I am sure that readers will scoff at the way that I keep going on about annual recurring revenues (ARR), however, I have little hesitation in once more bringing this particular company to your attention.
Exactly what is Annual Recurring Revenue (ARR)?
Annual recurring revenue (ARR) refers to contracted revenue, normalised on an annual basis, that a company expects to receive from its customers for providing them with products or services.
Essentially, annual recurring revenue is a metric of predictable and recurring revenue generated by customers within a year. The measure is primarily used by businesses operating on a subscription-based model.
Annual recurring revenue (ARR) is considered one of the most important metrics for subscription-based companies. The metric offers some crucial applications for a company: - it quantifies the company’s growth; helps to evaluate the success of the business model; and then constructs forecast revenue.
The predictability and stability of ARR make the metric a good measure of a company’s growth. By comparing ARRs for several years, a company can clearly see whether its business decisions are resulting in any progress.
Similarly, ARR can be used by bankers, corporate financiers, investors and even potential predators, when assessing the real value of a business.
Of course, not all businesses exist on subscriptions, nor even have regular income, so when ARR models are shown they do stand out significantly from the crowd.
I also love to see ‘insider trading’
Perhaps not so much the insiders within a company management actually trading their stock, but more to see the decisions of those deep inside a business.
Are they buying more shares? Have they been adding to their holdings to maintain similar per centage equity positions in expanding businesses where stock issues help the funding, or have they been selling off holdings to pay for tax bills or even divorces?
So, when I see executive directors of a group topping up their stakes it always gets my attention.
None more so than when company bosses already have equity control of a business that is fast expanding through the issue of more shares.
Big increase in his holding
Just such an example is Teddy Sagi, the Israeli-born owner of the Isle-of-Man registered Unikmind Holdings.
The 50-year-old tech sector billionaire, who has six children, recently added to his massive equity position in the Kape Technologies (LON:KAPE) group. With Unikmind as the registered holder, he now has 187,442,335 shares in the company, representing 62.25% of its enlarged equity.
That stake is up fractionally from 61.30%, which may only be a small increase but it still cost around £11m in the purchase.
That has risen from almost 144.5m shares (65%) in December last year, which is even more impressive because of the $936m acquisition of ExpressVPN in September this year, with the accompanying $354m fundraising and share issue.
It clearly showed that he has not lost any of his faith in the group’s future success.
But Sagi is all about success!
This entrepreneur created, built up and AIM-floated Playtech, the world’s leading online gaming software company. Having sold down his holding he no longer holds any shares in that company.
Subsequently he built up SafeCharge, the AIM-listed online payment service provider, he sold that off in August 2019.
Amongst many other investments Sagi also owns a significant global property portfolio that includes the majority of London’s Camden Market, said to cover an 11-acre chunk of local real estate.
What is the business?
Kape is a leading 'privacy-first' digital security software provider to consumers.
The group has a ‘vision’ of a world where people retain their security, anonymity, and freedom online.
As more of our daily lives shift to the digital world, security and privacy have never been more important.
Through its range of products, it focuses on protecting consumers and their personal data as they go about their daily digital lives.
The group now has some 6m paying subscribers, supported by a team of over 430 people across eight locations worldwide.
Through its subscription-based platform, Kape has rapidly established a highly scalable SaaS-based operating model, geared towards serving the vast global consumer digital privacy market.
The group’s retention rate is an industry-leading figure for a B2C (business to consumer) SaaS business – it is a very impressive 83%.
It develops, acquires, and distributes a variety of leading digital security software products.
The company believes in having the best products, supported by top teams developing world class technology to deliver a superior experience to a rapidly growing audience.
The ExpressVPN springboard
Over the last few years, Kape has been quite an active acquisitor of companies that not only fit in but also help to significantly expand the group’s product and service offerings.
None more so than the latest ExpressVPN deal, which was a colossal move by the group.
It is a very well-known and well-respected leader in the privacy and cybersecurity sector with over 3m paying subscribers globally, with some 40% in the US.
It is a leading Virtual Private Network (VPN) provider with premium products aimed at the consumer marketplace.
Its acquisition was really quite significant, creating an effective ‘global powerhouse’ in the digital privacy and security space.
Broker’s View
Analyst Martin O’Sullivan, at the ‘house’ broker Shore Capital Markets, estimates that the current year to end December will see the revenues rise from $122m to $199m while almost doubling adjusted pre-tax profits from $39m to $74m, worth 24.4c (13.5c) in earnings per share.
For the next two years, he sees $618m then $697m in sales, with profits coming in at $151m then $173m, and earnings of 40.6c then 46.5c per share for 2022 and 2023 respectively.
Over at Progressive Equity Research, Gareth Evans sees fairly similar revenue, profits and earnings figures.
However, he points out one massive ‘bull point’ for the group in the recent fundraising valuation for Aura, one of the group’s US-based cyber sector peers.
That company has just raised some $200m based upon a valuation of between 10 to 11 times its 2022 revenues. Kape is on around three times!
My View
Kape Technologies is certainly all about successful, expansive and global subscriber growth.
We will have to wait until the group’s Trading Update is announced in January to see just how accurate the analysts have been in their current year estimates.
I have been absolutely delighted with the group’s share price performance since my first profile on the company in late December last year, having risen more than 134% in just over ten months.
But I foresee that the shares, now 402.5p, have still further to rise, with 600p possibly being an easy aim in 2022.
(Profile 21.12.20 @ 172p set a Target Price of 215p*)