Five-year growth strategy unveiled

Expert System 25 June 2020 Update
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Expert System

Five-year growth strategy unveiled

New growth plan

Software & comp services

25 June 2020

Price

€3.02

Market cap

€124m

Net debt (€m) at end FY19

2.8

Shares in issue

41.1m

Free float

73%

Code

EXSY

Primary exchange

AIM Italia

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

4.1

43.1

(13)

Rel (local)

(5.7)

26

(3.4)

52-week high/low

€3.68

€1.53

Business description

Expert System has developed and patented an AI-based technology platform that extracts useful information from unstructured text using a unique mix of natural language understanding and machine learning algorithms and applies it to verticals such as enterprise search, customer experience management and big data analytics.

Next events

Shareholder meeting

26 June 2020

Five year plan webinar

3 July 2020

Analyst

Katherine Thompson

+44 (0)20 3077 5730

Expert System is a research client of Edison Investment Research Limited

Expert System has unveiled an ambitious five-year plan to become the market leader in natural language artificial intelligence (AI) and to achieve annual revenues of €100m by FY24 (CAGR 24%). Investment in R&D and sales & marketing to develop and drive awareness of the SaaS platform is expected to be funded through a capital raise of c €25m in the next few months. Successful execution of the plan could see the stock valued at €5.4 per share, although it is likely to take some time to reach proof points which show that investment is driving a revenue inflection.

Year end

Revenue (€m)

EBITDA*
(€m)

EPS*
(c)

DPS
(€)

P/E
(x)

EV/EBITDA
(x)

12/18

30.5

4.6

(1.4)

0.0

N/A

27.4

12/19

33.7

5.5

(1.6)

0.0

N/A

23.3

12/20e

33.2

2.0

(11.5)

0.0

N/A

63.2

12/21e

34.4

(5.0)

(28.4)

0.0

N/A

N/A

12/22e

47.7

(0.5)

(21.5)

0.0

N/A

N/A

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

Bringing AI to the masses

Corporates have a growing awareness of the benefits of AI adoption within their businesses, including using natural language processing/understanding (NLP/NLU) to make sense of unstructured data. However, the complexity of the technology often presents a barrier to adoption and can lead to the failure of AI projects. Expert System is adapting its software to provide an end-to-end SaaS platform that will enable users to design, build and operate NLP/NLU solutions across the enterprise. Based on its proprietary Cogito technology, it will also integrate open source tools and partner with other related technologies.

Ambitious five-year plan: €100m revenues by FY24

The company has set out its plan to grow annual revenues to €100m and EBITDA to €22m by FY24. Starting with a simplified freemium offering next month, Expert System is aiming to attract users to its technology from a broader spectrum than its current enterprise customer base. The planned launch of the fully integrated SaaS platform in March 2021 will be a key building block in the growth strategy. To reflect the plan, we have revised our forecasts for FY20–21 and introduce FY22 forecasts.

Valuation: Considerable upside if executed well

With the full SaaS platform not scheduled to launch until the end of Q121, the plan calls for significant investment before adoption of the SaaS platform is expected to drive material revenue growth in FY22. Based on a DCF valuation, we estimate that successful execution of the plan could see the stock valued in the region of €5.4. To monitor progress towards the revenue inflection, we look to track the number of users signing up to use the platform, length and frequency of platform usage, conversion rates to paid subscriptions, net dollar retention and contribution from channel partners.

Unveiling the five-year plan

Expert System recently published its new five-year plan, covering the period FY20–24. The company laid out its new strategy, which puts its natural language understanding and processing capabilities at the heart of a new platform designed to encourage more widespread adoption of natural language-based technology within the enterprise.

The company is hosting a webinar on 3 July to provide more information on the plan.

The headline targets

The company has outlined an ambitious plan, targeting revenue of €100m by FY24 with an EBITDA margin of 22%. It has presented detailed forecasts on the progression to this target, based on the expected return from an increased level of spend on R&D (to develop the full end-to-end SaaS platform) and sales & marketing (to increase awareness and accelerate adoption).

Exhibit 1: Five-year plan financial targets

€m

FY20

FY21

FY22

FY23

FY24

Revenue

33

34

48

68

100

EBITDA

2.0

(5.0)

(0.4)

9.0

22.0

Recurring revenue/total revenue

79%

Professional services/total revenue

36%

13%

Revenue growth

3%

41%

42%

47%

EBITDA margin

6.1%

-14.7%

-0.8%

13.2%

22.0%

Revenue via partners

40%

Source: Expert System

Over the forecast period, the company expects to spend c €51m on R&D (which we assume is capitalised and amortised) and €117m on sales & marketing.

Increasing the addressable market

To date, Expert System has tended to sell its software to enterprise customers, typically early adopters and innovators. Projects are relatively large and have entailed high levels of customisation, resulting in a high contribution to revenues from professional services (36% in FY19). As these are significantly lower margin than software licenses (at best 30% gross margin compared to anywhere from 80% to 100% for software), this has held back the company’s profitability and brought with it the utilisation issues typically seen in professional services businesses.

Selling software to enterprises that requires this much implementation work naturally reduces the addressable market and leads to long sales cycles. As the application of natural language understanding and processing technology to improve the efficiency of business processes becomes more mainstream, the company wants to expand the use of its technology to smaller businesses.

To make it easier for smaller companies with less access to resources to adopt its technology, Expert System is adapting its technology to create a platform that can be accessed by anyone, without needing to be an expert in machine learning or linguistics. The chart below shows the market segmentation approach it is taking, with a freemium model due to be launched imminently.

Providing a freemium model gives potential customers a chance to trial the technology without having to go through a lengthy procurement and implementation process. Some users may stay permanently on the free version of the software, which will provide limited functionality. Others will want to unlock premium functionality by upgrading to a paid version. Expert System sees channel partners as being crucial to the adoption of the platform by users in the mid-two groupings (c 10% of FY19 revenues were generated via the channel). The company will reserve its professional services capability for enterprise customers at the large end of the scale; for these larger customers it will also focus on core verticals (Insurance, Financial Services, Info/Publishing/Media) to provide industry-specific solutions.

The company is also willing to license its NLU/NLP layer to OEMs.

Exhibit 2: Product strategy

Source: Expert System

End-to-end platform: Creating the natural language leader

As part of its growth strategy, Expert System has decided that its already market-leading technology can be enhanced by putting it at the heart of a platform that also makes use of other related technologies.

In the AI market, there are a number of companies specialising in providing AI tools and methodologies, such as DataRobot and H20.ai; however, these are generic and do not specialise in natural language understanding and processing. There are many open source libraries focused on the NLU/NLP space, for example, spaCy and NLTK (based on Python – a popular programming language for machine learning) and Stanford NLP and OpenNLP (based on Java). In addition, the large cloud providers support natural language processing via APIs1 (Google Cloud Natural Language, Amazon Comprehend and Microsoft LUIS) and IBM offers its Watson AI platform.

Application programming interface

Expert System believes it has the opportunity to provide a platform specialised in NLU/NLP that combines its Cogito technology (which has detailed knowledge graphs for 12 languages) with machine learning tools (proprietary or third party) and open source libraries to provide a comprehensive service that allows users to work with their preferred tools.

For some time now, the company has been shifting to providing its software on a subscription basis. This can be provided on-premise or in the cloud. Under the new strategy, all new licences will be sold on a subscription basis. There will still be a percentage of revenues generated from maintenance contracts on previously signed perpetual licences. Where possible, the company hopes to convert these customers to subscription licensing.

Timetable for key milestones

Expert System has outlined when it expects to hit key milestones in its new strategy.

Exhibit 3: Growth plan

Source: Expert System

FY20: The company does not expect to see revenue growth this year, as new business is being held back by COVID-19 restrictions. The company has already started adding headcount to its R&D team, which is based in Italy, and setting up the senior sales & marketing team in the US, based in Boston.

The release of the cloud API in July will be the first step in the product strategy, enabling the launch of the freemium version of the platform. The larger product release will be in October.

FY21–22: Next March, the company expects to launch the full SaaS platform. This will have integrations to other machine learning and AI tools, including open source. To build awareness of the platform, the company intends to develop a community of users, and will also work with the community to seek feedback on enhancements to the platform.

The company is targeting revenue growth in the US of more than 100% per annum – in FY19, €4m/12% of revenues were generated in the US, so this would imply revenues growing to more than €16m by FY22 (assuming limited or no growth in FY20). Over the period FY20–22, management forecasts that the business will require additional cash of €23m. The company is planning a capital raise of c €25m in the coming months.

FY23–24: If the plan succeeds, the company expects the platform to be the market leader in AI-based natural language problem solving by FY24. In FY23, the company expects to reach EBITDA profitability, and over FY23/24, generate free cash flow of €8m. By FY24, it expects US revenues to make up more than half of the total and for 40% of revenues to be generated through channel partners.

The ‘Rule of 40’ refers to a rule of thumb used when assessing SaaS companies. This says that if the total of revenue growth and profitability exceeds 40% in a given year, the company is performing well. The phrase was coined by VCs investing in SaaS start-ups to assess the balance between growth and profitability. In the early phases, growth could be well over 40% but the company could be loss-making, as funds are invested in growing the customer base as fast as possible. As revenue growth moderates, investment in sales & marketing and R&D can be slowed allowing for higher profitability (say 20% revenue growth and 20% margins), still satisfying the rule of 40.

Changes to estimates

We have revised our forecasts to take account of the new plan. This results in a reduction in our revenue and EBITDA forecasts for FY20 and FY21, as the company builds the foundations for its new product-led strategy. We introduce forecasts for FY22. The model factors in the cost base (pre-depreciation and amortisation) increasing by 10% in FY20, 25% in FY21 and 23% in FY22 as the company builds up its R&D team and sales & marketing function. We have modelled an increase in debt to fund the cash shortfall over the period, although we expect funds to be raised via a capital increase at some point later this year.

Since the plan was published, the company has announced that it has sold its 17% stake in Cy4Gate, as the company has just listed on AIM Italia. Expert System’s stake was worth €5.375m and was accounted for within long-term financial investments at a cost of €0.251m. We have treated the gain on disposal as an exceptional financing item.

Exhibit 4: Changes to estimates

€m

FY20e old

FY20e new

Change

y-o-y

FY21e old

FY21e new

Change

y-o-y

FY22e new

y-o-y

Sales

34.0

31.7

(6.5%)

0.3%

38.2

32.9

(13.8%)

3.8%

46.2

40.2%

Other income & grants

1.5

1.5

0.0%

(27.1%)

1.5

1.5

0.0%

0.0%

1.5

0.0%

Total revenues

35.5

33.2

(6.3%)

(1.4%)

39.7

34.4

(13.2%)

3.6%

47.7

38.5%

Capitalised development costs & changes in WIP

6.1

6.5

6.9%

8.3%

6.1

8.0

30.7%

22.3%

10.3

29.6%

Production value

41.6

39.8

(4.3%)

0.1%

45.8

42.4

(7.4%)

6.7%

58.0

36.8%

EBITDA

5.1

2.0

(60.3%)

(63.2%)

6.9

(5.0)

N/A

N/A

(0.5)

(90.4%)

EBITDA margin

14.3%

6.0%

(8.2%)

(10.1%)

17.5%

-14.4%

(31.9%)

(20.5%)

-1.0%

13.4%

D&A

(6.3)

(6.4)

2.7%

(6.4)

(6.9)

8.5%

(7.9)

Normalised operating profit

(1.2)

(4.4)

269.1%

1135.7%

0.6

(11.9)

N/A

168.3%

(8.4)

(29.6%)

Normalised operating margin

(3.4%)

(13.3%)

(9.9%)

(12.3%)

1.4%

(34.5%)

(35.9%)

(21.2%)

(17.5%)

16.9%

Amortisation of acquired intangibles

(0.9)

(0.9)

(4.7%)

N/A

0.0

0.0

0.0%

N/A

0.0

N/A

Exceptional items

0.0

0.0

0.0%

N/A

0.0

0.0

0.0%

N/A

0.0

N/A

Reported operating profit

(2.1)

(5.3)

159.4%

N/A

0.6

(11.9)

N/A

124.5%

(8.4)

(29.4%)

Normalised net income

(1.8)

(4.7)

162.7%

672.4%

(0.2)

(11.7)

N/M

149.3%

(8.8)

(24.3%)

Reported net income

(2.6)

(0.9)

(65.4%)

10.0%

(0.2)

(11.7)

N/M

N/M

(8.8)

(24.3%)

Diluted normalised EPS (c)

(4.4)

(11.5)

162.7%

(632.4%)

(0.5)

(28.4)

N/M

(147.0%)

(21.5)

(24.3%)

Net debt

4.2

0.4

(89.6%)

(84.7%)

6.9

14.2

105.5%

N/M

25.6

80.4%

Source: Edison Investment Research

Our estimates are essentially the company’s targets over the forecast period. We expect to monitor the following key indicators to assess whether the company is on track to meet its financial targets:

Timing of product launches.

R&D hiring.

Number of free users of the platform.

Duration and frequency of platform use by free users.

Conversion rates – from free to paid.

Expansion rates (net dollar retention – NDR) for paid users.

Channel partner contribution to revenues.

Valuation

In Exhibit 5, we show Expert System’s financial and valuation metrics versus three groups of peers:

software companies providing natural language understanding, big data analytics, enterprise search and/or information management applications;

software companies selling on a SaaS or subscription basis; and

Italy-listed companies providing software and/or IT services.

As the benefit from the next couple of years’ investment in R&D and sales & marketing does not fall within the two-year period for which peer group forecasts are available, the sales multiples for Expert System will be inflated. On EV/Sales multiples, the company is trading at a discount to the first two peer groups and a premium to Italian peers (which have more modest growth and margin potential). As evidence emerges that the company is tracking the revenue growth and margins targeted in the five-year plan, we would expect the valuation to move more in the direction of the SaaS/subscription software companies.

Exhibit 5: Peer valuation multiples

Year end

Market cap

List CCY

EV/Sales
(x)

EV/EBITDA
(x)

P/E (x)

EBIT margin

EBITDA margin

Sales growth

m

CY

NY

CY

NY

CY

NY

CY

NY

CY

NY

CY

NY

Expert System

Dec-20

124

EUR

3.8x

3.7x

63.2x

N/A

N/A

N/A

-13.3%

-34.5%

6.0%

-14.4%

-1.4%

3.6%

Natural Language Understanding, Big Data Analytics, Enterprise Search & Info Management

CommVault

Mar-21

1,749

USD

2.2x

2.1x

16.4x

14.8x

32.6x

25.6x

11.0%

13.5%

13.2%

13.9%

-2.5%

5.3%

Elastic

Apr-21

7,513

USD

13.4x

10.5x

N/A

N/A

N/A

N/A

-13.5%

-9.6%

-10.6%

-5.6%

25.6%

27.6%

EPAM Systems

Dec-20

14,039

USD

5.1x

4.2x

29x

23x

45.8x

36.1x

15.8%

16.7%

17.7%

18.5%

12.1%

21.8%

Micro Focus

Oct-20

1,590

GBp

2.1x

2.2x

6x

6x

3.7x

3.9x

33.3%

33.4%

36.6%

36.7%

-10.2%

-4.4%

Nuance Communications

Sep-20

6,970

USD

5.7x

5.4x

22x

21x

31.1x

28.4x

22.9%

23.9%

25.6%

26.5%

-22.6%

4.2%

OpenText

Jun-20

15,766

CAD

4.6x

4.3x

13x

11x

15.8x

14.0x

32.4%

35.2%

35.4%

37.6%

7.7%

7.9%

Splunk

Jan-21

29,734

USD

12.2x

9.7x

N/A

85x

N/A

175.5x

-2.8%

6.6%

1.2%

11.4%

3.0%

25.7%

Teradata

Dec-20

2,206

USD

1.4x

1.3x

8x

6x

21.3x

14.9x

8.9%

11.6%

17.4%

20.4%

-5.6%

4.4%

Average

5.8x

5.0x

15.7x

13.6x

25.0x

20.5x

13.5%

16.4%

17.1%

19.9%

0.9%

11.6%

SaaS/subscription software companies

Adobe

Nov-20

206,216

USD

16.2x

14.1x

34x

29x

43.8x

38.5x

41.9%

43.2%

47.9%

48.6%

14.0%

15.0%

Atlassian

Jun-20

42,371

USD

26.0x

21.2x

113x

86x

156.5x

128.1x

22.1%

22.1%

22.9%

24.7%

31.7%

22.8%

salesforce.com

Jan-21

168,442

USD

8.0x

6.8x

27x

23x

63.2x

52.0x

16.6%

18.5%

29.8%

30.0%

17.3%

17.8%

Workday

Jan-21

43,137

USD

10.1x

8.6x

44x

37x

80.6x

66.2x

16.1%

17.2%

23.0%

23.0%

15.6%

17.3%

Average

15.1x

12.7x

54.5x

43.7x

86.0x

71.2x

24.2%

25.3%

30.9%

31.6%

19.6%

18.2%

Italian software & services

TXT e-solutions

Dec-20

101

EUR

0.9x

0.9x

8.5x

7.1x

28.7x

20.5x

6.7%

8.9%

10.8%

12.3%

9.5%

5.9%

Exprivia

Dec-19

41

EUR

0.5x

0.5x

10.0x

8.0x

N/A

N/A

1.1%

2.5%

5.0%

6.1%

-13.2%

2.2%

Piteco

Dec-20

115

EUR

5.1x

4.8x

12.3x

11.3x

18.6x

16.8x

31.5%

33.5%

41.3%

42.5%

5.0%

6.0%

Reply

Dec-20

2,775

EUR

2.2x

2.0x

14.4x

12.7x

26.2x

22.7x

12.0%

12.9%

15.1%

15.7%

4.0%

8.6%

Average

2.2x

2.0x

11.3x

9.7x

24.5x

20.0x

12.8%

14.5%

18.0%

19.2%

1.3%

5.7%

Source: Edison Investment Research, Refinitiv (as at 22 June)

We have performed a discounted cash flow analysis based on the company’s plan to FY24, and for the following five years, trending revenue growth down to 4.5% by FY29, trending EBITDA margins up to 29% (which results in an EBIT margin of 20%) and reducing capex/sales to 9% by FY29 (compared to 21% in FY20 and 14% in FY24). We have included the FY20–23 share grant and option grant plans, which add 5m additional shares to the existing 41.1m outstanding shares.

Using a WACC of 9% and a long-term growth rate of 3%, we arrive at a per share value of €5.43. We note that this valuation assumes perfect execution of the plan, and we would expect the share price to move towards this value as progress according to the plan becomes evident. This valuation would equate to an EV/Sales multiple of 2.5x and an EV/EBITDA multiple of 11.2x in FY24.

A 1pp increase/decrease in the WACC results in a per share value of €4.33/€6.99.


Exhibit 6: Financial summary

€'000s

2015

2016

2017

2018

2019

2020e

2021e

2022e

31-December

IT GAAP

IT GAAP

IT GAAP

IT GAAP

IT GAAP

IT GAAP

IT GAAP

IT GAAP

PROFIT & LOSS

Revenue

 

 

19,368

25,057

27,783

30,457

33,712

33,248

34,445

47,699

EBITDA

 

 

1,463

(2,245)

1,711

4,638

5,459

2,011

(4,962)

(477)

Operating Profit (before amort. and except.)

(1,226)

(5,941)

(3,189)

(662)

(358)

(4,426)

(11,875)

(8,361)

Intangible Amortisation

(2,549)

(2,608)

(2,608)

(2,567)

(2,520)

(902)

0

0

Exceptionals

0

0

(700)

0

0

0

0

0

Other

0

0

0

0

0

0

0

0

Operating Profit

(3,775)

(8,549)

(6,496)

(3,229)

(2,878)

(5,328)

(11,875)

(8,361)

Net Interest

213

(156)

(2,191)

97

(123)

(779)

(1,099)

(1,467)

Profit Before Tax (norm)

 

 

(1,013)

(6,097)

(5,380)

(565)

(481)

(5,205)

(12,974)

(9,828)

Profit Before Tax (reported)

 

 

(3,562)

(8,705)

(8,687)

(3,131)

(780)

(983)

(12,974)

(9,828)

Tax

277

579

348

(650)

(203)

98

1,297

983

Profit After Tax (norm)

(934)

(5,692)

(5,164)

(508)

(607)

(4,684)

(11,677)

(8,845)

Profit After Tax (reported)

(3,284)

(8,126)

(8,339)

(3,781)

(983)

(884)

(11,677)

(8,845)

Average Number of Shares Outstanding (m)

22.8

25.8

28.1

35.8

38.6

40.8

41.1

41.1

EPS - normalised (c)

 

 

(4.1)

(22.0)

(18.3)

(1.4)

(1.6)

(11.5)

(28.4)

(21.5)

EPS - normalised and fully diluted (c)

 

(4.1)

(22.0)

(18.3)

(1.4)

(1.6)

(11.5)

(28.4)

(21.5)

EPS - (IFRS) (c)

 

 

(14.4)

(31.5)

(29.6)

(10.6)

(2.5)

(2.2)

(28.4)

(21.5)

Dividend per share (c)

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

EBITDA Margin (%)

7.6

-9.0

6.2

15.2

16.2

6.0

-14.4

-1.0

Adj Operating Margin (%)

-6.3

-23.7

-11.5

-2.2

-1.1

-13.3

-34.5

-17.5

BALANCE SHEET

Fixed Assets

 

 

20,301

20,379

18,864

16,655

14,761

14,190

15,748

18,694

Intangible Assets

18,539

18,372

16,944

14,734

13,092

12,790

14,380

17,373

Tangible Assets

916

915

792

715

702

684

652

604

Investments

846

1,092

1,128

1,206

968

716

716

716

Current Assets

 

 

42,588

37,012

37,634

38,004

51,442

54,554

62,093

58,240

Stocks

1,797

627

99

109

59

59

59

59

Debtors

10,228

10,233

12,384

15,792

20,447

21,060

21,060

24,641

Cash

11,249

9,063

11,235

7,883

21,647

24,047

30,289

21,873

Other

19,314

17,088

13,916

14,220

9,289

9,388

10,685

11,668

Current Liabilities

 

 

(20,517)

(22,679)

(19,480)

(21,170)

(22,839)

(23,264)

(24,037)

(28,975)

Creditors

(15,082)

(16,459)

(14,104)

(15,511)

(16,945)

(17,370)

(18,144)

(23,081)

Short term borrowings

(5,435)

(6,219)

(5,376)

(5,659)

(5,893)

(5,893)

(5,893)

(5,893)

Long Term Liabilities

 

 

(22,227)

(18,275)

(17,742)

(18,411)

(22,464)

(22,464)

(42,464)

(45,464)

Long term borrowings

(18,240)

(15,252)

(14,683)

(14,811)

(18,588)

(18,588)

(38,588)

(41,588)

Other long term liabilities

(3,987)

(3,023)

(3,060)

(3,600)

(3,876)

(3,876)

(3,876)

(3,876)

Net Assets

 

 

20,145

16,437

19,276

15,077

20,901

23,017

11,340

2,495

CASH FLOW

Operating Cash Flow

 

 

2,738

2,088

(1,921)

2,583

2,479

1,802

(4,208)

860

Net Interest

(324)

(155)

(626)

(441)

(558)

(758)

(1,078)

(1,446)

Tax

(1,576)

0

0

0

0

0

0

0

Capex

(20,045)

(6,378)

(6,321)

(5,830)

(6,749)

(7,020)

(8,472)

(10,830)

Acquisitions/disposals

3,045

46

1,275

(76)

7,496

5,375

0

0

Financing

6,573

4,418

11,178

0

7,084

3,000

0

0

Dividends

0

0

0

0

0

0

0

0

Net Cash Flow

(9,588)

18

3,585

(3,764)

9,753

2,399

(13,758)

(11,416)

Opening net debt/(cash)

 

 

2,839

12,426

12,408

8,824

12,587

2,834

434

14,192

HP finance leases initiated

0

0

0

0

0

0

0

0

Other

0

0

0

0

0

0

0

0

Closing net debt/(cash)

 

 

12,426

12,408

8,824

12,587

2,834

434

14,192

25,609

Source: Expert System, Edison Investment Research


General disclaimer and copyright

This report has been commissioned by Expert System and prepared and issued by Edison, in consideration of a fee payable by Expert System. 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 2020 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

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United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

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United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

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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

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 Expert System and prepared and issued by Edison, in consideration of a fee payable by Expert System. 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 2020 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

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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