Kape Technologies (LON:KAPE) , it’s fair to say, divides opinion. On the one hand, it’s growing at pace, but on the other it is majority-backed by a colourful billionaire and comes with some pretty hard-to-decipher accounts.

At a recent Mello Bash, I was asked to look into this mid cap technology stock and owner of the CyberGhost VPN brand. Either this is a great investment opportunity in a high growth market, or it could go badly wrong.

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My initial view is that Kape Technologies is probably well-placed to grow for many years to come. It will do this via organic investment and acquisitions. Given that, I think it is probably attractively priced at 17.2x forecast earnings and 4.1x forecast sales.

But I qualify my view due to accounting issues which I have so far failed to resolve. And because of that I continue to rule it out as an investment.

There’s no two ways about it: Kape’s accounts are hard to understand. Perhaps Kape holders on the site can give some insights.

As I see it, underlying performance is obscured by:

  • The recent shift in strategy and reporting segments,
  • Subsequent material acquisitions,
  • Adjusted cash flow accounting,
  • Adjusted EBITDA measures, and
  • Accounting for contracts.

Complicated accounts put me off. It seems I’m not alone - the Mello panel quickly identified these issues and the company was deemed a clear majority ‘Sell’ in the eyes of the c500-strong audience.

It would be great to get some views on this one because if these doubts over the accounting can be legitimately explained, then we are probably looking at a high growth company that is being discounted by the market due to it being in the ‘too difficult’ tray (or worse) for many investors.

Kape: a brief summary

Kape is a digital security software provider that focuses on protecting consumers and their personal data as they go about their daily digital lives. These security products are designed for big, growing global consumer markets.

The group has successfully transitioned to a SaaS model and boasts strong revenue visibility and EBITDA growth. With its focus on customer service, Kape is also achieving strong customer retention of around 80%.

Its operating segments are Digital Privacy and Digital Security.

  • The Digital Privacy market is a fast growing area and the COVID pandemic has increased internet usage. The VPN market exceeded $25bn in 2019…

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