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Business Keeper deal

EQS Group 16 June 2021 Update
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EQS Group

Business Keeper deal

Acquisition

Software & comp services

16 June 2021

Price

€35.20

Market cap

€277m

Net cash (€m) at 31 March 2021
(including lease debt)

0.3

Shares in issue

7.9m

Free float

73%

Code

E1SX

Primary exchange

XETRA

Secondary exchange

FRA

Share price performance

%

1m

3m

12m

Abs

13.5

(1.7)

97.8

Rel (local)

11.3

(9.6)

49.8

52-week high/low

€39.60

€17.00

Business description

EQS Group is a leading international regulatory technology (regtech) provider operating in the fields of corporate compliance and investor relations.

Next events

Interim figures

13 August 2021

Q3 results

12 November 2021

Analyst

Fiona Orford-Williams

+44 (0)20 3077 5739

EQS Group is a research client of Edison Investment Research Limited

The intended acquisition of Business Keeper consolidates EQS’s position as market leader in whistleblowing provision in Europe ahead of the full implementation of the regulation. It brings with it around 300 customers, extending the pipeline of warm leads for other group services, as well as additional trained and operational sales resource for the short-term push. The €97m purchase price is being met from a mix of cash, debt and equity (up to 0.59m new shares), limiting dilution. The FY25 revenue target rises from €100m to €130m, with an (unchanged) EBITDA margin aspiration of 30%. We will update our forecasts on completion, likely to be in August.

Year end

Revenue (€m)

EBITDA
(€m)

PBT*
(€m)

EPS*
(c)

EV/EBITDA
(x)

P/E
(x)

12/19

35.4

2.6

(0.3)

(7.4)

108.2

N/A

12/20

37.6

4.8

0.4

4.1

58.0

N/A

12/21e

45.5

1.1

(3.2)

(28.6)

251.2

N/A

12/22e

53.2

4.3

(0.1)

(2.1)

64.3

N/A

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

European whistleblowing market leader

Business Keeper is the oldest European provider of digital whistleblowing, with a 20-year history, and the next largest local supplier after EQS. It is being bought primarily from Macquarie for €97m (including €2m cash), with €80m to be paid in H221, and €17m in FY22. Funding is a combination of €50m from a loan from Commerzbank (the group’s existing provider), €10m cash and a 7.5% (€20m) capital increase backstopped at €38, backed by undertakings from management and EQS’s largest shareholder, langfristige Investoren. The purchase should add c 300 customers, mostly in Germany but also notably in France, with a heavier bias to larger clients, including 16 DAX-listed companies. Establishing a strong market position now is crucial, as once such systems are up and running, contracts are likely to be very sticky, given the levels of confidentiality and trust involved.

Increased guidance

For FY21, management now guides to revenues in the €49–53m bracket, including Business Keeper for around five months, with a full year’s trading in FY22e giving a target revenue range to €70–75m (not previously guided). FY21e EBITDA is likely to be around €2–3m, or around €1m higher than previously expected, with a building margin as some synergies are realised and the scale effect starts to come through. The medium-term (FY25e) revenue target rises from €100m to €130m, with EBITDA margin guidance of 30% maintained, a figure we view as ambitious but achievable.

Valuation: Transaction will extend discount

On unadjusted forecasts, EQS’s shares trade at a 52% discount to global peers on FY2 EV/sales. This discount will be increased by the transaction, which increases EQS’s EV with the additional debt, but gives a larger step up in revenue, so diluting the EV/sales ratio. The backstop placing price is a little ahead of the current share price, at the same level as the 5% placing in Q121.

Grasping the business opportunity

We described the whistleblowing opportunity – and the importance of establishing a strong position ahead of the implementation in national legislation across the EU – in our recent Outlook note.

At its investor presentation describing the deal, management included a presentation slide showing the major players in the EU markets. The largest suppliers are two US companies, Navex Global and OneTrust, with EQS the largest local provider and Business Keeper the next largest. By taking out the main local competitor, EQS strengthens its market position but also shortens the sales cycle, with faster conversion of potential customers that are looking to select a supplier with strong European credentials.

Beyond the benefit within this particular business arena, the addition of the Business Keeper client roster increases the pool of customers for cross- and up-selling the COCKPIT platform and other services provided by EQS. If conversion follows through at the same ratio as previously outlined, this could mean up to 1,500 additional COCKPIT clients, up from the 1k target indicated at the Q1 update.

The financial opportunity

Business Keeper earned revenues of €8.9m in FY20 (+9% on prior year), achieving a 6% EBITDA margin, down from 22% in FY19, as it, like EQS, invested ahead of the opportunity presented by the EU regulation.

Exhibit 1: Guidance changes

Previous guidance

Edison forecast

New guidance

Revenue

FY21e

€45–49m

€45.5m

€49–53m

FY22e

N/A

€53.2m

€70–75m

FY25e

€100m

N/A

€130m

EBITDA

FY21e

€1–2m

€1.1m

€2–3m

FY22e

N/A

€4.3m

N/A

FY25e

€30m+

N/A

€39m+

New SaaS customers

FY21e

1,500–2,000

1,750–2,250

New annual recurring revenue

FY21e

€6m

€9m

Source: EQS Group management, Edison Investment Research

The purchase price represents 10.9x Business Keeper’s historical revenues (€8.9m) and between 8x and 9x its FY21e annual recurring revenue. On the face of it, this looks to be a full price, but, as explained above, the combined entity, with this timing, presents a unique opportunity. The managing director of Business Keeper, Kai Leisering, is to remain with the larger group.

There will be some overlap of costs between the two enterprises. EQS has around 450 employees, with Business Keeper adding c 100. There will be some reallocation of resource, particularly within IT and product development and within the sales and marketing functions (where a number of positions are currently unfilled as the group scales its efforts into H221). Specifically on synergies, management is targeting €5–10m by 2025. The four key areas are:

A stronger market position, building on the local presence and market understanding.

Shorter sales cycles, from reduced competition.

Increased pricing power. Business Keeper has (on average) larger clients with higher-value contracts.

Up- and cross-selling, as described above.

As the transaction involves buying customer assets, there will be a step up in the associated depreciation, likely to be of the order of €1.0–1.5m in the current year and €2.5m in FY22e. We will update our model post completion of the acquisition and associated placing of up to 590k shares.

Exhibit 2: Financial summary

€'000s

2018

2019

2020

2021e

2022e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

36,210

35,367

37,636

45,500

53,200

Cost of Sales

0

0

0

0

0

Gross Profit

36,210

35,367

37,636

45,500

53,200

EBITDA

 

 

239

2,554

4,760

1,100

4,300

Operating Profit (before amort. and except.)

 

 

(1,299)

(2,433)

819

(2,841)

359

Amortisation of acquired intangibles

(821)

(743)

(656)

(656)

(656)

Exceptionals

0

0

0

0

0

Share-based payments

0

0

0

0

0

Reported operating profit

(2,120)

(3,176)

163

(3,497)

(297)

Net Interest

1,954

2,093

(396)

(357)

(457)

Joint ventures & associates (post tax)

0

0

0

0

0

Exceptionals

0

0

0

0

0

Profit Before Tax (norm)

 

 

655

(340)

423

(3,198)

(98)

Profit Before Tax (reported)

 

 

(166)

(1,083)

(233)

(3,854)

(754)

Reported tax

913

(610)

(599)

1,227

160

Profit After Tax (norm)

439

(532)

296

(2,200)

(167)

Profit After Tax (reported)

747

(1,693)

(832)

(2,627)

(594)

Minority interests

20

121

(34)

(125)

(144)

Discontinued operations

0

0

0

0

0

Net income (normalised)

439

(532)

296

(2,200)

(167)

Net income (reported)

767

(1,572)

(866)

(2,752)

(738)

Average Number of Shares Outstanding (m)

7,175

7,175

7,195

7,704

7,882

EPS - normalised (c)

 

 

6.12

(7.41)

4.12

(28.56)

(2.12)

EPS - normalised fully diluted (c)

 

 

6.12

(7.41)

4.12

(28.56)

(2.12)

EPS - basic reported (€)

 

 

0.11

(0.22)

(0.12)

(0.36)

(0.09)

Dividend per share (c)

0.00

0.00

0.00

0.00

0.00

Revenue growth (%)

19.3

(2.3)

6.4

20.9

16.9

EBITDA Margin (%)

0.7

7.2

12.6

2.4

8.1

Normalised Operating Margin (%)

(3.6)

(6.9)

2.2

(6.2)

0.7

BALANCE SHEET

Fixed Assets

 

 

41,219

43,841

39,447

57,304

58,695

Intangible Assets

37,293

32,008

31,016

48,664

50,020

Tangible Assets

2,241

8,838

7,216

7,251

7,286

Investments & other

1,685

2,995

1,215

1,390

1,390

Current Assets

 

 

7,250

6,094

17,086

18,277

18,714

Stocks

0

0

0

0

0

Debtors

5,030

3,841

3,923

4,941

5,778

Cash & cash equivalents

1,308

1,184

12,074

11,524

11,124

Other

912

1,069

1,089

1,812

1,812

Current Liabilities

 

 

(14,326)

(14,563)

(12,381)

(12,725)

(13,063)

Creditors

(1,472)

(1,848)

(1,651)

(1,996)

(2,333)

Tax and social security

(129)

(46)

(56)

(56)

(56)

Short term borrowings (includes lease debt)

(6,961)

(7,173)

(3,276)

(3,276)

(3,276)

Other

(5,764)

(5,496)

(7,398)

(7,398)

(7,398)

Long Term Liabilities

 

 

(6,660)

(10,195)

(11,208)

(21,606)

(21,606)

Long term borrowings (includes lease debt)

(3,475)

(7,481)

(7,641)

(17,070)

(17,070)

Other long term liabilities

(3,185)

(2,714)

(3,567)

(4,536)

(4,536)

Net Assets

 

 

27,483

25,177

32,944

41,250

42,740

Minority interests

420

(34)

0

(64)

(64)

Shareholders' equity

 

 

27,902

25,143

32,944

41,186

42,676

CASH FLOW

Op Cash Flow before WC and tax

3,106

4,037

3,765

1,970

4,003

Working capital

1,270

1,061

(1,037)

(273)

(499)

Exceptional & other

(1,646)

(2,516)

3,212

(523)

646

Tax

(135)

(188)

(154)

1,227

160

Net operating cash flow

 

 

2,595

2,394

5,786

2,401

4,310

Capex

(5,441)

(3,120)

(2,007)

(1,500)

(1,500)

Acquisitions/disposals

(5,115)

4,888

63

(20,000)

(3,000)

Net interest

0

0

0

0

0

Equity financing

0

0

9,124

13,861

0

Dividends

0

0

0

0

0

Other

1,792

(4,408)

350

(770)

(210)

Net Cash Flow

(6,169)

(246)

13,316

(6,008)

(400)

Opening net debt/(cash)

 

 

3,556

9,127

13,472

(1,156)

8,825

FX

75

53

(199)

0

0

Other non-cash movements

522

(4,153)

1,511

(3,972)

0

Closing net debt/(cash)

 

 

9,127

13,472

(1,156)

8,825

9,225

Source: Company accounts, Edison Investment Research

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 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 2021 Edison Investment Research Limited (Edison).

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

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

1185 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

1185 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 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 2021 Edison Investment Research Limited (Edison).

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

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

1185 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

1185 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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