Kape has today published a trading update for its 2019 year. The group, in addition to the November acquisition of PIA, has revealed a strong close to the year, with Adjusted EBITDA slightly ahead of expectations. We make no changes to our revenue and EBITDA forecastsfor 2020, which remain within the range of guidance provided, but take significant comfort from the fact that Kape has now delivered both strong organic outperformance and a transformational acquisition in recent months.
Financial performance The group has announced that its 2019 year ended well, with Adjusted EBITDA likely to come in at c.$14.5m (vs our expectation of $14.2m) and revenue also materially in line with expectations at around $66m (we had $68.6m). No net cash figure is given in the release. The higher-than-anticipated margin relates to a focus on the more-profitable VPN area of revenue, as the group continues its push for profitable growth.
Transformational PIA acquisition As described in our note of 19 November, Kape acquired PIA (Private Internet Access) for an EV of some $128m, taking the combined group to revenues of over $120m, and making it a serious player on the world stage for cyber security, with over 2 million subscribers. Today’s RNS includes commentary around the integration which appears to be progressing according to plan.
No changes to estimates We make no change to 2019 estimates other than to update for net debt reflecting the PIA deal closing earlier than we had expected. Our 2020 operating estimates are also unchanged – the group has reiterated its guidance for the year of $120-123m revenue and $35-38m Adjusted EBITDA, with our estimates sitting prudently within this range. Once we see further detail on the 2019 margin outperformance, we may look to revise upwards our 2020 and 2021 estimates, but for now we remain comfortable with our hopefully-cautious outlook. Full year results are expected to be published on 17th March 2020.
Kape is clearly going from strength to strength, delivering solid ongoing performance from the existing business, and adding a very material element of scale and product though the PIA acquisition. We look forward to further delivery during 2020 as the group benefits from its market position and presence. Given the transformational PIA deal, we would expect M&A activity to slow for a time, but it remains likely to feature in the group’s future as Kape consolidates on its growing position in the global market.