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 releases09/03/2018

FY17 - a transition year

Fact

Keyware reported its FY17 results, with revenues flat yoy to €18,730k. The drop in revenues from the Payment terminals division (-24% to €8,449k) was compensated by the increase in revenues from the Authorisations (+11.9% to €8,510k). Also, the recently-acquired companies, now part of the software activity, contributed revenues of €1,561k in FY17, whereas Magellan contributed only from H2 17.
The gross margin slightly decreased compared to the previous year (-4%) to €10,455k. The situation deteriorated even more strongly when looking at the operating profit which fell from €3,174k to €1,143k yoy. Net profit for the year reached €1,174k from €3,101k in FY16. Finally, EPS reached €0.05/share compared to €0.15/share the year before.


Analysis

Continuing trend for the Payment terminals
The trend observed in the first nine months of 2017 tends to confirm the FY17 results which showed decreasing revenues for the Payment terminals activity. This is because of the fewer number of new contracts and an unfavourable product mix which leans towards cheaper terminals. This unfavourable mix, coupled with the underperformance of the recently-acquired German subsidiary due to market developments, and strong competition have strongly weighed on this activity’s operating profitability. The decision to reduce the Payment terminal activity in Germany sounds like a smart move considering the FY17 €362k revenue that it registered.

A smart transformation path
As we pointed out after the Q3 results, the Authorisations activity confirmed its solid performance for the rest of the year, with rising revenues and operating margin (23.3% from 22.6%). This activity has overtaken the Payment terminals activity in terms of revenues and confirms the transformation being carried out by Keyware.

Indeed, the transformation from a service company to a software developer is easily seen through the recent integration of Magellan and EasyOrder, which have started contributing to the FY17 results. Magellan’s high gross margin has already positively influenced the group’s gross margin. The activity was integrated from H2 17. Also, the revenues and operating margin of EasyOrder should be strongly boosted from FY18 as this new activity started to offer its services from Q4 17.

New Software as a Service (SaaS) contracts signed recently with large institutions also pave the way for recurring and strongly growing revenues, while the group expects the cruising speed to be reached by 2020 for these products and service contracts.

The transition year
FY17 definitely looks like a transition year for the group, for which profitability has also been affected by higher amortisation costs and lower financial income due to the recent acquisitions. We are pleased to see the transformation and believe that this should bear fruit quite quickly. The diversification will be a lever to boost profitability and will deliver its full potential when the Terminals’ recovery is further ahead in its cycle.


Impact

The impact on our expectations will be minor for the moment, but we will keep a close eye on developments at the recently-acquired activities which we believe should give the company a revenue and profitability growth boost.


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
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