Esker |
FY18 revenue growth of 14% confirmed |
Q4 revenue update |
Software & comp services |
22 January 2019 |
Share price performance
Business description
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Analysts
Esker is a research client of Edison Investment Research Limited |
Esker saw another strong quarter in Q418, with underlying revenue growth of 15% resulting in FY18 revenue growth of 14% (or 16% in constant currency). A strong uplift in the value of contracts signed in FY18 provides good visibility for FY19 and support for the company’s target of generating another year of double-digit revenue growth. We have revised our forecasts to reflect FY18 revenues and the company’s strategy of reinvesting any profits above the 15% target operating margin level.
Year end |
Revenue (€m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/16 |
66.0 |
9.9 |
1.22 |
0.30 |
57.9 |
0.4 |
12/17 |
76.1 |
10.7 |
1.32 |
0.32 |
53.7 |
0.5 |
12/18e |
86.9 |
13.7 |
1.70 |
0.36 |
41.6 |
0.5 |
12/19e |
99.0 |
15.5 |
1.89 |
0.39 |
37.3 |
0.6 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Q4/FY18 revenues ahead of our expectations
Esker reported Q418 revenues of €23.5m (+16% y-o-y reported, +15% constant currency (cc)), resulting in FY18 revenues of €86.9m, up 14% y-o-y (+16% cc) and 1.8% ahead of our forecast. Q4 SaaS-based revenues increased 19% y-o-y and made up 88% of revenues. The cumulative value of contracts signed in FY18 was 65% higher than in FY17. Cash at the end of FY18 stood at €25.3m and net cash was €17m. With recurring revenue amounting to 77% of Q4 revenues, the company expects to achieve another year of double-digit organic revenue growth in FY19.
Revising estimates to reflect stronger revenues
We have increased our revenue forecasts to reflect FY18 actuals. We assume that the company invests incremental revenues in headcount for sales, consulting and R&D, to maintain reported operating margins at 15%. This results in a 1.0% upgrade to our FY18 normalised EPS forecast and a 2.9% cut to our FY19 forecast. This is in line with the company’s stated strategy of generating double-digit revenue growth by channelling profits in excess of the 15% reported operating margin back into the business.
Valuation: Reflects high level of recurring revenues
On a P/E basis, Esker continues to trade at a premium to global DPA software peers and French small-cap software peers. As SaaS-related revenues make up 87% of group revenues, we believe it is more relevant to consider US SaaS software companies: Esker trades at a discount on all valuation metrics. We view Esker’s operating model as sitting somewhere between low-growth, high-profitability on-premise software businesses and US SaaS companies’ high-growth, high-investment operating model, aiming for a happy medium of double-digit revenue growth while achieving mid-teen operating margins. In our view, high levels of recurring revenue, a strong balance sheet and a focus on investing to maintain growth warrant a premium valuation.
Exhibit 1: Financial summary
€000s |
2014 |
2015 |
2016 |
2017 |
2018e |
2019e |
||
Year end 31 December |
French GAAP |
French GAAP |
French GAAP |
French GAAP |
French GAAP |
French GAAP |
||
PROFIT & LOSS |
||||||||
Revenue |
|
|
46,061 |
58,457 |
65,990 |
76,064 |
86,927 |
98,957 |
EBITDA |
|
|
8,979 |
13,405 |
14,871 |
16,399 |
19,752 |
22,170 |
Operating Profit (before amort and except) |
|
5,700 |
9,257 |
9,934 |
10,547 |
13,352 |
15,170 |
|
Amortisation of acquired intangibles |
0 |
(302) |
(200) |
(300) |
(300) |
(300) |
||
Exceptionals and other income |
53 |
(245) |
(474) |
(456) |
0 |
0 |
||
Other income |
0 |
0 |
0 |
0 |
0 |
0 |
||
Operating Profit |
5,753 |
8,710 |
9,260 |
9,791 |
13,052 |
14,870 |
||
Net Interest |
220 |
(6) |
(108) |
(110) |
100 |
100 |
||
Profit Before Tax (norm) |
|
|
5,920 |
9,312 |
9,949 |
10,669 |
13,684 |
15,502 |
Profit Before Tax (FRS 3) |
|
|
5,973 |
8,765 |
9,275 |
9,913 |
13,384 |
15,202 |
Tax |
(1,323) |
(2,292) |
(2,950) |
(3,148) |
(3,747) |
(4,257) |
||
Profit After Tax (norm) |
4,609 |
6,877 |
6,785 |
7,281 |
9,852 |
11,162 |
||
Profit After Tax (FRS 3) |
4,650 |
6,473 |
6,325 |
6,765 |
9,636 |
10,946 |
||
Ave. Number of Shares Outstanding (m) |
4.8 |
5.0 |
5.3 |
5.3 |
5.4 |
5.5 |
||
EPS - normalised (c) |
|
|
97 |
138 |
128 |
138 |
183 |
203 |
EPS - normalised fully diluted (c) |
|
|
90 |
131 |
122 |
132 |
170 |
189 |
EPS - (GAAP) (c) |
|
|
97 |
130 |
120 |
128 |
179 |
199 |
Dividend per share (c) |
24.00 |
30.00 |
30.00 |
32.00 |
36.00 |
39.00 |
||
Gross margin (%) |
N/A |
N/A |
N/A |
N/A |
N/A |
N/A |
||
EBITDA Margin (%) |
19.5 |
22.9 |
22.5 |
21.6 |
22.7 |
22.4 |
||
Operating Margin (before GW and except) (%) |
12.4 |
15.8 |
15.1 |
13.9 |
15.4 |
15.3 |
||
BALANCE SHEET |
||||||||
Fixed Assets |
|
|
12,552 |
25,184 |
28,324 |
37,912 |
39,140 |
39,886 |
Intangible Assets |
7,709 |
19,603 |
22,381 |
26,673 |
28,201 |
29,447 |
||
Tangible Assets |
4,470 |
4,985 |
5,158 |
7,115 |
6,815 |
6,315 |
||
Other |
373 |
596 |
785 |
4,124 |
4,124 |
4,124 |
||
Current Assets |
|
|
33,894 |
36,110 |
42,024 |
42,823 |
51,901 |
59,642 |
Stocks |
93 |
161 |
101 |
176 |
176 |
176 |
||
Debtors |
15,110 |
18,073 |
19,523 |
21,253 |
24,292 |
27,654 |
||
Cash |
17,559 |
16,295 |
21,338 |
20,632 |
26,671 |
31,050 |
||
Other |
1,132 |
1,581 |
1,062 |
762 |
762 |
762 |
||
Current Liabilities |
|
|
(19,827) |
(24,789) |
(28,299) |
(27,399) |
(29,504) |
(31,835) |
Creditors |
(19,827) |
(24,789) |
(28,299) |
(27,399) |
(29,504) |
(31,835) |
||
Short term borrowings |
0 |
0 |
0 |
0 |
0 |
0 |
||
Long Term Liabilities |
|
|
(5,113) |
(7,317) |
(7,657) |
(13,716) |
(11,216) |
(8,716) |
Long term borrowings |
(5,113) |
(7,317) |
(7,657) |
(13,716) |
(11,216) |
(8,716) |
||
Other long term liabilities |
0 |
0 |
0 |
0 |
0 |
0 |
||
Net Assets |
|
|
21,506 |
29,188 |
34,392 |
39,620 |
50,322 |
58,977 |
CASH FLOW |
||||||||
Operating Cash Flow |
|
|
9,245 |
14,307 |
15,331 |
17,311 |
18,818 |
21,140 |
Net Interest |
310 |
(27) |
(127) |
(75) |
100 |
100 |
||
Tax |
(1,075) |
(1,165) |
(1,456) |
(2,053) |
(3,747) |
(4,257) |
||
Capex |
(4,028) |
(3,909) |
(7,021) |
(9,304) |
(7,928) |
(8,045) |
||
Acquisitions/disposals |
22 |
(11,700) |
(335) |
(7,551) |
0 |
0 |
||
Financing |
(694) |
1,324 |
480 |
(345) |
0 |
0 |
||
Dividends |
(877) |
(1,208) |
(1,550) |
(1,633) |
(1,798) |
(2,059) |
||
Net Cash Flow |
2,903 |
(2,378) |
5,322 |
(3,650) |
5,444 |
6,879 |
||
Opening net debt/(cash) |
|
|
(11,961) |
(12,446) |
(8,978) |
(13,681) |
(10,011) |
(15,455) |
HP finance leases initiated |
(2,293) |
(1,090) |
(645) |
0 |
0 |
0 |
||
Other |
(125) |
0 |
26 |
(20) |
(0) |
0 |
||
Closing net debt/(cash) |
|
|
(12,446) |
(8,978) |
(13,681) |
(10,011) |
(15,455) |
(22,334) |
Source: Esker, Edison Investment Research
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