Chief executive Ido Erlichman of Aim-traded Kape Technologies (KAPE:130p), a provider of cyber security software, was in bullish mood during our interim results call this morning. He has every reason to be.
His company has just lifted organic revenue by 14 per cent to $24.1m (£18.5m) from its app businesses to boost cash profit by 45 per cent to $4.3m with margins rising by more than half to 15 per cent. Customer retention rates improved by 5 percentage points to 74 per cent, and premium subscribers account for over 70 per cent of its 1m user base.
Kape added 350,000 new users to its paying customer base, of which 270,000 subscribed to either Reimage, a patented Microsoft-based product tool that enables users to clean up their computers, or DriverAgent, a PC maintenance software products company offering a device driver search and update service, which scans computers for outdated drivers. Product upgrades are playing their part – Reimage now provides users of both Macs and PCs with its service – and so too is cross selling. In fact, Mr Erlichman pointed out that 150,000 products were cross-sold in the six-month trading period.
He also highlighted that Cyberghost, a provider of secure virtual private networks (VPNs) that securely pass data traffic over public networks, is gaining further traction having launched a product for iOS and Mac systems. Moreover, he sees significant cross-selling opportunities with the post- period-end acquisition Seattle-based Intego, a leading Mac and iOS cybersecurity and malware protection software-as-a-service (SaaS) business. Intego provides Kape with a foothold in the malware protection market and boosts its product portfolio with the addition of complementary malware protection and security solutions. Intego’s purchase price of $16m equates to 11 times its $1.4m pre-tax profit in 2017. That’s a sensible price, but if Kape’s management work their magic as they have at Cyberghost then there could be significant potential to grow Intego’s profits by leveraging off Kape’s larger customer base. And that’s not in the price.
The £186m market cap is rated on 25 times Shore Capital’s 2019 EPS estimates of 6.4p, but with $46.7m (£33m) of cash available for further bolt-on deals, management actively looking to do so, and the business performing strongly, then I am happy with a target price of 180p based on an enterprise value to cash profit multiple of 20 times. Please note that I first rated the shares a buy, at 47.9p, in my 2017 Bargain Shares portfolio. Buy.
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