Australian mining minnows head for the clouds
* ASX reverse listings transform miners into cloud companies
* Security and readiness give Australian cloud businesses the jump
* Investor appetite and valuations growing
By Jane Wardell
SYDNEY, Feb 4 (Reuters) - Several failed Australian mining firms are finding a profitable future above ground - in the cloud.
Three small mining shell firms are the target of reverse takeovers on the Australian Stock Exchange (ASX) to transform into cloud computing services firms, looking to capitalise on Australia's reputation as a "benign host" in the booming cloud industry.
The first of the trio to complete its back-door listing, Bulletproof Group Ltd, surged 87 percent on debut last month as it completed its switch from minerals explorer Spencer Resources to the ASX's first pure-play cloud services provider.
Bulletproof now plans to sell off the former Spencer Resource's four mineral exploration licences in South Australia.
Australia ranks second only to Japan as a cloud services provider, according to international trade organisation Business Software Alliance's 2013 annual cloud computing scorecard of the 24 countries that make up 80 percent of the global information communications technology market.
Based on factors including security, data privacy, cybercrime and technology readiness, Australia beat countries including the United States, Singapore and South Korea.
"Sovereignty is a big issue for corporates and Australia has tended to be seen as a fairly benign location," said Bulletproof Chief Executive Anthony Woodward, whose 475 clients include the Australian federal government and major retail chains.
The public cloud market, where services are rendered over a network that is open for public use, is dominated by big global players like Google Inc, Microsoft Corp and Amazon.com Inc.
But the private cloud market, which tailors infrastructure for the sole use of a single organisation or corporation, is regional and fragmented, providing more entry points.
Cloud licensing and services company Newlease - due to start trading as Rhype Ltd on Feb. 24 after a reverse takeover of contract services company FRR Corporation - plans to take advantage of a lack of existing server infrastructure and a high piracy rate in Asia-Pacific.
It is shortly to open up in Malaysia, followed by Indonesia and Hong Kong, after forays into Singapore, the Philippines and Thailand.
The Asia Pacific SMB cloud market is forecast to grow to $19.8 billion in 2015 from $7.6 billion in 2012, with a compound annual growth rate of 38 percent, according to the 2013 Parallels Global SMB Cloud Insights Report.
Newlease Managing Director Doug Tutus pointed out that when his company was founded in 2003, there were 70 cloud service providers in Australia. There are now 3,500.
"If you could mirror that in Asia you have got a fantastic business model," he said. "Outside of Singapore, the industry is still in its infancy."
Decimal, which will complete its reverse takeover of minerals explorer Aviva Corporation Ltd in April, will initially focus on Australia but has purposefully built its platform to support multiple jurisdictions, including in Asia.
PICKS TO BITS
The trio of cloud companies are aiming to tap growing investor interest in Australian technology firms as the country's decade-long mining boom fades.
In a sign of the times, software entrepreneurs Mike Cannon-Brookes and Scott Farquhar, founders of fast-growing software firm Atlassian, last year unceremoniously bumped embattled coal magnate Nathan Tinkler off Australia's "young rich list".
While Cannon-Brookes and Farquhar are following a well-worn path to a U.S. listing - in Atlassian's case, on Nasdaq - recent local technology initial public offerings are building confidence that valuations are improving on the domestic market.
Jobs portal Freelancer soared up to 400 percent on its hotly anticipated debut in November, briefly touching a market valuation of A$1.1 billion ($959.75 million). It has since dropped to A$1.48 per share, still a hefty premium to its A$0.50 offer price.
Aviva reached an-all time high when it announced its planned reverse takeover by Decimal. Bulletproof's capital raising, while relatively tiny at A$2.84 million, was oversubscribed.
"Twelve or 18 months ago, we were absolutely convinced our larger capital requirements would be sourced somewhere out of the United States," said Decimal Chief Executive Jan Kolbusz.
"Things have moved along very quickly and we can now attract the sort of funding we will require here."
The S&P/ASX 200 Information Technology Index has risen 8 percent over the past year, contrasting with a 7.4 percent fall in the S&P/ASX 200 Materials Index, which includes mining firms.
All this activity has sparked concern in some quarters about a bubble forming in the cloud industry.
With competition heating up, analysts expect many new entrants to fall at the first hurdle, particularly when faced with the firepower of market major Telstra Corp Ltd.
Australia, while benefiting from its security reputation, also has to deal with the tyranny of distance. The more remote the server, the longer it will take clients to access data in the cloud.
Still, the three companies behind the reverse listings, all several months in the making, are well placed to be at the front of the pack.
They all have tried and tested products with strong client books. Both Bulletproof and Newlease have recorded compound revenue growth in excess of 40 percent over the past four financial years.
"I don't think we are anywhere near approaching a bubble," said Ovum Research Director Steve Hodgkinson. "Cloud services is one of those things where if companies get their model right there are strong opportunities both domestically and globally."
"Companies that get in early in leadership in this space have a strong advantage," he added, pointing to Australia and New Zealand dual-listed Xero Ltd, which surged 333 percent last year and is now valued at around NZ$5.1 billion, as an exemplar of a cloud company finding an early niche.
Bulletproof's planned expansion in the United States is underpinned by an existing server in California, while Newlease plans to use existing infrastructure in Asia.
"It's good timing for us because the footprint of the cost structure is already there," said Tutus. "Becoming a public entity and returning profits to shareholders is what it's about and we are in a position to do that." ($1 = 1.1461 Australian dollars) (Editing by Emily Kaiser)
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