London, UK, 19 June 2018

Edison issues initiation on Kape Technologies (KAPE)

Kape has made solid progress in refining its product set and is now fully focused on the consumer cyber security segment. By leveraging its marketing platform to scale new products while also transitioning to a subscription model, we expect to see strong revenue growth and margin expansion translating to our forecast 16% three year CAGR in EPS. With $69.5m net cash, acquisitions should enhance this further. We believe the shares should be on a growth rating yet despite the recent performance, the 21.8x FY18 P/E is below peers. We see upside towards 157p.

The B2C cyber security market is evolving rapidly to cope with the increased risk profile faced by consumers. In a competitive market, brand visibility and trust are key. While relatively small compared to large cyber security peers that offer similar product lines, Kape's experience in user acquisition should enable it to punch above its weight. A DCF suggests the share price is starting to discount the near-term organic opportunity. However, additional acquisitions are targeted and with net cash accounting for 41% of the market cap, a deal could trigger material earnings upside. With efficient deployment of the balance sheet, we see scope for the shares to move towards 157p as opportunities convert.

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