Keyware Technologies (EBR:KEYW) Research Update

Highlights:

• Arrowhead is updating its coverage on Keyware Technologies with a fair value bracket of EUR 1.44 to EUR 1.88 (share price on June 06, 2023: EUR 0.93), based on the blended valuation method, with equal weightage to Discounted Cash Flow (DCF) method and EV/EBITDA (2023E) multiple-based valuation.
• The company reported a growth of 35.5% year-on-year (YoY) in revenue, which evolved from EUR 17.7 mn to EUR 24.0 mn. The growth was underpinned by strong segmental contributions, majorly from its Payment terminals and Authorization segments. The segment growth was further accentuated by the strategic acquisitions by the company in FY 2022.
• Among the segments, the payment terminals segment reported revenue of c. EUR 10.0 mn, a growth of 42.2% YoY underpinned by the integration of Payment Solutions with a differentiated positioning, combined with its own go-to-market model. The Authorizations segment reported a revenue of EUR 8.6 mn, an increase of 43.7% YoY, driven by the migration to the new payment partners completed in the previous year. In contrast, the Software segment reported revenue of c. EUR 5.3 mn as compared with EUR 4.6 mn in FY 2021. The growth in the segment is driven by an increased number of users in the company’s order and payment app, the banking software platforms, and the software for offering staggered payments within the retail, travel, and automotive sector.
• The company reported a gross profit of EUR 16.4 mn, a growth of 32.0% YoY. However, the gross margin reduced from 70.3% to 68.5%. EBITDA for 2022 stood at EUR 4.9 mn, up 24.3% YoY. The company reported a net profit of EUR 1.6 mn, a growth of 151.1% YoY, majorly driven by higher operating income and net finance income.
• Recently, the company acquired Payment Solutions BV – a player in the Electronic Payments solutions market. The acquisition was aimed at strengthening the company’s position in the segment, expanding into new markets, and diversifying its product offerings, thereby allowing the company to leverage the synergies between the terminals segment operations and Payment Solutions BV. As a result, the company added 2,500 new contracts.
• The company reported 24.7% YoY growth in its global terminal park, which stood at 18,200 at the end of 2022, thereby doubling the customer base in Flanders and Brussels. The company is also trying to expand its footprint to the Walloon market.
• The acquisition price for the transaction stood at EUR 1.4 mn. The company financed it through a loan of EUR 1.0 mn, payable in monthly installments over the course of 5 years. This resulted in an increased debt position of the company as its total debt (including current and non-current) stood at EUR 6.6 mn, an increase of 48.3% over the corresponding period in the previous year. Total net debt stood at EUR 4.4 mn in FY 2022 as compared with EUR 2.8 mn on December 31, 2021.
• The company continues developing cutting-edge FinTech solutions that simplify omnichannel payment processes for consumers and business users. The handling of payment transactions and the renting of payment terminals have historically been the focus of the company. The company uses a software-as-a-service (SaaS) model to provide FinTech products. The SET2U transaction infrastructure, which is supported by the programs SPLIT, S-Token, and EasyOrder, is essential for its business strategy, to provide merchants and their consumers with an omnichannel experience by enabling integrated electronic payments at physical and online purchasing sites.