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Initiation of coverage.

  • 15 Jun 16

Keyware, created in 1996 and listed since 2000, is an independent Network Service Provider operating almost entirely in Belgium, with a current market cap of €34m. The company provides payment terminals and associated services to merchants, as well as the implementation of various payment schemes through these terminals, thanks to partnerships with the main acquirers operating in the country (Paysquare, Sixpay, Worldline, EMS…). Keyware can be considered as the tip of an iceberg, as it provides the entry point (namely the payment terminal) to a complex chain of players which constitutes, in the end, the ecosystem of the electronic transaction industry. The dynamism of this industry is a deep-rooted trend in the European Union and in particular Belgium (with the notable exception of Germany, which still favours cash transactions), as a certain number of factors are driving up the number of electronic transactions, such as the rise of new types of payment solutions (smartphones and NFC through electronic wallets like Apple Pay, or electronic meal vouchers), the dynamism of e-commerce (+14.3% in Europe in 2014), or the increasing restrictions on the use of cash in transactions as a way of fighting the shadow economy. The company benefits from an increasing installed base of terminals (c. 17,000 at 31 December 2015, +13% organically vs. the previous year), which represents most of its revenues through its Terminals business line. However, this installed basis will be leveraged in the Authorisations business, which provides acquiring services to the merchants. Here we see the biggest potential for operating profit upside, given the transition from a shared revenues model to a brokering model, whereby the company buys the transaction from the acquirer at a floor price and sells it on to the customer at a discretionary price, thus leading to a substantial rise in revenues for the same number of transactions. The end of the transition is expected by the end of 2018. In addition, the company will see a mechanical increase in the number of transactions through its increasing installed basis of terminals. The challenge lies in the success of its own acquiring services, which generate higher margins compared to external providers such as EMS or Worldline. The trend is very positive, with own acquiring rising from 16.5% in 2010 to 77.1% in 2015.