App Distribution revenues grew 14% y-o-y to $26m in H118, primarily driven by CyberGhost, which performed strongly organically and was also consolidated for the full period. The initiative to focus Reimage on more profitable subscription customers is going well, with 40% of sales subscription-based. This shift from one time licenses to recurring subscriptions suppresses revenue but as subscription customers are more profitable this is compensated by higher margins. We modestly raise our FY18e organic profit forecast but leave FY19e unchanged (see Exhibit 1). 

Kape has also announced the sale of its Media business to Ecom online. The price is not disclosed but proceeds will be based on a 50% profit share over the next five years. Based on our segment forecast, we estimate the total consideration will be c $1m. The disposal completes the company’s transition to focus exclusively on the consumer cyber security market.  

The combination of the Media disposal, CyberGhost growth, Intego acquisition and the ramp of Reimage’s subscription sales is driving big improvements in revenue mix. We estimate subscriptions now account for c 62% of pro-forma revenues. The disposal of Media also lifts our FY19e EBITDA margin forecast by 3.5pp to 19.6%.

With the sale of Media, Kape has essentially completed its strategic transition and is now exclusively focused on consumer cybersecurity. The acquisition of Intego, rising subscription revenues and margins highlight the potential benefits of this strategy for shareholders. In a fragmented market and with cash on the balance sheet, we see scope for Kape to make further value creating deals and to enhance its strategic position further. On our revised forecasts, stripping out $52m cash on the balance sheet, Kape trades at just 15.5x FY19e EPS.