Jonathan Compton
It is with a red face that I look back at last year’s tips – BT and Vodafone. Both were duds. I continue to hold for better days. So it is with trepidation that this year I suggest a tech-related company. The sector has rightly been trounced, and yes, catching falling knives is not to be recommended. Yet my pick is UK-listed Kape Technologies (LSE: KAPE), a £950m company that has been dragged down even as revenue and profits have blossomed and the outlook brightened.
Moreover, it has all the key criteria I want in any company: visibility over growth in earnings, a strong niche position, stonking free cash flow and falling debt – especially important as too many companies have become overreliant on cheap borrowing. These criteria also make the likes of Kape natural takeover targets, as in practice any bid would be largely self-funding.
It specialises in virtual private networks (VPNs) and cybersecurity. You probably don’t use a VPN on your PC or tablet today, but many of us will because it provides an encrypted server and hides your IP address from spammers, hackers and prying eyes. In short, it keeps your data far safer than conventional security packages. Seven million customers already use Kape, while the market for computer privacy is huge and expanding fast; we’re all fed up with torrents of spam and hackers.
Customer retention is high at 82% and in the half year to September the adjusted cash profit nearly trebled to $89m, while the free cash-flow yield was 12.6%. Kape has grown both organically and via acquisitions, but so strong is its growth that at the interim stage debt fell by over a fifth to $392m and should continue to tumble. The forward price/earnings (p/e) ratio for 2023 is below eight.
“A virtual private network (VPN) keeps your data far safer than conventional
