Accelerating SaaS growth

Esker 17 October 2019 Update
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Esker

Accelerating SaaS growth

Q3 revenue update

Software & comp services

17 October 2019

Price

€82.5

Market cap

€460m

$1.1/€

Net cash (€m) at end Q319

19.0

Shares in issue

5.6m

Free float

68%

Code

ALESK

Primary exchange

Euronext Growth Paris

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

5.0

0.4

33.7

Rel (local)

3.4

(1.1)

23.3

52-week high/low

€87.30

€56.20

Business description

Esker provides end-to-end document automation solutions, offering on-demand and on-premise delivery models. In FY18, the business generated 58% of revenues from Europe, 37% from the US and the remainder from Asia and Australia.

Next events

Q4 revenue update

14 January 2020

Analyst

Katherine Thompson

+44 (0)20 3077 5730

Esker is a research client of Edison Investment Research Limited

Esker has seen revenue growth accelerate through the course of 2019. Group revenues grew 18% y-o-y in Q3 on a constant currency basis while cloud-based revenues grew 22% over the same period. The company has maintained its full year revenue guidance, which we view as conservative. We maintain our estimates, but highlight that risk is weighted to the upside.

Year end

Revenue (€m)

PBT*
(€m)

Diluted EPS*
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/17

76.1

10.7

1.32

0.32

62.7

0.4

12/18

86.9

12.2

1.64

0.41

50.3

0.5

12/19e

100.6

14.4

1.74

0.45

47.4

0.5

12/20e

114.6

18.0

2.12

0.50

39.0

0.6

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

Q3 sees record SaaS growth

Revenue growth accelerated in Q3, with Esker reporting 21% year-on-year growth in revenues to €25.4m. In constant currency, revenues grew 18%, up from 14% in Q1 and 16% in Q2. Revenues for 9M19 of €75.5m were 19% higher year-on-year and 16% higher on a constant currency basis. Cloud-based revenues (SaaS and consulting) made up more than 90% of Q3 revenues, growing 25% y-o-y and 22% in constant currency (up from 17% in Q1 and 21% in Q2). Surprisingly, legacy product sales grew 21% y-o-y in constant currency in Q3 and 13% for 9M19. Net cash at the end of Q3 increased to €19m from €15m at the end of H1.

Outlook and estimates maintained

Management continues to expect to achieve revenues of at least €100m in FY19. Based on revenues reported to date, this would require revenue of at least €24.5m in Q4, which should be achievable considering the performance in Q3 and the strength of the dollar versus the euro. We maintain our forecasts but highlight that risk is to the upside.

Valuation: Reflects SaaS business model

Esker’s stock has gained 39% year-to-date and trades at a premium to French small-cap software peers and global DPA software providers. Compared to companies with a similar SaaS business model, however, Esker trades at a discount on all multiples. As the company accelerates revenue growth towards its 20% target, we would expect the shares to re-rate. We note that Esker has a strong balance sheet with €19m net cash at the end of Q319, representing ample funds to support growth via internal investment or selective M&A.

Exhibit 1: Financial summary

€000s

2014

2015

2016

2017

2018

2019e

2020e

Year end 31 December

French GAAP

French GAAP

French GAAP

French GAAP

French GAAP

French GAAP

French GAAP

PROFIT & LOSS

Revenue

 

 

46,061

58,457

65,990

76,064

86,871

100,649

114,596

EBITDA

 

 

8,979

13,405

14,871

16,399

18,237

20,889

24,951

Operating Profit (before amort and except) 

5,700

9,257

9,934

10,547

11,913

13,683

17,295

Amortisation of acquired intangibles

0

(302)

(200)

(300)

(344)

(344)

(344)

Exceptionals and other income

53

(245)

(474)

(456)

(88)

139

0

Other income

0

0

0

0

0

0

0

Operating Profit

5,753

8,710

9,260

9,791

11,481

13,478

16,951

Net Interest

220

(6)

(108)

(110)

(57)

250

100

Profit Before Tax (norm)

 

 

5,920

9,312

9,949

10,669

12,173

14,433

17,995

Profit Before Tax (FRS 3)

 

 

5,973

8,765

9,275

9,913

11,741

14,228

17,651

Tax

(1,323)

(2,292)

(2,950)

(3,148)

(2,940)

(4,411)

(5,472)

Profit After Tax (norm)

4,609

6,877

6,785

7,281

9,125

9,959

12,417

Profit After Tax (FRS 3)

4,650

6,473

6,325

6,765

8,801

9,818

12,179

Average Number of Shares Outstanding (m)

4.8

5.0

5.3

5.3

5.4

5.5

5.7

EPS - normalised (c)

 

 

97

138

128

138

169

180

219

EPS - normalised fully diluted (c)

 

 

90

131

122

132

164

174

212

EPS - (GAAP) (c)

 

 

97

130

120

128

163

177

215

Dividend per share (c)

24

30

30

32

41

45

50

Gross margin (%)

N/A

N/A

N/A

N/A

N/A

N/A

N/A

EBITDA Margin (%)

19.5

22.9

22.5

21.6

21.0

20.8

21.8

Operating Margin (before GW and except) (%)

12.4

15.8

15.1

13.9

13.7

13.6

15.1

BALANCE SHEET

Fixed Assets

 

 

12,552

25,184

28,324

37,912

39,635

42,285

43,985

Intangible Assets

7,709

19,603

22,381

26,673

28,096

29,796

31,496

Tangible Assets

4,470

4,985

5,158

7,115

7,050

8,000

8,000

Other

373

596

785

4,124

4,489

4,489

4,489

Current Assets

 

 

33,894

36,110

42,024

42,823

49,016

56,390

63,627

Stocks

93

161

101

176

147

147

147

Debtors

15,110

18,073

19,523

21,253

25,551

28,127

32,024

Cash

17,559

16,295

21,338

20,632

22,794

27,593

30,932

Other

1,132

1,581

1,062

762

524

524

524

Current Liabilities

 

 

(19,827)

(24,789)

(28,299)

(26,206)

(30,072)

(32,555)

(35,069)

Creditors

(19,827)

(24,789)

(28,299)

(26,206)

(30,072)

(32,555)

(35,069)

Short term borrowings

0

0

0

0

0

0

0

Long Term Liabilities

 

 

(5,113)

(7,317)

(7,657)

(14,909)

(10,810)

(8,310)

(5,810)

Long term borrowings

(5,113)

(7,317)

(7,657)

(13,716)

(9,318)

(6,818)

(4,318)

Other long term liabilities

0

0

0

(1,193)

(1,492)

(1,492)

(1,492)

Net Assets

 

 

21,506

29,188

34,392

39,620

47,769

57,810

66,733

CASH FLOW

Operating Cash Flow

 

 

9,245

14,307

15,331

17,311

18,324

20,797

23,568

Net Interest

310

(27)

(127)

(75)

63

250

100

Tax

(1,075)

(1,165)

(1,456)

(2,053)

(2,795)

(4,411)

(5,472)

Capex

(4,028)

(3,909)

(7,021)

(9,304)

(7,789)

(10,200)

(9,700)

Acquisitions/disposals

22

(11,700)

(335)

(7,551)

(225)

0

0

Financing

(694)

1,324

480

(345)

785

0

0

Dividends

(877)

(1,208)

(1,550)

(1,633)

(1,756)

(2,237)

(2,656)

Net Cash Flow

2,903

(2,378)

5,322

(3,650)

6,607

4,199

5,839

Opening net debt/(cash)

 

 

(11,961)

(12,446)

(8,978)

(13,681)

(10,011)

(16,576)

(20,775)

HP finance leases initiated

(2,293)

(1,090)

(645)

0

0

0

0

Other

(125)

0

26

(20)

(43)

(0)

0

Closing net debt/(cash)

 

 

(12,446)

(8,978)

(13,681)

(10,011)

(16,576)

(20,775)

(26,614)

Source: Esker accounts, Edison Investment Research


General disclaimer and copyright

This report has been commissioned by Esker and prepared and issued by Edison, in consideration of a fee payable by Esker. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. 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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, 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 securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. 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, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “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.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

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. 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 (i.e. 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.

United Kingdom

This document is prepared and provided by Edison 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.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. Edison 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. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

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

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Esker and prepared and issued by Edison, in consideration of a fee payable by Esker. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. 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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, 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 securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. 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, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “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.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

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. 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 (i.e. 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.

United Kingdom

This document is prepared and provided by Edison 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.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. Edison 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. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

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

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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