AlphaValue Corporate Services
Cette analyse a été commandée et financée par l’entreprise concernée et constitue donc un avantage non-monétaire mineur tel que défini par MIFID2


Bloomberg   KEYW BB
Cartes à puce -sécurité  /  Belgique  Web Site   |   Investors Relation
The soft bet is paying off
Potentiel 114 %
Cours (€) 1,02
Capi (M€) 24,0
Perf. 1S: 3,03 %
Perf. 1M: 2,00 %
Perf. 3M: -1,92 %
Perf Ytd: -1,92 %
Perf. relative/stoxx600 10j: 0,09 %
Perf. relative/stoxx600 20j: -4,65 %
Publication Res./CA17/03/2017

Top-line above expectations, litigation as the major cloud


Keyware released its FY16 results, with revenues coming in at €18,721k, corresponding to an 11.4% increase yoy. Terminals came in at €11,115k, down 3.9% yoy, while Authorisations came in at €7,606k, up 45.2%.

The gross margin reached 58.2%, down 240bp yoy on a comparable basis, leading to an EBIT margin of 17%, down 230bp yoy (divisional figures are yet to be disclosed). Net profit came in at €3,101k.

The company announced the start of its operations in Germany. In addition, the announced acquisition of the 40% stake in Magellan SAS resulted in a €105k boost to the net income.


A positive overall top-line trend

Two trends can be observed at the top-line level. Firstly, the Terminals business finished the year displaying a decrease in absolute figures, despite an increase in the installed base (+1k at over 19k terminals installed), which can be interpreted as a cheaper terminals mix. However, it should be noted that in the first nine months of the year, the Terminals business was showing an 11.8% decrease yoy, and therefore the final 2016 figure points to a reversed momentum at the end of the year, or at least to a stabilisation. Concerning the authorisations, the business remains more than healthy and doesn’t show signs of weakness, while the transition towards the brokering model continues to benefit margins with a clear increase in the gross margin (22.6% vs. 17.7%); however, profitability remains inferior to that of the Terminals business, leading to a decrease in the operating margin, but this should be offset in the longer term by the superior addressable market that exists in our view, and which will benefit actual earnings in the end.

Mixed developments abroad, offset by acquisitions

We note that the lack of dynamism in the Terminals business is partly due to the somewhat disappointing start in the German business, which nevertheless appears a very promising market as the equipment rate there is lagging the European one. The launch of the business resulted in a €102k loss, mostly due to the initial costs, but it appears that the road to nominal profitability will be long, as entry barriers appear to be greater than expected (5-year long contracts) and local suppliers are willing to enter into a price competition; in addition, the market remains weighted towards authorisations, leading to lower ASPs. In the end, breakeven appears to be possible this year, especially as launching a new business always leads to necessary adjustments, but the learning curve might be longer than expected.

On the other hand, the acquisition of Magellan SAS is already delivering interesting results, with a €105k boost to earnings despite the short period of integration (one quarter). As a consequence, we are tempted to say that it is a matter of time before Keyware increases its stake in the company, which would add up to €6m to the cash outflow (although some of the payment would probably be in shares) and potentially leading to a pause in the dividend distribution. Similarly, the acquisition of EasyOrder is a step further into diversification from terminals, a strategy already successfully followed by a juggernaut like Ingenico; the impact on the bottom-line remains uncertain in the short term, but being present in this type of market is today a requirement and will allow it to create a cross-channel ecosystem.

Pending litigation

Finally, Keyware was fined €750k by the Brussels Court, a decision against which the company appealed. We note that this appeal has led to payment of the fine being postponed, which probably pushes back the decision to 2018 and leads to no provision being recorded as management sees it as a contingent liability. This potential fine is clearly a burden on the company, although financially “tolerable”, but the biggest impact in our view is in terms of corporate image, which is hard to quantify. However, we expect once again no financial impact for 2017.


Moderate impact on our forecast: the higher than expected revenues are offset by the lower profitability.

We will also record a €750k charge in 2018 for the pending litigation in case the appeal isn’t successful, although we consider that the company has a good chance of being successful.

The impact of this charge on the valuation will be limited, as the company’s cash generation remains very satisfying, leading to no change in our recommendation.