Continuing investment

EQS Group 20 November 2018 Update
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EQS Group

Continuing investment

Q3 results

Software & comp services

 

20 November 2018

Price

€71.50

Market cap

€100m

Net debt (€m) at 30 September 2018

6.2

Shares in issue

1.4m

Free float

49%

Code

EQS

Primary exchange

Xetra

Secondary exchange

FRA

Share price performance

%

1m

3m

12m

Abs

0.0

(10.7)

9.9

Rel (local)

2.8

(3.0)

27.0

52-week high/low

€84.5

€60.0

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

FY18 prelims

March 2019e

Analysts

Fiona Orford-Williams

+44 (0)20 3077 5739

Russell Pointon

+44 (0)20 3077 5740

EQS Group is a research client of Edison Investment Research Limited

Q3 figures were consistent with the previous indications during this year of peak investment in the €9m programme to build a global regulatory tech platform business. FY18e guidance, however, has been tightened to the lower end of the range and we have reined in our FY19e and FY20e revenue and EBITDA forecasts. FY20e still shows a strong increase in return on sales, with EBITDA margin rising to 12%. EQS is building an attractive recurring revenue base (81% of total sales in Q318). It has its eyes firmly on the prize of being an integral part of companies’ corporate compliance and investor relations functions across the globe.

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

74.4

32.8

1.0

12/17

30.4

0.8

0.16

0.00

N/A

45.9

N/A

12/18e

36.0

(0.1)

(0.93)

0.00

N/A

216.2

N/A

12/19e

42.0

0.1

0.04

0.00

N/A

56.0

N/A

12/20e

50.3

4.0

1.58

0.35

45.3

22.0

0.5

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

Compliance drives top-line growth

Year-to-date compliance revenues were ahead by 41%, at 48% of total group and firmly positioning EQS in this higher-growth segment of the market. FY18 will have been the main transition year as the group’s offering has broadened with internally developed tools and services, supplemented with small acquisitions. The new COCKPIT cloud platform is set to launch imminently and should facilitate cross-selling of additional services, driving the top line through FY19e and FY20e.

Changes to revenue, EBITDA estimates

A nine-month figure of €25.9m implies Q318 revenues of €8.8m, up 25% over the prior year (including €0.3m from Integrity Line, bought in December 2017). Our revised FY18 estimate of €36.0m (was €36.5m), suggests Q4 revenue of €10.0m and a Q418 EBITDA of €1.2m, making the group EBITDA profitable for the year. We have trimmed out FY19e revenue estimate by 3% to €42.0m. The group’s cost base is unlikely to change in the short term, bar some shift from contract to permanent with the software development centre in Munich. As the recovery in profitability is more likely to be H2 weighted, we have taken a more cautious stance and reduced our EBITDA estimate from €3.7m to €2.1m. FY20e should see the full-year benefit of the reoriented business model and our provisional revenue and EBITDA estimates are adjusted by less than 10%.

Valuation: Underpinned at these levels

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 currently valued on 4.7x FY18e, against EQS on 3.0x, a 36% discount. A reverse DCF suggests that an EBITDA margin of c 15% (beyond our explicit 2018–20 forecast period) is required to arrive at the current share price of €72, implying the current price is well underpinned.

Moving through peak investment
Q3 sound progress

Exhibit 1: FY18 quarterly trends to date

Large-cap German clients

Q118

Q218

Q318

Recurring revenues

76%

86%

85%

New customers

12

34

30

Total number of customers

1,081

1,115

1,143

Qly rev per customer (€)

3,300

3,100

2,850

Customer acquisition cost (€)

4,200

4,200

4,500

Ann Churn rate

<5%

0%

0.2%

Source: Company presentation

Full descriptions of the business activities were laid out in our August Outlook, published after the interims. The group continued to pick up customers in Q3 and the churn rate remains encouragingly low. In terms of product performance, the issuance of Legal Entity Identifiers continues to be robust, with 4,6k issued in the quarter, taking the total to 19,8k. Q318 XML revenues were €4.25m, also showing good progress. Insider Manager has continued to make good progress, but the sales cycle for Integrity Manager outside its home territory of Switzerland is proving longer than had been hoped.

On the IR side of the business, News and Regulatory newsflow revenues have been reasonably robust, reflecting the volatility in underlying markets.

Impact on figures

Our revenue and EBITDA figures have been revised as outlined above. At the pre-tax level, there is a more substantive change in ‘other financial income’. This is due to the reclassification of the group’s shareholding in Issuer Direct, which is now reflected ‘at fair value through profit or loss’. Combined with the share price increase in the first nine months of the year, other financial income for the nine months was €1.13m, compared with a loss of €680k in the comparative period.

Exhibit 2: Summary forecast changes

EBITDA (€m)

PBT (€m)

EPS (c)

Old

New

% chg.

Old

New

% chg.

Old

New

% chg.

2018e

0.7

0.5

-29

(1.2)

(0.1)

N/A

(157)

(93)

N/A

2019e

3.7

2.1

-43

1.7

0.1

-94

67

4

-94

2020e

6.4

6.0

-6

4.4

4.0

-9

153

158

+3

Source: Edison Investment Research

Implications for valuation

The value in EQS’s equity reflects the opportunity being developed for the medium and longer term rather than the immediate financial returns, so these reductions in short-term forecasts do not have significant ramifications. With the current investment phase heavily weighing on earnings, there is no particular conclusion to be drawn from earnings-based comparisons. On EV/sales, EQS is at 3.0x FY18e revenues, compared to the global financial platform peers on 4.7x (listed in our Outlook note), but it should be borne in mind that they are larger and more mature businesses. As previously, we have used a reverse DCF, based on a WACC of 8% and a terminal growth rate of 2%. Assuming the group’s indicated medium-term revenue CAGR guidance of around 17%, it suggests that an EBITDA margin of c 15% (beyond our explicit 2018–20 forecast period) is required to arrive at the current share price of €72, making it look well supported, in our view.

Exhibit 3: Financial summary

€'000s

2016

2017

2018e

2019e

2020e

31-December

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

26,061

30,355

36,000

42,000

50,250

Cost of Sales

0

0

0

0

0

Gross Profit

26,061

30,355

36,000

42,000

50,250

EBITDA

 

 

4,175

2,349

500

2,100

6,030

Operating Profit (before amort. and except.)

3,282

1,077

(1,100)

475

4,405

Intangible Amortisation

(619)

(732)

(750)

(775)

(775)

Exceptionals

0

0

0

0

0

Other

(874)

(146)

1,195

(150)

(150)

Operating Profit

1,788

199

(655)

(450)

3,480

Net Interest

(14)

(139)

(190)

(225)

(225)

Profit Before Tax (norm)

 

 

2,393

792

(95)

100

4,030

Profit Before Tax (FRS 3)

 

 

1,774

60

(845)

(675)

3,255

Tax

(960)

(634)

(1,050)

(38)

(1,511)

Profit After Tax (norm)

1,144

215

(1,331)

56

2,267

Profit After Tax (FRS 3)

814

(574)

(1,895)

(712)

1,744

Average Number of Shares Outstanding (m)

1.19

1.31

1.43

1.43

1.43

EPS - normalised (c)

 

 

96.1

16.4

(92.7)

3.9

158.0

EPS - (IFRS) (c)

 

 

43.2

(39.3)

(145.0)

(50.1)

104.0

Dividend per share (c)

75.0

0.0

0.0

0.0

35.0

EBITDA Margin (%)

16.0

7.7

1.4

5.0

12.0

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

12.6

3.5

-3.1

1.1

8.8

BALANCE SHEET

Fixed Assets

 

 

30,389

34,914

41,020

47,421

50,166

Intangible Assets

26,314

26,662

34,368

39,569

41,619

Tangible Assets

4,075

8,251

6,651

7,851

8,546

Investments

0

0

0

0

0

Current Assets

 

 

12,014

12,536

8,997

9,710

11,339

Stocks

0

0

0

0

0

Debtors

4,562

5,053

5,873

6,851

8,033

Cash

6,610

6,374

2,016

1,750

2,197

Other

842

1,108

1,108

1,108

1,108

Current Liabilities

 

 

(9,942)

(11,559)

(15,986)

(17,731)

(17,232)

Creditors

(5,853)

(5,574)

(6,736)

(8,231)

(10,082)

Short term borrowings

(4,089)

(5,986)

(9,250)

(9,500)

(7,150)

Long Term Liabilities

 

 

(7,237)

(6,526)

(10,081)

(10,831)

(10,581)

Long term borrowings

(4,761)

(3,946)

(7,500)

(8,250)

(8,000)

Other long term liabilities

(2,476)

(2,581)

(2,581)

(2,581)

(2,581)

Net Assets

 

 

25,224

29,363

23,950

28,568

33,691

CASH FLOW

Operating Cash Flow

 

 

3,827

1,850

840

2,500

6,500

Net Interest

(13)

35

(190)

(225)

(225)

Tax

(341)

(238)

(738)

(797)

(406)

Capex

891

(4,456)

(5,976)

(2,825)

(2,320)

Acquisitions/disposals

(3,731)

(3,148)

(5,035)

0

0

Equity Financing

2,601

6,965

0

0

0

Dividends

(877)

(1,939)

0

0

(502)

Net Cash Flow

2,357

(931)

(11,099)

(1,347)

3,047

Opening net debt/(cash)

 

 

4,716

2,240

3,557

14,734

16,000

HP finance leases initiated

104

0

(78)

0

0

Other

15

(386)

0

81

0

Closing net debt/(cash)

 

 

2,240

3,557

14,734

16,000

12,953

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 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 2018 Edison Investment Research Limited (Edison). All rights reserved 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.

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

Neither this document and associated email (together, the "Communication") constitutes or form part of any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase shares in the Company in the proposed placing should be made solely on the basis of the information to be contained in the admission document to be published in connection therewith.

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 (nor will such persons be able to purchase shares in the placing).

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

Neither this Communication nor any copy (physical or electronic) of it may be (i) taken or transmitted into the United States of America, (ii) distributed, directly or indirectly, in the United States of America or to any US person (within the meaning of regulations Regulation S made under the US Securities Act 1933, as amended), (iii) taken or transmitted into or distributed in Canada, Australia, the Republic of Ireland or the Republic of South Africa or to any resident thereof, except in compliance with applicable securities laws, (iv) taken or transmitted into or distributed in Japan or to any resident thereof for the purpose of solicitation or subscription or offer for sale of any securities or in the context where the distribution thereof may be construed as such solicitation or offer, or (v) or taken or transmitted into any EEA state other than the United Kingdom. Any failure to comply with these restrictions may constitute a violation of the securities laws or the laws of any such jurisdiction. The distribution of this Communication in or into other jurisdictions may be restricted by law and the persons into whose possession this document comes should inform themselves about, and observe, any such restrictions.

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

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 2018 Edison Investment Research Limited (Edison). All rights reserved 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.

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

Neither this document and associated email (together, the "Communication") constitutes or form part of any offer for sale or subscription of, or solicitation of any offer to buy or subscribe for, any securities, nor shall it or any part of it form the basis of, or be relied on in connection with, any contract or commitment whatsoever. Any decision to purchase shares in the Company in the proposed placing should be made solely on the basis of the information to be contained in the admission document to be published in connection therewith.

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 (nor will such persons be able to purchase shares in the placing).

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

Neither this Communication nor any copy (physical or electronic) of it may be (i) taken or transmitted into the United States of America, (ii) distributed, directly or indirectly, in the United States of America or to any US person (within the meaning of regulations Regulation S made under the US Securities Act 1933, as amended), (iii) taken or transmitted into or distributed in Canada, Australia, the Republic of Ireland or the Republic of South Africa or to any resident thereof, except in compliance with applicable securities laws, (iv) taken or transmitted into or distributed in Japan or to any resident thereof for the purpose of solicitation or subscription or offer for sale of any securities or in the context where the distribution thereof may be construed as such solicitation or offer, or (v) or taken or transmitted into any EEA state other than the United Kingdom. Any failure to comply with these restrictions may constitute a violation of the securities laws or the laws of any such jurisdiction. The distribution of this Communication in or into other jurisdictions may be restricted by law and the persons into whose possession this document comes should inform themselves about, and observe, any such restrictions.

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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