On a Parity PEG basis, there seems to be reasonable potential for considerable upside on a 1yr & 2yr view
Companies: Kape Technologies
Kape Technologies, ticker KAPE, used to trade under the name Crossrider. Since the name change it now focuses on 3 key products…
- CyberGhost, an online privacy and security protection solution with over 15m users
- ReImage, a Windows scan and repair program
- DriverFix, a Windows device driver update utility with over 50m users
And, of course, the newly acquired ZenMate products.
The following provides an analysis and view of this company based on…
- Data obtained from Stockopedia
- The most recent Broker note from Research Tree and
- The Parity PEG Price Report produced by Briefed Up
The primary focus of the Parity PEG Price Report is the PEG Ratio, the PEG. The objective is to identify a 1 and 2 Year fair value price based on the PEG and the forecast EPS growth.
The PEG was made popular by Peter Lynch. It is calculated by dividing the PE Ratio, the PER, by the EPS Growth Rate.
A PEG of 1 indicates a stock is fairly valued, a PEG below 1 indicates a stock is undervalued and a PEG above 1 indicates a stock is overvalued.
Thus, a stock with a PER of 10 and an EPS Growth Rate of 10% would have a PEG of 1 and would be considered fair value.
A stock with a PER of 10 and an EPS Growth Rate of 20% would have a PEG of 0.5 and would be considered undervalued with 100% Upside – Where the PEG would then be at parity.
A stock with a PER of 10 and an EPS Growth Rate of 5% would have a PEG of 2 and would be considered overvalued with 50% Downside - Where the PEG would then be at parity.
Onto the analysis and view…
This is a company I actually bought into almost a year ago when the Market Cap was about £180m, that Market Cap is now £120m.
There was a lot to like back then and there’s still a lot to like now, even more, in my opinion.
A year ago there was plenty of Net Cash, about 30% or so of the current Market Cap, there still is now.
A year ago there was quite a clear Uptrend but sadly that is no longer the case as can be seen on the chart. In fact now, there is quite a clear Downtrend. Having bought at around 128p a year ago I should have sold out here somewhere just below 100p.
Typically, I don’t like to take a loss of more than 25% on any investment but, I broke my rules. I know I shouldn’t but the initial fundamentals keep getting better.
In fact, the most recent Broker note from Arden on 20th June confirms this…
The Quality Metrics
Both the ROCE and Operating Margin figures are taken from Stockopedia. The ROCE is not great at 5% but it is above the Industry Median.
The Operating Margin is not great either, at 7%, but again, it is above the Industry Median. This is however forecast to dramatically improve to 13% in 2019E and 18% in 2020E, based on the Revenue and PBT forecasts in the Financial Summary.
This seems to, in the main, be coming from synergies and cost savings following the recent acquisition (of ZenMate).
The Financial Summary
All figures here are taken from the most recent Broker note from Arden on 20th June.
Revenue is forecast to increase by 46% in 2019E but then slow to 18% in 2020E. The realisation of those margin improvements mentioned previously mean that PBT is expected to grow 58% and 63% respectively with EPS following suit at 57% and 65%.
Forecasts And PEG Analysis
Looking at 2019E there’s a forecast PER of 19.3 and EPS growth of 57%. This translates to a PEG of 0.34 and a potential upside of almost 200% from the current price level (on a Parity PEG basis).
Looking to 2020E there’s a forecast PER of 34.5 and EPS growth of 65%. This translates to a higher PEG of 0.53 and a potential upside of over 400% from the current price level (again, on a Parity PEG basis).
These estimates are probably a little over optimistic as the Industry Median PEG here is 0.91. However, even taking this into account, on a Parity PEG basis, there still seems to be potential here for a 400% upside over 2 years, assuming forecasts are met.
This also assumes new forecasts indicate an EPS growth rate of 30%+.
On a Parity PEG basis, there seems to be reasonable potential here for considerable upside on a 1 Year and a 2 Year view. It’s certainly also worth noting the Net Cash (about 30% of the current Market Cap) which could be returned to shareholders or, preferably, used for additional earnings enhancing acquisitions.
This analysis and this view is of course no recommendation to Buy or Sell shares in KAPE Technologies and does not cover any risks associated with investing in this company or any other company.
Hope it helps!
You can see many more reports on our website https://briefedup.com/.
Please Note: These reports are purely my opinions at that point in time on stocks I may or may not have a position in. I do not and will not ever give any advice. As always, do your own research.