AlphaValue Corporate Services Fundamental Analysis FR
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AlphaValue Corporate Services
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Keyware

CR
Bloomberg   KEYW BB
Smart Cards-Security  /  Belgium  Web Site   |   Investors Relation
From hardware provider to fintech specialist
Earnings/sales releases30/08/2019

Software continues to drive up the top-line

H1 resulted in another relapse in profitability, mainly related to the current transition phase. We actually believe that it is a matter of time before investments bear fruit at the bottom-line. The software division continued to show its potential, while the traditional activities slowed down.


Fact

Key H1 financial highlights
  • Revenue down by -6.3% to €9,131m
  • Gross profit came in at €5,752m, leading to a gross margin of 60.9% (+190bp yoy)
  • EBITDA decreased by 22% to €1,525m, as a result of lower gross profit, as well as higher personnel and start-up (software) costs
  • Profit before tax amounted to €542m (-18% yoy)
  • Net profit up by +35% to €438m

Analysis

The figures confirm, once again, that the group’s decision to become a software provider was the right thing to do. The H1 sales growth was only attributable to the Software division (+11.7% yoy to €1,477m), offsetting by the traditional segments which were more challenging.

The terminals business finished the half year with a decrease in absolute figures. The division’s revenues were down by 13% to €3,517m, a substantial drop which follows already poor results in FY18. The reasons remain the same: a smaller number of contracts signed and an unfavourable product mix with cheaper terminals. Unfortunately for Keyware, these headwinds are likely to persist. It reflects the decreasing numbers of traditional retailers as they have been threaten by the growing numbers of online competitors.

For the first time, the authorisations division bore the cost of the terminal’s underperformance. The division saw lower commissions and a decreasing number of contracts that generate authorisation income. The segment’s sales were down by 5.5% to €4,137m.

While these traditional activities continue to be the company’s bread and butter, the development in software is a major step into further diversification from terminals. The division’s performance in H1 was actually mainly pushed up by EasyOrder. Keep in mind that this investment, as well as S-Token and Split, are at the beginning of the product life cycle, with significant potential for the coming years. However, the impact on the bottom-line remains uncertain in the short term, but being present in this type of market is today a necessity.


Impact

No major impact on our expectations for the moment, but we will keep a close eye on the software activities. We are confident that the investment to become a fintech specialist will continue to inflate the top-line. A return to profitability is expected in the medium term.


Target
Upside 101%
Price (€) 1.00
Market Cap (€M) 22.4
Perf. 1W: 2.05%
Perf. 1M: -7.01%
Perf. 3M: 48.5%
Perf Ytd: 19.9%
10 day relative perf. to stoxx600: -1.41%
20 day relative perf. to stoxx600: -8.67%
Updates

16 Sep 20 Earnings/sales releases
A pivotal year for the Authorisations division

26 May 20 Earnings/sales releases
The right time to establish itself as a software pr...

18 Mar 20 Earnings/sales releases
Positioned to take advantage of increasing pow...

13 Nov 19 Earnings/sales releases
The challenge remains intact

30 Aug 19 Earnings/sales releases
Software continues to drive up the top-line

15 Mar 19 Earnings/sales releases
Still in transition

09 Nov 18 Earnings/sales releases
Still in transition, the group showed revenue gro...

16 Oct 18 Earnings/sales releases
Strong revenue growth, but profitability still imp...

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