AlphaValue Corporate Services Fundamental Analysis FR
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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 releases16/10/2018

Strong revenue growth, but profitability still impacted by the transition phase

Currently in a transition year, the group has reported growing H1 revenue but profit, although positive, was lower than in H1 17. Keyware’s revenue was pushed by the Authorisations division, which is still performing well, and the Software division, which has started to show its potential.


Fact

Keyware reported +8.1% yoy revenue growth to €9,742k (+€732k yoy). The Terminal division’s revenue decreased by 12% yoy, from €4,588k in H1 17 to €4,039k in H1 18. This was offset by the main revenue contributor, the Authorisations division, which reported €4,381k revenue (+6% yoy). The Software division showed the most impressive revenue growth (+1,512% yoy) to €1,322k, which is explained by the integration of Magellan that was not yet consolidated in H1 17.
The gross margin significantly reduced compared to the previous year (-11bp yoy), with a 58% decrease in profit before taxes (€660k). This was explained by the lower financial results (€-69k) and more by the lower operating profit (-74.4% yoy) to €294k. The integration of Magellan in the H1 18 figures has pushed down the results, due to additional staff costs and services and higher depreciation and amortisation costs.


Analysis

A decreasing Terminal division offset by a growing Authorisations activity

The Terminal division has followed the 2017 decreasing trend and will continue further. The competition remains strong and e-commerce developments directly impact the number of terminal sales. This rising penetration of internet and mobile payments has lowered the number of POS terminals in circulation.
While the number of terminals is going down, the number of transactions on these terminals continues growing. This explains the revenue growth in the Authorisations division. The significant number of non-cash transactions and the democratisation of contactless payments largely contribute to this trend.

Strong development of the Software division

The transition phase from a hardware supplier to a software developer is going well, with the progressive integration of Magellan (H2 17) and EasyOrder (H1 18). Although the results have been affected by higher costs linked to these two recent acquisitions, we expect that this will be largely compensated by the software sales growth in the following years. This division currently represents a niche market with significant growth potential that will be a lever to boost profitability.


Impact

We have slightly increased our expectations for FY 18 and the following years, as the consolidation of Magellan and EasyOrder will inflate our top-line expectations. We believe that, despite start-up costs negatively impacting the group in the short term, the transition phase will not take long and Keyware should be able to improve its profitability.


Target
Upside 104%
Price (€) 0.98
Market Cap (€M) 22.1
Perf. 1W: 1.55%
Perf. 1M: -8.41%
Perf. 3M: 34.2%
Perf Ytd: 18.1%
10 day relative perf. to stoxx600: -1.48%
20 day relative perf. to stoxx600: -8.20%
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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