AlphaValue Corporate Services
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Bloomberg   KEYW BB
Smart Cards-Security  /  Belgium  Web Site   |   Investors Relation
The soft bet is paying off
Upside 118%
Price (€) 0.99
Market Cap (€M) 23.3
Perf. 1W: -3.88%
Perf. 1M: -4.81%
Perf. 3M: -5.71%
Perf Ytd: -4.81%
10 day relative perf. to stoxx600: -2.94%
20 day relative perf. to stoxx600: -5.52%
Earnings/sales releases15/06/2017

Strong authorisations offset weaker terminals


Keyware released its Q1 17 results, with revenues reaching €4,528k, corresponding to 12.6% growth yoy. Terminals came in at €2,502k (-13.4% yoy), and Authorisations at €1,785k (+57.7% yoy). The remainder consists of the EasyOrder business, now integrated into a new business unit (Software, €31k), and non-recurring revenues related to acquisitions.

The gross margin reached 60.2%, up 120bp sequentially and down 380bp), and the operating margin came in at 18.4% (down 90bp yoy). Profit before taxes came in at €1,088k, for a net result of €722k, impacted by €75k of negative results from associated companies.

The company announced in January 2017 the acquisition of EasyOrder, a payment application developer, for a total of €700k. €425k has been paid in cash, €75k will be paid in shares, while two (possibly three) tranches of cash (75%) and shares (25%) remain to be paid in 2017 and 2018 (and possibly 2019) for a total of €200k.

In addition, the company announced in May 2017 the launch of a share buy-back initiative, starting in June for one year and for a maximum of €1m.


Difficulties in terminals…

After a Q4 which again showed some growth in the Terminals business, Q1 resulted in another relapse and is likely to lead to a difficult first part of the year.

Indeed, in Belgium, a crushing majority (more than 90%) of the revenues comes from a fragmented user base, composed of small-size merchants; as a consequence, much time and resources are needed to make the installed base grow. The company appears to be aware of this problem, as it has set-up an additional sales team to address the institutional market (‘mid market’), which comes with a bigger number of terminals per contract; however, the first results are only expected by the end of the year, as the selling process is much more complex and lengthy than for a smaller merchant.

In addition, the German market, which has great growth potential due to the lower equipment rate of the country, is stuck in a slow start due to a high stickiness of the customers and a dynamic competitive landscape, which has resulted in very aggressive pricing. Keyware also entered the market through an intermediary company, in order to limit any backfire in the case of failure, which adds to the cost for now and resulted in a €85k loss for the first quarter only. At least, investors have a consolation prize when looking at the bottom-line, with margins for the business progressing from the lower points observed in H2 16.

… Partially offset by Authorisations

On the other hand, Authorisations are showing very positive progress, with an acceleration in growth compared to Q4 and FY16. This is the direct consequence of the increase in the number of transactions per terminal, as well as the transition towards the new brokering model, which delivers a higher commission per transaction compared to the previous scheme.

We note that 55% of the contracts generating commissions have transitioned towards this new model, vs. 40% a year ago: as a consequence, there is a clear upside potential, coupled with the growing installed base which will bring in a volume effect. In addition, this will also leverage the margins, for which we see some further room to grow, possibly north of the mid-twenties for the gross margin. However, despite this progress, there is still some way to go before reaching the level of the Terminals business in absolute EBIT value.

Acquisitions and a buy-back

To conclude, a few words on the acquisition announced in the software segment: by proposing application payments, Keyware is now able to address another dimension of the payment ecosystem, which is increasingly dematerialising. Such revenues would come with high margins (the gross margin in software is usually above 95%), but developing the top-line may prove to be a long effort.

On the other hand, what should please investors is the announcement of the share buy-back programme: such a move is (with dividends) one of the most direct ways to return cash to shareholders. As Keyware provides both, the management clearly shows that shareholders’ interests are a priority, which is all but a bad thing.


We will slightly downgrade our expectations for 2017, as Germany is for the moment a burden and does not fulfill our expectations.