Expert System — €10m raised to fund growth

Expert System — €10m raised to fund growth

Expert has raised gross proceeds of €10m from the issue of 7.7m shares at €1.30 through a combination of a rights issue and an accelerated book build. The company continues to make good progress in the insurance market where its software can improve the efficiency of business processes, particularly claims management.

Katherine Thompson

Written by

Katherine Thompson

Director

Expert System

€10m raised to fund growth

Fund-raise

Software & comp services

12 February 2018

Price

€1.33

Market cap

€48m

Net debt (€m) at end H117 (pre-raise)

15.1

Shares in issue

35.7m

Free float

73%

Code

EXSY

Primary exchange

AIM Italia

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(4.3)

(3.5)

(28.5)

Rel (local)

(0.2)

(1.2)

(39.3)

52-week high/low

€2.0

€1.3

Business description

Expert System has developed and patented technology that extracts useful information from unstructured text using semantic-based techniques. It applies this technology to a number of verticals including enterprise search, customer experience management and big data analytics.

Next events

FY17 results

23 March 2018

Analysts

Katherine Thompson

+44 (0)20 3077 5730

Dan Ridsdale

+44 (0)20 3077 5729

Expert System is a research client of Edison Investment Research Limited

Expert has raised gross proceeds of €10m from the issue of 7.7m shares at €1.30 through a combination of a rights issue and an accelerated book build. The company continues to make good progress in the insurance market where its software can improve the efficiency of business processes, particularly claims management.

Year end

Revenue (€m)

EBITDA
(€m)

EPS*
(€)

DPS
(p)

P/E
(x)

EV/EBITDA
(x)

12/15

19.4

1.5

(4.1)

0.0

N/A

41.0

12/16

25.1

(2.2)

(22.0)

0.0

N/A

N/A

12/17e

25.1

(1.5)

(14.0)

0.0

N/A

N/A

12/18e

28.6

3.0

(3.4)

0.0

N/A

19.8

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

Successful rights issue and accelerated book build

In November, Expert announced the launch of a rights issue, giving shareholders the right to acquire two shares for every 15 held at a price of €1.30 per share. This was fully subscribed, raising €4.84m from the issue of 3.719m shares. We note that management participated in the rights issue. In December, the company announced an accelerated book build, which was also fully subscribed. This raised a further €5.16m from the issue of 3.971m shares at €1.30 per share. We have revised our forecasts to reflect the proceeds (we assume net proceeds of €9.7m) and new share count. This results in a new net debt forecast of €4.3m as at the end of FY17, down from our previous €14.0m forecast. This provides Expert with the funds to support the growth of the business, in particular to fund R&D and sales and marketing.

Continued adoption in the insurance market

Last year, Expert announced that it had signed a global agreement with Zurich Insurance Group to provide cognitive computing solutions to units worldwide and signed up Lloyds of London to support its members. Expert recently announced an agreement with Generali to provide support for its business processes, starting with registration and claims management. Expert’s Cogito software will be used to classify millions of inbound customer emails; the project will go live in Spain in Q118.

Valuation: DCF suggests upside

Expert System trades on an EV/EBITDA of 19.8x FY18e. This is at a premium to enterprise search and information management companies, and Italian software and services peers, and at a discount to high-growth big data analytics software companies. Our DCF valuation of Expert System suggests a value of €1.83/share (previously €1.97). Expert’s ability to convert customer interest in the fast-growing data mining and analytics market into commercial contracts, combined with achieving targeted cost cuts, will be key to share price upside from this point.

Exhibit 1: Financial summary

€000s

2012

2013

2014

2015

2016

2017e

2018e

31-December

IT GAAP

IT GAAP

IT GAAP

IT GAAP

IT GAAP

IT GAAP

IT GAAP

PROFIT & LOSS

Revenue

 

 

11,593

11,109

13,045

19,368

25,057

25,118

28,623

EBITDA

 

 

2,624

2,014

2,339

1,463

(2,245)

(1,528)

3,021

Operating Profit (before amort. and except.)

1,765

916

609

(1,226)

(5,941)

(5,575)

(1,417)

Intangible Amortisation

0

0

0

(2,549)

(2,608)

(2,608)

(2,608)

Exceptionals

(319)

45

59

0

0

0

0

Other

0

0

0

0

0

0

0

Operating Profit

1,446

961

669

(3,775)

(8,549)

(8,183)

(4,025)

Net Interest

(298)

(376)

29

213

(156)

(468)

(428)

Profit Before Tax (norm)

 

 

1,467

539

638

(1,013)

(6,097)

(6,043)

(1,846)

Profit Before Tax (reported)

 

 

1,148

584

697

(3,562)

(8,705)

(8,650)

(4,453)

Tax

(452)

(359)

(609)

277

579

3,028

1,559

Profit After Tax (norm)

1,015

180

29

(934)

(5,692)

(3,928)

(1,200)

Profit After Tax (reported)

697

225

89

(3,284)

(8,126)

(5,623)

(2,894)

Average Number of Shares Outstanding (m)

22.0

22.0

22.0

22.8

25.8

28.1

35.7

EPS - normalised (c)

 

 

4.6

0.8

0.1

(4.1)

(22.0)

(14.0)

(3.4)

EPS - normalised and fully diluted (c)

 

4.6

0.8

0.1

(4.1)

(22.0)

(14.0)

(3.4)

EPS - (IFRS) (c)

 

 

3.2

1.0

0.4

(14.4)

(31.5)

(20.0)

(8.1)

Dividend per share (p)

0.0

0.0

0.0

0.0

0.0

0.0

0.0

Gross Margin (%)

100.0

100.0

100.0

100.0

100.0

100.0

100.0

EBITDA Margin (%)

22.6

18.1

17.9

7.6

-9.0

-6.1

10.6

Adj Operating Margin (%)

15.2

8.2

4.7

-6.3

-23.7

-22.2

-5.0

BALANCE SHEET

Fixed Assets

 

 

6,691

9,905

5,719

20,301

20,379

18,924

17,679

Intangible Assets

1,111

2,462

4,640

18,539

18,372

16,976

15,705

Tangible Assets

635

606

692

916

915

856

882

Investments

4,945

6,836

387

846

1,092

1,092

1,092

Current Assets

 

 

12,767

15,491

32,681

42,588

37,012

40,566

40,399

Stocks

722

476

1,563

1,797

627

627

627

Debtors

5,488

5,820

7,866

10,228

10,233

10,233

11,768

Cash

2,065

2,967

4,900

11,249

9,063

13,748

11,487

Other

4,492

6,228

18,352

19,314

17,088

15,958

16,517

Current Liabilities

 

 

(8,871)

(10,333)

(13,639)

(20,517)

(22,679)

(21,957)

(22,605)

Creditors

(6,538)

(7,350)

(10,698)

(15,082)

(16,459)

(16,419)

(17,067)

Short term borrowings

(2,332)

(2,984)

(2,940)

(5,435)

(6,219)

(5,538)

(5,538)

Long Term Liabilities

 

 

(4,642)

(5,172)

(7,803)

(22,227)

(18,275)

(15,838)

(16,672)

Long term borrowings

(4,642)

(5,172)

(4,799)

(18,240)

(15,252)

(12,466)

(13,300)

Other long term liabilities

0

0

(3,005)

(3,987)

(3,023)

(3,372)

(3,372)

Net Assets

 

 

5,945

9,890

16,958

20,145

16,437

21,695

18,801

CASH FLOW

Operating Cash Flow

 

 

8,077

2,891

737

2,738

2,088

3,302

3,134

Net Interest

(298)

(376)

29

(324)

(155)

(468)

(428)

Tax

(452)

(359)

(609)

(1,576)

0

0

0

Capex

(3,095)

(2,384)

(3,905)

(20,045)

(6,378)

(5,200)

(5,800)

Acquisitions/disposals

0

0

(6,436)

3,045

46

0

0

Financing

0

0

12,341

6,573

4,418

10,559

0

Dividends

0

(180)

0

0

0

0

0

Net Cash Flow

4,232

(408)

2,156

(9,588)

18

8,193

(3,095)

Opening net debt/(cash)

 

 

6,352

4,909

4,822

2,839

12,426

12,408

4,256

HP finance leases initiated

0

0

0

0

0

0

0

Other

(2,788)

128

(173)

0

0

(41)

0

Closing net debt/(cash)

 

 

4,909

5,189

2,839

12,426

12,408

4,256

7,351

Source: Expert System, Edison Investment Research

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

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Expert System and prepared and issued by Edison for publication globally. All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Limited (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. This document is provided for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.
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Sydney +61 (0)2 8249 8342

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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 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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

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

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 12, 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 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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