Customer breach - MSAB technology intact

MSAB has announced that licences for an older version of XRY Pro, one of its key growth drivers, have been illegally copied and are being sold on the black market. The incident originated from a cyberattack on a legitimate customer's computer, through which hackers gained access to MSAB's software. According to the company, the hackers have neither accessed nor compromised its proprietary technology, but have managed to let unauthorised users use the software. MSAB does not expect any commercial impact, arguing that its customers would not purchase software from illegal sources and that the copied version will soon become obsolete as mobile phone manufacturers introduce updates. Nevertheless, we believe the incident could put pressure on the share price.

Software reaching the very users it is designed to investigate. Even if the incident has no direct commercial impact, the distribution of MSAB's software through criminal networks is clearly undesirable, particularly as the technology could potentially reach individuals and organisations that MSAB's usually work to prevent. Reports also suggest that competing forensic software is available through the same illegal channels. From what we understand, MSAB is working on additional safeguards to prevent similar incidents, potentially requiring further authentication before software licences can be activated or used.

Reputational concerns, but limited fundamental impact. We believe the reputational damage should be manageable, given customers' reliance on MSAB's solutions and the fact that the incident did not involve a breach of MSAB's own systems or compromise its underlying technology. Nevertheless, it is likely to raise concerns among investors. Against this backdrop, we believe continued strong revenue growth will become even more important in demonstrating that the incident has not affected customer confidence or commercial performance.