Small-Cap catch-up: KAPE, ITIM and HSP

Kape Technologies (LON:KAPE) – cross-selling opportunities abound

I consider that the share price of this digital security and privacy software provider does not reflect its significant potential.

In the last few years, it has grown very substantially through both its organic and its acquired expansion.

It now has over 6.5m paying subscribers for its services.

Through that rapidly built-up platform the group is an excellent example of scalability.

Its prospects for cross-selling its various products and services expand massively as the group pushes its growth strategy.

And that market widens as the company and its various subsidiary operations develop and present new features for its products.

The customers of the group’s recently acquired ExpressVPN, the premium digital privacy and security player, for which Kape paid $936m, are being targeted with Kape’s other products and services.

ExpressVPN is an excellent fit into Kape’s business and has taken the latter into scoping the virtual private network’s 3m plus subscribers, some 40% of whom are based in North America.

Kape was already global, but ExpressVPN has really boosted its marketing opportunities.

This group will not stand still, it seems, and it is a fabulous money-machine.

The company’s NOMAD and joint-broker Shore Capital Markets last week noted that the group is now introducing several new features to its ranges, including: Threat Manager, a privacy protector; Parallel Connections, which optimises VPN connection time; and Keys, which is a password manager for applications.

Shore analyst Martin O’Sullivan estimates that revenues will increase this year to end December from $230.5m to $617.8m, with adjusted pre-tax profits more than doubling to $151.0m ($72.8m), helping to pump up earnings from 23.1c to 40.6c per share. That latter improvement was despite the massive equity dilution from the ExpressVPN deal.

For next year O’Sullivan goes for $697.3m of sales, $173.5m profits and 46.5c per share in earnings.

Those estimates convince me that I am right in stating that the shares of Kape Technologies are really quite attractive at the current levels, with its shares at 344p, which is a clear 100p lower than they were trading at in January this year.

I expect to see the next Trading Update in early July, by which time the shares could well be a lot higher.

(Profile 21.12.20 @ 172p set a Target Price of 215p*)

(Profile 01.11.21 @ 404.5p set a Target Price of 600p)

itim Group (LON:ITIM) – I do not care about profits halving this year

This is another technology sector company that I think is well worth following. Where Kape may be worth £1.2bn in mkt cap this company is a tiddler at just £35m.

But it too is expanding its product and service ranges to its growing subscriber list.

It is a software as a service (SaaS) based company enabling retailers to operate their businesses more efficiently in both stock and in the financials.

The results for the year to end December 2021 were released late last week.

They showed revenues up 14% to £13.5m (£11.8m), while pre-tax profits fell from £0.46m to £0.23m, earnings per share were 0.78p (3.31p).

All those figures had been impacted by the group going public this time last year. That was when the company raised £8m gross, before float expenses, to help finance its growth strategy.

What I did like to see was the note of its annual recurring revenue (ARR) at £11.1m (£9.6m), which represented some 77% of group sales. Now those were very healthy numbers and bode the group well to further advance its ARR for its current trading year.

As the company continues to develop its business it will not see too much of an improvement in profitability this year, however its ARR could well grow by another quarter taking it up to £14m or thereabouts.

It is what happens next year that will show just how well itim’s shares will perform.

Analyst John Cummins at brokers WH Ireland is looking for £19.6m sales and £3.0m profits, worth 9p per share in earnings. In the sale time he expects the net cash to grow at year end from £7.3m in 2022 to £10.8m in 2023.

Cummins has a ‘fair value’ figure of 200p for the group’s shares, which last Friday night closed at just 117p.

That price does not compare well with the group’s IPO Placing price of 158p in late June last year – meaning that at this level they could well be even more of a bargain than I first thought.

I have no worries about my price objective being achieved very soon.

The group’s AGM is due to be held on 20 June.

(Profile 07.03.22 @ 104p set a Target Price of130p)

Hargreaves Services (LON:HSP) – pig iron and zinc prices are helping the joint venture

Last Wednesday’s Capital Markets Day for this industrial and property sector services group went down well, I understand.

No fresh trading news was given to attendees, who were instead informed about the group’s German joint venture, Hargreaves Raw Material Services, as well as opportunities for the group’s land portfolio.

Analysts James Tetley at Singer Capital Markets currently has a ‘sum of the parts’ valuation of 710p for the group’s shares, compared to the Friday night closing price of 567p.

Tetley is estimating that the year to the end of this month will see revenues fall back from £204.8m to £166.0m, while actually producing a very much better £29.4m adjusted pre-tax profit (£21.2m), with earnings of 86.5p (70.1p) easily covering a 20.4p (19.2p) dividend per share.

The broker, in rating the group’s shares as a ‘buy’, looks for £200m sales in the end May 2023 year, profits of £25.3m, earnings of 71.7p and a 21p dividend per share.

I look forward to the year end Trading Update in very early June.

In the meantime, I see the shares continuing to edge higher.

(Profile 29.12.20 @ 263p set a Target Price of 325p*)

(Asterisks * denote that Target Prices have been achieved since Profile publication)