of addressable markets and BrandShield's growing and targeted investments in sales and marketing
• • Target market consists of international multi-branded organisations as well as a blue-ocean of small- and medium-sized enterprises
  • Growing awareness among potential customers that they do not have sufficient staff to deal with threats, and would prefer to outsource the brand protection process
• Emphasis on Cloud solutions (Software-as-as-Service (SaaS), recurring revenues)
• • Recurring revenues are c. 100% of total
• Experienced 'done it before' management with a background in the Israeli military's
  Information Security Department, and DTNT, the largest domain name registrar in Israel
• Strong account management execution (as evidenced by significant contract wins and high retention rates) combined with a broader upsell opportunity due to growth in larger customers with dozens to hundreds of brands;
• • Company aims for at least 92% revenue retention rate
• Significant barriers to entry for potential competitors

Major growth opportunity

The online brand protection and ancillary services market in which BrandShield operates has continued to grow through the Covid-19 pandemic and is poised for further significant expansion driven by an escalating number of cyber vulnerabilities.

We believe that ARR is the key metric for assessing SaaS (Software as a Service) companies generally. BrandShield is no different - and its customers typically sign up on 12 month rolling contracts. As at 30 September 2020, the ARR was $2.50m, and increased to $3.28m across approximately 80 customers as at 31 December 2020, up 71% on the year. Delivering this against the backdrop of the Covid-19 pandemic shows that BrandShield is operating in a sweet spot of cyber security.

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This report is prepared solely for the use of Martin OSullivan

BrandShield+

BrandShield has successfully targeted larger customers

Proprietary AI-powered solutions largely automate the analysis and prioritisation of online fraud cases

BrandShield already has a strong track record of innovation in its core field, achieving great things in terms of product development

Sales and marketing is set to undergo significant expansion in 2021, leveraging the main new sales channels

Figure 1: BrandShield ARR ($m)

3.5

3

2.5

2

1.5

1

0.5

0

Dec 17

Dec 18

Dec 19

Dec 20

Source: Company Data; Shore Capital Markets

In addition, since 2018 BrandShield has successfully targeted larger customers, with an emphasis on those with multiple brands and products. As a result, the average revenue per user from 2018 to 2019 has increased by c. 131%, the percentage of its customers who own multi brands and products has increased from none (in 2017) to 10% in 2019, and medium to large customers were 30% (up from 15% in 2017). Continuing along this path bodes well for 2021, in our view.

Scalable software platform

The Company's software suite makes extensive use of proprietary AI (Artificial Intelligence) and Machine Learning (ML) powered solutions which largely automate the analysis and prioritisation of online fraud cases. In response to customer demand, BrandShield has also established its own in-house online hunting and enforcement team consisting mostly of qualified lawyers, with particular experience in IP law.

Importantly, BrandShield already has a strong track record of innovation in its core field, achieving great things in terms of product development with a relatively small team. As an example, it recently launched image recognition and optical character recognition (OCR) solutions, which are capable of detecting images similar to or identical to those copyrighted by the Company's customers across hundreds of e-commerce marketplaces. Traditionally, image infringement identification involves the manual review of thousands of individual listings across platforms. BrandShield's technology reduces this process exponentially. We believe additional product innovation is likely to be visible going forwards.

Going to the next level

To date, BrandShield's strong ARR growth has been achieved with a relatively modest sales and marketing team. This is set to undergo significant expansion in FY21, as illustrated in Figure 2 below, leveraging the main sales channels, namely BrandShield.com and different partnership channels.

As can be seen, the Company will almost double its headcount during 2021, with sales and marketing and enforcement teams set for the largest investment, underpinning positive ARR momentum in our view. Even before this, direct traffic to BrandShield's website almost tripled in 2020 over 2019.

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This report is prepared solely for the use of Martin OSullivan

BrandShield+

BrandShield is shifting its emphasis from product development to product promotion

Leveraging a short and effective sales cycle will be a key focus this year

Well set to execute

Essentially, BrandShield is shifting its emphasis from product development to product promotion, although innovation will remain a key strength in our view. This makes sense to us given the already proven capabilities of BrandShield's SaaS solutions and the large, fast- growing target market. Accordingly, the Company's the sales and marketing expenditure is expected to increase from $0.8m in FY19A to $1.2m in FY20F and $3.1m in FY21F. We contextualise this further in the "Forecasts & valuation" section.

Figure 2: The Brandshield team as at 30 September 2020 and estimates for 30 Jan 2022F

Function	Number as at 30 Sept 2020	Estimated Number as at 30 Jan 2022F
Management	5	6
Sales & marketing	4	17
Research & development	7	9
Enforcement	12	20
Administrative	1	2
	29	54

Source: Company Data; Shore Capital Markets

Short and effective sales cycle

A significant proportion of new business has historically been generated at trade shows, but in the past two years BrandShield has expanded its online marketing activity. This has allowed it to replace lead generation based around attendance at trade shows with increased online advertising, marketing and direct lead generation activities, supplemented with video conferencing. Indeed, online is now the main sales channel.

After landing on BrandShield's website (see link here), a potential customer can quickly and easily request a free demo by providing some brief contact information. A BrandShield representative will then schedule a demo call, usually within a day or so, after which the potential customer is presented with a free report of online threats relevant to that customer. Some customers will then sign a contract, some will move to a two-to-three month paid pilot. After this, approximately 90% of potential customers sign up for BrandShield's services. Leveraging this short and effective sales cycle will be a key focus this year through the additional investment, which will be targeted as follows:

• Increasing the sales team from two to 15 by the end of 2021;
• Geographical expansion of the sales team to the US and the UK;
• Establishing a specialist marketing team, initially of two people;
• Appointment of agencies for digital marketing, sales initiation/lead generation and PR;
• Increased attendance at industry conferences (initially remotely);
• Initiation of advertising and sales promotion programmes; and
• Expanding marketing and sales automation tools.

To our eyes, Brandshield looks ready for prime time, by which we mean well set to execute on the next phase of its growth strategy in 2021, driving operational scale up and strong ARR growth. Given the Company's remarkable progress to date, this strategy looks de-risked to the extent that the team already has a proven ability to win new clients, including blue-chip clients, and its core product is not only well developed but also in a sweet spot for cybersecurity, as we discuss in the next sections.

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This report is prepared solely for the use of Martin OSullivan

BrandShield+

BrandShield's technology was developed by cyber security and brand protection experts with experience in the Israeli military in cyber security, intelligence and information security

Significant broadening of activities in the past two years

The Company focuses on brand protection and online threat hunting which form a part of the threat intelligence market

Automation ensures significant cost savings for clients, driving an attractive ROI

The service is customised to the client requirements and demonstrates high success rates

Capabilities across all platforms

Company background

History

BrandShield's technology was developed by cyber security and brand protection experts with experience in the Israeli military in cyber security, intelligence and information security.

As previously mentioned, the Company was originally a spin-out from an existing Israeli business, Domain The Net Technologies Limited (DTNT), which its founders (Yoav Keren, Yuval Zantkeren and David Fridman) had formed in 2000. DTNT is now the largest domain name registrar in Israel. BrandShield's technology was originally developed within DTNT, with the support of grants received from Israel's Innovation Authority and was initially targeted at trademark infringement and the sale of counterfeit goods online.

In order to finance the development of its software, BrandShield first raised money from outside investors in 2013 and, since then, has carried out several equity investment rounds and issued convertible loan notes raising an aggregate total of c. $8m.

Between 2013 and 2017, BrandShield broadened its activities from the monitoring of websites to include the monitoring of online marketplaces, social media platforms, mobile applications and paid ads.

In the last two years, the Company has further broadened its range of services to identify, analyse and subsequently eradicate cases of phishing, fraudulent sites and executive impersonation.

SaaS solutions for end-to-end digital brand protection

Today BrandShield is a fast-growing provider of end-to-end digital brand protection and online threat hunting solutions to its global client base. Brand protection and online threat hunting form a part of the threat intelligence market. From identifying an online threat (be it an illegal phishing, fraud, brand abuse, impersonation or counterfeiting activity online) to eradicating the threat, BrandShield protects its clients' most important online assets.

By utilising AI and big-data analysis, the Company's software monitors, detects, and removes the threats its customers are facing online. It works by detecting and analysing potential threats, prioritising them and taking them down. The takedown services are efficient and quick, and transparent to the client any time from the system's Threat Dashboard. Importantly, BrandShield's end-to-end automation ensures significant cost savings for customers when compared to a team of in-house security analysts devoting hundreds of hours each week to the equivalent manual processes, driving an attractive ROI.

Unlike traditional cybersecurity solutions, BrandShield's SaaS software operates outside of an organisation's perimeter and therefore requires no integration. The service is customised to client requirements and demonstrates high success rates.

The software leverages big data and proprietary algorithms to find networks of fraudulent online activity and clusters of counterfeiters. It is capable of monitoring millions of datapoints across many types of online platforms including websites, marketplaces, social media, mobile apps and Pay-Per-Click (PPC) ads. Indeed, its reach extends across all platforms - websites, marketplaces, social media, paid ads and apps, covering all the major e-commerce marketplaces and hundreds of smaller marketplaces.

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This report is prepared solely for the use of Martin OSullivan