Keyware

The DCF now includes the strategic change made by Keyware from a complete hardware supplier to more of a software company.

The company no longer benefits from the terminals division as its potential to increase its ASP is currently limited compared to bigger competitors and the democratisation of online payments. These reasons and the headwinds encountered from late 2016 (difficulties with small businesses, longer lead-times in the institutional market) have led us to downgrade our expectations, as we now expect a drop in growth between 2019 and 2020 (by around -10%). For authorisations, we chose to apply a steady growth at around 13% in the coming years, as the company has demonstrated its capacity to realise remarkable revenue and operating profit in this division. The business witnessed strong growth rates in recent years (CAGR of 67% for 2012-17), in the wake of a strong start (this business originates from the takeover of BRV Transactions in 2007) and of an increasing installed basis. As mentioned in the Business & Trends and Money Making sections, the software division, although currently representing a minor part of Keyware’s operating profitability, has important potential. The good perspectives for this division and the results in FY18 lead us to apply, after Magellan and EasyOrder’s integration, a 15% growth rate in the following years. We expect that the Software division will rapidly become a major value creator for Keyware.

We have decided to integrate the financial income in the EBITDA, as it represents the difference between the total value of the contract and the discounted value recognised each month. This difference is only the product of the actualisation. Having received the cash, it is necessary for the company to reintegrate the difference in the EBITDA to represent the truly accessible cash generation.

Concerning the NAV, we have chosen to value Keyware in the same way as we do for Ingenico, which has a very similar business. As a consequence, we value the business lines by EV/Sales multiples with a computed 3-year average forecast, with a multiple of 2.3x for the Terminals business and 1.5x for Authorisations, for which we have applied a discount due to its inferior margins and dependence on terminal sales. We also integrate the new Software business at the acquisition prices.
As for the peer valuation, we have included companies in our coverage with a similar business line (Ingenico) or sector (IT-Hardware), although, apart from Ingenico, the actual businesses are rather different. This approach delivers a strong upside in every metric, with the exception of the dividend yield, but, given the difference in scale, we have chosen to apply a discount to Keyware.