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 releases06/09/2016

Solid H1 despite a relative weakness in Terminals

Fact

Keyware released its Q2 16 results, with revenues reaching €5,230k, corresponding to 30.1% growth sequentially and 5.1% yoy. Terminals came in at €2,567k (-11.1% sequentially, -21.7% yoy), and Authorisations at €2,663k (+135.2% sequentially, +56.9% yoy).

Gross margin reached 54.2%, down 90bp on a comparable basis (i.e. due to the new Interchange Fee Regulation), and operating margin 20% (down 90bp yoy). Profit before taxes came in at €1,297k, for a net result of €1,116k.

The company also announced that it would distribute a dividend for the first time, for a total amount of €424k, corresponding to €0.02 per share. The dividend was paid on 24 August.


Analysis

The first half-year has been dynamic for Keyware, and showed an acceleration in growth weighted in Q2 (+5.1% yoy after the +2.6% recorded in Q1 16), which is very positive when it comes to the rest of the year.

The only annoying area lies in the Terminals business, which displayed some decrease both sequentially (-11.1%) and yoy (-21.7%) in the second quarter, when it had shown modest growth in Q1 16, leading to a negative H1 16 versus H1 15. It is true that the point of comparison was rather high, given the very strong Q2 15 caused by the GlobalPay asset deal (which led to a high number of contracts being signed), but the evolution of the business should be monitored carefully during H2 as it is the company’s bread and butter. However, we are rather pleased to see that, despite the deceleration, the company managed to increase the division’s gross margin by a substantial amount (+670bp sequentially, +1,030bp yoy).

On the other hand, the company delivered a rock solid performance in Authorisations, with massive growth and profitability. It is clear that the company’s strategy (transition to a brokering model) is starting to pay off, as it benefited from an increase in kickbacks, but we are positively surprised to see that it delivered much sooner than we expected, although this good performance needs to be repeated in the coming quarters.

In the end, the impact on the bottom-line is pleasing, thanks to the control on costs. Despite the overall stable EBIT margin, the improvement is massive in the Authorisation business, with an over 1,000bp improvement both sequentially and yoy. Anyway, these metrics bode well for the future, a confidence reinforced by the payment of the first dividend ever, which clearly indicates that the management is very positive for the business’s evolution.


Impact

We will upgrade our top-line estimates, although the decrease in the Terminals business is somewhat worrying and should be looked at closely, as it is the cornerstone of the company’s business.


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

17 Mar 17 Earnings/sales releases
Top-line above expectations, litigation as the m...

24 Nov 16 Earnings/sales releases
Authorisations somewhat offset terminals, bette...

06 Sep 16 Earnings/sales releases
Solid H1 despite a relative weakness in Termin...

15 Jun 16 Initiation cov.
Initiation of coverage.

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