Simon Thompson rates it a buy16 Sep 2020 13:22
The increased scale of the business – the group now has almost 2.4m customers – and a focus on reducing PIA’s operating costs – synergies are now towards the top end of prior guidance – are also boosting cash profit margins (up by half to 27 per cent). A high retention rate (80 per cent) and exploiting cross-selling opportunities across an enlarged customer base – Kape enjoyed a 15 per cent take-up rate of its premium VPN product amongst new Intego antivirus users in the second quarter – are further profit drivers. These factors explain why cash profits almost trebled to US$16.4m and the directors reiterated full-year guidance (US$£35-38m on revenue of US$120-123m). Attractive cash conversion rates north of 100 per cent helped slash closing net debt by a fifth to US$25.6m and Kape is well on course to be debt free within two years.
Kape’s share price is 8 per cent shy of my last buy call (‘Profit from Kape’s chart break-out, 21 May 2020), but is still up fourfold on my entry level in my 2017 Bargain Shares portfolio. A rating of 10 times 2020 cash profit to enterprise value, a third below the rating of market leader Avast (AVST) and a 2020 forward price/earnings (PE) ratio of 15 is hardly exacting. Buy.
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