EQS Group — Investment on plan

EQS Group (SCALE: EQS)

Last close As at 27/03/2024

40.80

−0.40 (−0.97%)

Market capitalisation

409m

More on this equity

Research: TMT

EQS Group — Investment on plan

EQS’s Q118 report shows performance in line with expectations, with 13% top-line growth and higher investment pushing the group into an EBITDA loss. All is on track for a Q418 launch of the new COCKPIT web-based product platform and our forecasts for FY18e, FY19e and FY20e are unchanged. New KPIs and segmental reporting highlight a strong recurring revenue base and will clarify the growth dynamics of customer numbers and associated revenues. EQS’s markets remain attractive, with corporate obligations become more numerous and complex, underpinning the rating.

Fiona Orford-Williams

Written by

Fiona Orford-Williams

Director, TMT

TMT

EQS Group

Investment on plan

Q1 update

Software & comp services

24 May 2018

Price

€77.5

Market cap

€109m

Net debt (€m) as at 31 March 2018

10.5

Shares in issue

1.4m

Free float

55%

Code

EQS

Primary exchange

Xetra

Secondary exchange

FRA

Share price performance

%

1m

3m

12m

Abs

6.2

6.2

47.0

Rel (local)

2.9

2.1

43.4

52-week high/low

€84.5

€48.8

Business description

EQS Group is a leading international technology provider for digital investor relations, corporate communications and compliance. It has over 8,000 client companies worldwide using its products and services to securely, efficiently and simultaneously fulfil complex national and international information obligations to the global investment community.

Next events

Half-year figures

16 August 2018

Q3 update

15 November 2018

Analysts

Fiona Orford-Williams

+44 (0)20 3077 5739

Bridie Barrett

+44 (0)20 3077 5700

EQS Group is a research client of Edison Investment Research Limited

EQS’s Q118 report shows performance in line with expectations, with 13% top-line growth and higher investment pushing the group into an EBITDA loss. All is on track for a Q418 launch of the new COCKPIT web-based product platform and our forecasts for FY18e, FY19e and FY20e are unchanged. New KPIs and segmental reporting highlight a strong recurring revenue base and will clarify the growth dynamics of customer numbers and associated revenues. EQS’s markets remain attractive, with corporate obligations become more numerous and complex, underpinning the rating.

Year end

Revenue (€m)

PBT*
(€m)

EPS*
(€)

DPS
(€)

P/E
(x)

EV/EBITDA (x)

Yield
(%)

12/16

26.1

2.4

0.96

0.75

80.7

35.5

1.0

12/17

30.4

0.8

0.16

0.00

N/A

49.6

0.0

12/18e

36.5

(0.2)

(0.07)

0.00

N/A

75.1

0.0

12/19e

43.5

2.4

0.93

0.20

83.2

35.4

0.3

12/20e

50.8

5.8

2.26

0.40

34.3

17.4

0.5

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Improved KPIs and reporting segments

Previous reporting by product category was failing to represent the development of the business model clearly. The new categorisations highlight the revenue split across EQS and ARIVA, separating out revenues from XML and from sales of LEIs (see Outlook), plus the number of clients by activity. It also identifies the proportions of business in Investor Relations and Compliance, with the latter having the greater growth potential. Compliance revenues were up 34% on Q117, with IR marginally behind (-1%) despite higher client numbers. EQS has also introduced new KPIs that draw attention to its recurring SaaS revenues, at 79% of group revenues in Q118 (Q117: 74%). It is also disclosing customer numbers (1,081, +12), quarterly revenue per customer (€3,300), acquisition costs (€4,200) and churn (<5%).

Additional spend

EQS is employing over 60 specialists to build up the new COCKPIT, ramping the Q1 personnel costs to €5.3m (Q117: €3.9m), with additional costs in buying in contractors. EBITDA for the period consequently showed a loss of €0.3m (Q117: €0.7m profit). Guidance for the full-year remains €1.5-2.1m and at €1.6m our forecast is unchanged at the low end of this range. Net debt at end March had increased to €10.5m from €3.6m at the year-end, reflecting the acquisition of cloud-based whistle-blowing systems company, Integrity Line.

Valuation: Back at development stage

The curtailment of earnings by the current investment phase inevitably makes the shares look expensive against peers (which trade on FY18e 20.6x EV/EBITDA and 31.8x P/E). A DCF approach suggests a valuation per share of €102, which we then discount by 15% to reflect execution risk, indicating a valuation of €87/share.

Exhibit 1: Financial summary

€'000s

2016

2017

2018e

2019e

2020e

31-December

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

26,061

30,355

36,500

43,500

50,750

Cost of Sales

0

0

0

0

0

Gross Profit

26,061

30,355

36,500

43,500

50,750

EBITDA

 

 

4,175

2,349

1,600

4,150

7,500

Operating Profit (before amort. and except.)

3,282

1,077

175

2,675

6,025

Intangible Amortisation

(619)

(732)

(750)

(775)

(775)

Exceptionals

0

0

0

0

0

Other

(874)

(146)

(150)

(150)

(150)

Operating Profit

1,788

199

(725)

1,750

5,100

Net Interest

(14)

(139)

(190)

(150)

(110)

Profit Before Tax (norm)

 

 

2,393

792

(165)

2,375

5,765

Profit Before Tax (FRS 3)

 

 

1,774

60

(915)

1,600

4,990

Tax

(960)

(634)

62

(891)

(2,162)

Profit After Tax (norm)

1,144

215

(93)

1,336

3,243

Profit After Tax (FRS 3)

814

(574)

(853)

710

2,828

Average Number of Shares Outstanding (m)

1.19

1.31

1.43

1.43

1.43

EPS - normalised (c)

 

 

96.1

16.4

(6.5)

93.1

226.0

EPS - (IFRS) (c)

 

 

43.2

(39.3)

(58.8)

39.1

172.0

Dividend per share (c)

75.0

0.0

0.0

20.0

40.0

EBITDA Margin (%)

16.0

7.7

4.4

9.5

14.8

Operating Margin (before GW and except.) (%)

12.6

3.5

0.5

6.2

11.9

BALANCE SHEET

Fixed Assets

 

 

30,389

34,914

42,195

46,945

48,945

Intangible Assets

26,314

26,662

30,368

34,593

35,818

Tangible Assets

4,075

8,251

11,826

12,351

13,126

Investments

0

0

0

0

0

Current Assets

 

 

12,014

12,536

10,613

11,704

13,137

Stocks

0

0

0

0

0

Debtors

4,562

5,053

5,954

7,096

8,113

Cash

6,610

6,374

3,550

3,500

3,915

Other

842

1,108

1,108

1,108

1,108

Current Liabilities

 

 

(9,942)

(11,559)

(10,679)

(11,739)

(12,326)

Creditors

(5,853)

(5,574)

(6,829)

(8,139)

(9,676)

Short term borrowings

(4,089)

(5,986)

(3,850)

(3,600)

(2,650)

Long Term Liabilities

 

 

(7,237)

(6,526)

(9,881)

(8,731)

(6,581)

Long term borrowings

(4,761)

(3,946)

(7,300)

(6,150)

(4,000)

Other long term liabilities

(2,476)

(2,581)

(2,581)

(2,581)

(2,581)

Net Assets

 

 

25,224

29,363

32,247

38,179

43,175

CASH FLOW

Operating Cash Flow

 

 

3,827

1,850

1,745

4,100

7,800

Net Interest

(13)

35

(190)

(150)

(110)

Tax

(341)

(238)

(460)

(176)

(1,209)

Capex

891

(4,456)

(5,000)

(2,000)

(2,250)

Acquisitions/disposals

(3,731)

(3,148)

0

0

0

Equity Financing

2,601

6,965

(138)

(137)

(142)

Dividends

(877)

(1,939)

0

(287)

(574)

Net Cash Flow

2,357

(931)

(4,043)

1,350

3,515

Opening net debt/(cash)

 

 

4,716

2,240

3,557

7,600

6,250

HP finance leases initiated

104

0

0

0

0

Other

15

(386)

0

0

0

Closing net debt/(cash)

 

 

2,240

3,557

7,600

6,250

2,735

Source: Company accounts, Edison Investment Research

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by EQS Group and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by EQS Group and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
Edison has a restrictive policy relating to personal dealing. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (ie without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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