da Intermonte – CY4GATE Company Research Report

Buon pomeriggio,

di seguito e in allegato inviamo il company research report relativo a CY4GATE a cura di Intermonte.

Rimaniamo a disposizione per ulteriori informazioni.   

Un caro saluto,                                      
Diana Avendano Grassini

M. +39 3381313854

Opportunity Remains Despite Pressure on Italian Interception Rules

• Italian lawful interception market to face pressure amid reform proposals: Italy’s Justice Minister Carlo Nordio has been pushing to pass a law restricting the instances in which authorities are allowed to lawfully intercept communications, described as a “cornerstone of [the government’s] programme”. The stated objectives are: i) reduce spending on interceptions (€177mn/€203mn in 2020/2021, with €213mn earmarked in the 2022 Budget or c.2% of the Justice Ministry’s budget); and ii) avoid judicial interference in political life. We believe the reform could increase scrutiny on c.60% of Italy’s interception market, as it was repeatedly stressed that there would be no changes to anti-Mafia/terrorism operations (c.40% of current interception targets).

• CY4’s top line could be partly exposed… we estimate the activities affected would represent c.30% of CY4’s top line (c.80% Italy x c.65% Forensic Intelligence x c.60% covered by the reform). We highlight that i) the law in question still has to be refined and passed; and ii) only a minor part of the affected sales would be at risk for CY4. …

• but multiple opportunities remain for 2023/2024: CY4 remains ideally exposed to the administration’s digitalisation efforts, with NRRP-funded projects expected to materialise more clearly later in 2023 and 2024. A new Italian law for a standardised national price list for lawful interception (already aimed at reducing spend by c.€10mn p.a.), enacted in December, could represent an opportunity for CY4 to market its product offering covering the whole lawful interception value chain to the public prosecutors’ offices that were previously out of its reach. Cost synergies (estimated at c.€2mn at run-rate, 2/3pp margin) could also be expected to emerge by 2025. Finally, the pending acquisition of Diateam (€2.2mn revenues) could further expand CY4’s presence abroad and continue to enrich its product offering.

• Change in estimates: We are mainly cautiously reflecting the potential reduction in lawful interception spending in our FY23-24 sales estimates (which we are cutting by 6%), although we expect margins to hold up better than previously expected thanks to cost synergies gradually materialising. We are also slightly adjusting our D&A and capex estimates for FY22, rising them to a more realistic level for the year, leading to the slightly lower EPS and NFP compared to our previous forecast.

• BUY rating confirmed; target €15.2 (from €16): we are reducing our multiples[1]based TP to reflect our cautiously lowered forecasts for FY23. We nevertheless re[1]iterate our positive view on the stock, reflected in the 66% upside implied by our new TP, as we believe the stock price still does not factor in the transformational acquisition of Aurora. Italian politics is still adding some short-term complexity, but CY4 remains a European leader in Forensic Intelligence, as demonstrated by its innovation capabilities, while the potential for growth in foreign markets remains.