Kape’s H1 20E trading update continues the run of positive news from the Group with confirmation of strong trading through the whole of the first half. There is no change to guidance for revenue and Adjusted EBITDA for the current financial year which management outlined at the time of the transformational acquisition of PIA last December. Likewise, the integration of PIA is set to yield the anticipated synergies. The recent Capital Markets Day (CMD) emphasised the excellent progress made in broadening Kape’s offer to consumers. We leave our estimates unchanged while noting the positive momentum in the business.
H1 20E revenue is expected to be around $59.0 million, up 97% on H1 19 (12% on a proforma basis) with recurring revenue accounting for c. 90% of Group revenue. Adjusted EBITDA is expected to be around $16.1 million for H1 20E – an increase of 180%. The Adjusted EBITDA margin increased to 27.3% (H1 2019: 19.4%).
The Group has reiterated guidance for the current financial year for revenues and Adjusted EBITDA of $120-123 million and $35-38 million respectively. Our estimates for those numbers are U$120.8 million and U$36.2 million respectively. It is worth recalling the historical seasonality of Kape’s performance with around 55% to 60% of revenue and profits occurring in H2.
One of the Group’s strategic priorities focuses on the use of product innovation and R&D to further Kape’s competitive advantage and user satisfaction in a fast-growing market. The CMD brought a reminder that Kape’s enhanced product stack now includes a suite of privacy-based software solutions focused on browsing, encryption and connectivity. New products are in development and a number will be released during the rest of 2020.
The integration of PIA has advanced ahead of management’s projections. Kape’s server infrastructure is now fully integrated into PIA, and technology improvements have enabled a faster and broader service.
Combining PIA’s strong brand with Kape’s customer acquisition has worked well and the integration is on track to realise the synergies of at least U$3.5-4.5 million outlined at the time of the acquisition – something which has been achieved at no cost to service or innovation. Again, at the CMD, we also heard that the monthly rate of annualised cost synergies was running at U$5.5-6.5 million. 0 50 100 150 200 250 FYE DEC ($M) 2018 20