Building recurring income

EQS Group 22 May 2019 Update
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EQS Group

Building recurring income

Q1 results

Software & comp services

22 May 2019

Price

€69.00

Market cap

€98m

Net debt (€m) at 31 March 2019 (on an IFRS 16 basis)

18.76

Shares in issue

1.4m

Free float

69%

Code

EQS

Primary exchange

Xetra

Secondary exchange

FRA

Share price performance

%

1m

3m

12m

Abs

(3.5)

(2.2)

(15.5)

Rel (local)

(2.9)

(8.0)

(9.0)

52-week high/low

€82.00

€67.00

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 results

16 August

Q3 results

15 November

Analysts

Fiona Orford-Williams

+44 (0)20 3077 5739

Russell Pointon

+44 (0)20 3077 5700

EQS Group is a research client of Edison Investment Research Limited

Q119 revenue growth of 9% was a little less than expected due to the lack of IPOs and corporate announcements, but the good pace of corporate sign-ups leaves full year revenue guidance unchanged. EBITDA guidance is also unchanged, but now includes the uplift arising from the application of IFRS 16. As in previous years, meeting the full year expectations will rely on a strong Q4 performance. EQS’s positioning as a provider of cloud-based IR and compliance services for corporates, with growing (recurring) SaaS revenues, remains attractive.

Year end

Revenue (€m)

PBT*
(€m)

EPS*
(€)

DPS
(€)

P/E
(x)

EV/EBITDA (x)

Yield
(%)

12/17

30.4

0.8

0.16

0.00

N/A

44.4

N/A

12/18

36.2

(1.4)

(0.19)

0.00

N/A

N/A

N/A

12/19e

41.8

0.0

(0.02)

0.00

N/A

32.6

N/A

12/20e

49.2

3.2

1.31

0.35

52.8

18.4

0.5

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

IFRS 16-driven changes to forecasts

The introduction of IFRS 16 makes significant changes to the presentation of the accounts, reducing operating expenses by around €1.8m, with changes to depreciation (increased) and financial expenses (reduced). Previous FY19 EBITDA guidance of €1.0–2.0m therefore translates to revised guidance of €2.8–3.8m. Our FY19 EBITDA forecast is now €3.6m (was €1.8m). Except for the IFRS 16 impact, all our underlying assumptions remain unchanged. The capitalisation of leases has also changed the balance sheet presentation, increasing the fixed assets from €2.2m at the year-end to €11.5m at the end of March 2019. Net financial liabilities also increased by €9.6m to €18.76m, but underlying debt levels remain unchanged over the quarter.

Further COCKPIT development

The continuous updating of regulation will provide an advantageous backdrop for EQS, but the key selling points will be security, cost and convenience, as well as the ability to add functionality for its clients without wholesale change. Policy Manager and Integrity Line (the whistleblowing module) could each account for over 20% of Compliance revenues within management’s outline plan to FY25. The investment phase has required higher specialist staffing levels. Personnel costs were up 22% in Q119 to €6.4m, now expected to stabilise, with the cost of freelancers (shown within cost of services) now past the peak requirement.

Valuation: Well underpinned

With profitability suppressed by the additional and slightly prolonged investment phase, traditional valuation multiples are not particularly helpful, barring EV/sales. Larger global financial platform peers are valued on 4.5x FY19e, against EQS on 2.8x, a 38% discount. A reverse DCF suggests an EBITDA margin of c 15% beyond our explicit 2019–20 forecast period is required to arrive at the current share price of €69, compared to management’s targeted 25% by FY23.

Starting to leverage the COCKPIT

EQS recruited 97 new large-cap customers in Q119, putting it on track to meet its target of 400 for the year. The proportion of subscription and recurring revenues will continue to grow as IR clients are migrated across to the new COCKPIT platform and as the new Compliance modules start to build traction. There will be an inherent lag until new signings are reflected in reported revenues.

Exhibit 1: Quarterly trends

Large-cap German clients

Q118

Q218

Q318

Q418

Q119

Newly won ARR (€000)

-

-

396

281

234

Recurring revenues

78%

86%

83%

86%

81%

New customers

12

34

30

31

29

Total number of customers

1,081

1,115

1,143

1,166

1,187

Quarterly revenue per customer (€)

3,300

3,100

2,850

3,075

2,950

Customer acquisition cost (€)

4,200

4,200

4,500

5,350

N/A

Annual churn rate

-

0%

0.2%

0.7%

0.7%

Source: Company accounts

Q119 revenues from the Compliance segment were up 7% on the prior year, a slightly lacklustre figure due to the lack of IPOs to drive regulatory news and announcements drifting into Q2 translating into a reduced requirement for XML, effectively a timing issue. However, the market was good for Legal Entity Identifiers (LEIs) and the whistleblowing software, Integrity Line, has made a good start. A number of high-profile cases being highlighted in the press should help to drive further interest in this product service. The Policy Manager and CRM models are being added onto the platform.

Management anticipates that growth will also come from:

Adding elements to the COCKPIT platform, such as third-party due diligence, risk assessment/management and eLearning;

expansion into new markets – with France, the UK and Italy in their sights; and

extending the reach to include non-listed companies, which will also need to comply with more onerous regulation.

IR revenues were up by 11% in the quarter, boosted by project revenues. In addition to the planned migration of customers onto the COCKPIT (with the ambition to migrate all German clients by the year-end), the forecast growth is predicated on:

new products being added, such as CRM and Analytics; and

expansion into new markets, particularly the US, Italy and the Nordics.


Exhibit 2: Financial summary

€000s

2016

2017

2018

2019e

2020e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

26,061

30,355

36,210

41,785

49,175

Cost of Sales

0

0

0

0

0

Gross Profit

26,061

30,355

36,210

41,785

49,175

EBITDA

 

 

4,175

2,349

301

3,600

6,800

Operating Profit (before amort. and except.)

3,606

1,077

(1,276)

166

3,366

Intangible Amortisation

(943)

(732)

(782)

(862)

(862)

Exceptionals

0

0

0

0

0

Other

(874)

(146)

2,128

0

0

Operating Profit

1,788

199

70

(696)

2,504

Net Interest

(14)

(139)

(172)

(205)

(205)

Profit Before Tax (norm)

 

 

2,717

792

(1,448)

(39)

3,161

Profit Before Tax (FRS 3)

 

 

1,774

60

(102)

(901)

2,299

Tax

(960)

(634)

913

14

(1,185)

Profit After Tax (norm)

1,468

215

(265)

(27)

1,877

Profit After Tax (FRS 3)

814

(574)

811

(886)

1,114

Average Number of Shares Outstanding (m)

1.19

1.31

1.43

1.43

1.43

EPS - normalised (c)

 

 

123.3

16.4

(18.5)

(1.9)

130.8

EPS - (IFRS) (c)

 

 

43.2

(39.3)

75.3

(61.9)

70.7

Dividend per share (c)

75.0

0.0

0.0

0.0

35.0

EBITDA Margin (%)

16.0

7.7

0.8

8.6

13.8

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

13.8

3.5

-3.5

0.4

6.8

BALANCE SHEET

Fixed Assets

 

 

30,389

34,914

40,920

49,224

47,928

Intangible Assets

26,314

26,662

37,293

38,831

40,369

Tangible Assets

4,075

2,129

2,276

9,042

6,208

Investments

0

6,123

1,350

1,350

1,350

Current Assets

 

 

12,014

12,536

7,250

7,791

10,562

Stocks

0

0

0

0

0

Debtors

4,562

5,053

5,635

5,983

6,477

Cash

6,610

6,374

1,308

1,501

3,777

Other

842

1,108

307

307

307

Current Liabilities

 

 

(9,942)

(11,559)

(14,330)

(14,583)

(15,446)

Creditors

(5,853)

(5,574)

(7,240)

(7,493)

(8,356)

Short term borrowings

(4,089)

(5,986)

(7,090)

(7,090)

(7,090)

Long Term Liabilities

 

 

(7,237)

(6,526)

(5,528)

(15,128)

(15,128)

Long term borrowings

(4,761)

(3,946)

(3,475)

(13,075)

(13,075)

Other long term liabilities

(2,476)

(2,581)

(2,053)

(2,053)

(2,053)

Net Assets

 

 

25,224

29,363

28,312

27,304

27,915

CASH FLOW

Operating Cash Flow

 

 

3,827

1,850

2,899

3,770

6,991

Net Interest

(13)

35

(169)

(205)

(205)

Tax

(341)

(238)

(135)

(250)

(1,008)

Capex

891

(4,456)

(3,292)

(3,000)

(3,000)

Acquisitions/disposals

(3,731)

(3,148)

(5,115)

0

0

Equity Financing

2,601

6,965

296

0

0

Dividends

(877)

(1,939)

37

(122)

(502)

Net Cash Flow

2,357

(931)

(5,479)

193

2,276

Opening net debt/(cash)

 

 

4,716

2,240

3,557

9,258

18,664

HP finance leases initiated

104

0

(167)

0

0

Other

15

(386)

(55)

(9,600)*

(0)

Closing net debt/(cash)

 

 

2,240

3,557

9,258

18,664

16,388

Source: Company accounts, Edison Investment Research. Note: *FY19e other reflects IFRS 16 changes.

General disclaimer and copyright

This report has been commissioned by EQS Group and prepared and issued by Edison, in consideration of a fee payable by EQS Group. 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 Edison analyst 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 Myonlineadvisers Pty Ltd who holds an Australian Financial Services Licence (Number: 427484). 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 EQS Group and prepared and issued by Edison, in consideration of a fee payable by EQS Group. 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 Edison analyst 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 Myonlineadvisers Pty Ltd who holds an Australian Financial Services Licence (Number: 427484). 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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