We believe the cybersecurity industry looks like a great place to invest for the long-run, and Kape Technologies (KAPE:AIM) is an under-the-radar way to do so.

As the number of hacking attacks on government agencies and major businesses surge, digital defence budgets are also rising rapidly, and increasingly consumers are having to think hard about how they protect themselves and their valuable online data.

Kape provides consumer cybersecurity solutions, moving rapidly to expand its suite of privacy and security services since 2016 through acquisitions, including Cyberghost, Intego, PIA and Webselenese for around $300 million combined.

Yet it was September 2021’s $936 million purchase of virtual private network group ExpressVPN that promises to be transformational. Alongside bolstering its market strategy and research and development capabilities, Kape has already started realising ‘significant’ operational benefits, such as back-office cost-savings and leveraging of economies of scale in infrastructure and marketing.

The group has relied on a combination of equity and debt raises to support this M&A, with equity raises include a $354 million placing in September 2021 to partially fund the ExpressVPN acquisition and, just last month, another $222.5 million capital raise to refresh its war chest.

Kape had been looking to raise approximately $100 million to $200 million but investor demand saw it raise more, including money from entrepreneur Teddy Saggi, whose Unikmind trust retained its 55% shareholding. Saggi founded gambling software firm Playtech (PTEC).

Such strong support for Kape will have been helped by compound annual growth of revenue and adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) of 56% and 83% respectively, according to Shore Capital analysis, since 2017.

Half-year results on 12 September revealed 217% revenue growth to $302.4 million, a 19% increase on a pro forma organic basis, and reiterated the full year outlook for 117% pro forma adjusted EBITDA growth at the midpoint of the guidance range of $166 million to $172 million. Importantly, cash generation remains strong, having reported $352 million of free cash flow in 2021.

Gross margins run at over 90% although return on equity and investment metrics could do with improvement, at 9.6% and 8.7% respectively, according to Investing.com data. The company
said in September that it is more confident than ever in its prospects.

A 2023 calendar price to earnings multiple of 6.4, based on Shore Capital forecasts, means the shares are very cheap.

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