Report

Software continues to drive up the top-line

Software continues to drive up the top-line

EARNINGS/SALES RELEASES

H1 resulted in another relapse in profitability, mainly related to the current transition phase. We actually believe that it is a matter of time before investments bear fruit at the bottom-line. The software division continued to show its potential, while the traditional activities slowed down.

FACT

Key H1 financial highlights

Revenue down by -6.3% to €9,131m
Gross profit came in at €5,752m, leading to a gross margin of 60.9% (+190bp yoy)
EBITDA decreased by 22% to €1,525m, as a result of lower gross profit, as well as higher personnel and start-up (software) costs
Profit before tax amounted to €542m (-18% yoy)
Net profit up by +35% to €438m



ANALYSIS

The figures confirm, once again, that the group’s decision to become a software provider was the right thing to do. The H1 sales growth was only attributable to the Software division (+11.7% yoy to €1,477m), offsetting by the traditional segments which were more challenging.
The terminals business finished the half year with a decrease in absolute figures. The division’s revenues were down by 13% to €3,517m, a substantial drop which follows already poor results in FY18. The reasons remain the same: a smaller number of contracts signed and an unfavourable product mix with cheaper terminals. Unfortunately for Keyware, these headwinds are likely to persist. It reflects the decreasing numbers of traditional retailers as they have been threaten by the growing numbers of online competitors.
For the first time, the authorisations division bore the cost of the terminal’s underperformance. The division saw lower commissions and a decreasing number of contracts that generate authorisation income. The segment’s sales were down by 5.5% to €4,137m.
While these traditional activities continue to be the company’s bread and butter, the development in software is a major step into further diversification from terminals. The division’s performance in H1 was actually mainly pushed up by EasyOrder. Keep in mind that this investment, as well as S-Token and Split, are at the beginning of the product life cycle, with significant potential for the coming years. However, the impact on the bottom-line remains uncertain in the short term, but being present in this type of market is today a necessity.


IMPACT

No major impact on our expectations for the moment, but we will keep a close eye on the software activities. We are confident that the investment to become a fintech specialist will continue to inflate the top-line. A return to profitability is expected in the medium term.
Underlying
Keyware Technologies N.V.

Keyware Technologies NV. Keyware Technologies NV is a Belgium-based independent network service provider that offers electronic payment solutions. It is engaged in the: personalization, programming, installation, maintenance, rental and sale of fixed, portable and mobile payment terminals; implementation of payment transactions using Visa, MasterCard, Maestro, Amex, V-Pay, and JCB, among others; payment services for electronic-commerce and mobile-commerce; solutions for loyalty cards, as well as development and management of its payment transaction platform. The Company operates in two segments: Payment Terminals, engaged in the rental of terminals, the sale of payment terminals, installation of payment terminals, revenues related helpdesk and revenues relating to on-site interventions, as well as Payment Authorization, engaged in income related payment transactions and authorization services, transaction management for third parties, as well as loyalty processing and analysis services, among others.

Provider
AlphaValue Corporate Services
AlphaValue Corporate Services

AlphaValue Corporate Services capitalise on the research and credit analysis expertise deployed by AlphaValue with major institutional investors at European level over the past nine years. The proprietary tools and processes enabling AlphaValue Corporate Services to establish a valuation and/or a credit risk assessment are identical to those used by AlphaValue to the benefit of its institutional clients. The only difference is the recognition that a company evaluation cannot be dissociated from the fact that the latter is paying for the service (AlphaValue Corporate Services), as opposed to the investor footing the bill (AlphaValue). AlphaValue’s research tools are characterised by the transparency of the valuation methodologies, their responsiveness to market data and by nine years’ experience of a universe numbering more than 450 European companies. Through its coverage and sector exhaustiveness, AlphaValue ranks alongside the major research houses in Europe and constitutes the only new entrant to the European space in the past decade. This significant presence is reflected in an unrivalled distribution capability via platforms commonly adopted by investors to access research: Factset, Bloomberg, Capital IQ and the numerous websites. AlphaValue is one the largest research contributors to these platforms, to the benefit of AlphaValue Corporate Services issuer clients.  The AlphaValue Corporate Services analysts are AlphaValue’s sector specialists. Their robust knowledge of the business models in their sectors enables the rapid generation of incisive, relevant research and advantageous interaction with the management teams.

Analysts
Laura Parisot

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