Stock picking in the London market feels like trying to track down a leaf in a hurricane. International businesses are gearing up to pounce on a fire sale of newly cheapened British assets.
As ever, technology is at the centre of the storm. High-growth tech companies have already been consumed by foreign suitors in recent months, including the software maker Micro Focus and cybersecurity firm Avast. France’s Schneider Electric is circling software developer Aveva, and a US buy-out firm is doing the same at GB Group, which makes anti-fraud technology.
Speculation is rife as to who is next. Any target would need to prove that it can grow over time.
Step forward Kape Technologies. The company is only five years old, but has seven million paying subscribers to its digital security software products, including virtual private networks, which encrypt and protect internet connections, and a string of software brands that protect against viruses, trackers, nosy apps and malware.
The surge in digital data hacks, phishing attacks and cybersecurity threats have helped Kape race ahead. First-half results last month showed revenues surging from $95 million for the same period last year to more than $300 million. Almost half of subscribers are in the US. Cash flow grew from $12 million to almost $90 million and Kape has started to trim some of its net debt, down from $458 million last December to $391 million.
Kape’s customers tend to stick around: its retention rate is an impressive 82 per cent, and it is adroit at cross-selling subscriptions across its businesses.
This is an opportunity it will be exploiting from its almost $1 billion acquisition of ExpressVPN a year ago, which included three million users.
Teddy Sagi, the tech billionaire, owns a 54 per cent stake in Kape, but it is clearly eyeing up more purchases. It raised $220 million in a share placing a few weeks ago to accelerate growth through buyouts.
Kape’s share price is down 43 per cent this year — it peaked at 444p in March and is now about 250p — a victim of the economic hurricane which contrasts to its operational strength.
The firm’s price to equity ratio is forecast to be only 7.4 this year — “the valuation multiples appear extremely modest and attractive,” says Martin O’Sullivan, an analyst at Shore Capital.
Investing in the firm is one of the few remaining opportunities for exposure to high-growth, home-grown UK tech: buy.
