Kape’s interims confirm strong progress highlighted in the July update. Core Digital Privacy sales grew +19% y/y (proforma) to $253.5m, whilst smaller Digital Security and Content revenues grew +16% and +25% on a proforma basis respectively. H1 Revenues rose +217% y/y to $302.4m (inc ExpressVPN acquisition) with adj proforma EBITDA up +210% y/y to $88.9m. New today: critically cash generation has sharply improved, with adj FCF of $75m delivered (SCMe: $52m; H1'21: $10m). The material uptick in cash generation is ahead of our bullish estimates, and fits with our view that this is now a business which has achieved critical scale where cash receipts from subscription renewals alone will fund investment into Kape’s various organic growth avenues (software cross-sell, further VPN market consolidation, entering new geographies, organic subs adds). Cash generation also supports a rapid balance sheet de-levering post the ExpressVPN acquisition. Management guidance remains unchanged (FY’22e sales: $610m-$624m (SCMe: $618m); adj EBITDA: $166m-$172m (SCMe: $168m). We leave revenue, EBITDA and UFCF forecasts unchanged (potential for cash outperformance risk is now high), although we note adjustments to amortisation and finance cost assumptions see FY’23e FD EPS and levered FCF forecasts moderate by 6% and 4% respectively. UFCF and LFCF FY’22e yields of 8.4% and 9.4% look attractive, and we reiterate our BUY recommendation.
