Esker |
German EDI acquisition |
Acquisition |
Software & comp services |
31 October 2016 |
Share price performance
Business description
Next event
Analysts
Esker is a research client of Edison Investment Research Limited |
Esker has signed an agreement to acquire e-integration, a German electronic data interchange (EDI) business, for an undisclosed amount. This complements last year’s acquisition of CalvaEDI and strengthens Esker’s presence in German-speaking countries. With a similar business model to Esker, e-integration will add recurring revenues and a strong German customer base.
Year |
Revenue (€m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/14 |
46.1 |
5.9 |
0.90 |
0.24 |
45.9 |
0.6 |
12/15 |
58.5 |
9.3 |
1.31 |
0.30 |
31.5 |
0.7 |
12/16e |
66.0 |
10.9 |
1.50 |
0.33 |
27.5 |
0.8 |
12/17e |
73.6 |
13.9 |
1.84 |
0.36 |
22.4 |
0.9 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Expanding German and EDI presence
Esker has signed an agreement to acquire e-integration, a German EDI business based in Ratingen that operates an online exchange network with c 7,000 members. e-integration has c 600 active clients, mainly German industrial companies, some with international exposure. This should strengthen Esker’s presence in Germany (it already has an office in Munich), increasing German revenues by more than 150% and complementing the 2015 acquisition of CalvaEDI. Esker will also separately invest in PROmitea, a cloud-based document automation application developed by e-integration, taking up to a 20% stake initially with the option to acquire the whole business. Esker has not disclosed the form or amount of consideration; recent acquisitions have been paid for in a combination of cash and equity. At the end of Q316, Esker had a net cash position of €14m and 178k treasury shares.
Potentially earnings accretive
In CY16, e-integration expects its EDI business to generate revenues of €3.2m (+c 10% y-o-y) and a 17% pro-forma PBT margin. This compares to our 16.1% operating margin forecast for Esker in FY16. Esker expects to complete the deal in January 2017. We make no changes to our forecasts at this point, but note that €3.2m revenue and €0.54m PBT contributions would increase our FY17 revenue forecast by 4.3% and PBT by 3.9%. Until the final consideration is known, we cannot make a precise estimate of the impact on EPS.
Valuation: Reflects high level of recurring revenues
On an EV/sales and P/E basis, Esker is trading at a premium to document process automation software companies and French small-cap software companies; in our view this is justified by forecast revenue growth and operating margins that are higher than both groups. In our view, the transition to SaaS is likely to suppress operating margins across the software sector (even after transition costs are taken into account). Esker is ahead of many peers in making this transition and is generating strong growth and margins. The company has recurring revenues of c 80%, which provides a high level of revenue and cash flow predictability.
Exhibit 1: Financial summary
€'000s |
2012 |
2013 |
2014 |
2015 |
2016e |
2017e |
||
Year end 31 December |
French GAAP |
French GAAP |
French GAAP |
French GAAP |
French GAAP |
French GAAP |
||
PROFIT & LOSS |
||||||||
Revenue |
|
|
40,260 |
41,116 |
46,061 |
58,457 |
66,000 |
73,571 |
EBITDA |
|
|
6,637 |
6,598 |
8,979 |
13,405 |
15,376 |
18,516 |
Operating Profit (before amort and except) |
|
|
4,265 |
3,883 |
5,700 |
9,257 |
10,656 |
13,616 |
Amortisation of acquired intangibles |
0 |
0 |
0 |
(302) |
(500) |
(500) |
||
Exceptionals and other income |
(16) |
60 |
53 |
(245) |
(174) |
0 |
||
Other income |
0 |
0 |
0 |
0 |
0 |
0 |
||
Operating Profit |
4,249 |
3,943 |
5,753 |
8,710 |
9,982 |
13,116 |
||
Net Interest |
38 |
6 |
220 |
(6) |
100 |
100 |
||
Profit Before Tax (norm) |
|
|
4,303 |
3,889 |
5,920 |
9,312 |
10,904 |
13,864 |
Profit Before Tax (FRS 3) |
|
|
4,287 |
3,949 |
5,973 |
8,765 |
10,230 |
13,364 |
Tax |
(1,286) |
(761) |
(1,323) |
(2,292) |
(2,558) |
(3,341) |
||
Profit After Tax (norm) |
3,012 |
3,140 |
4,609 |
6,877 |
8,178 |
10,398 |
||
Profit After Tax (FRS 3) |
3,001 |
3,188 |
4,650 |
6,473 |
7,673 |
10,023 |
||
Average Number of Shares Outstanding (m) |
4.7 |
4.7 |
4.8 |
5.0 |
5.2 |
5.3 |
||
EPS - normalised (c) |
|
|
64 |
67 |
97 |
138 |
159 |
194 |
EPS - normalised fully diluted (c) |
|
|
60 |
62 |
90 |
131 |
150 |
184 |
EPS - (IFRS) (c) |
|
|
64 |
68 |
97 |
130 |
149 |
187 |
Dividend per share (c) |
14.00 |
18.00 |
24.00 |
30.00 |
33.00 |
36.00 |
||
Gross margin (%) |
N/A |
N/A |
N/A |
N/A |
N/A |
N/A |
||
EBITDA Margin (%) |
16.5 |
16.0 |
19.5 |
22.9 |
23.3 |
25.2 |
||
Operating Margin (before GW and except) (%) |
10.6 |
9.4 |
12.4 |
15.8 |
16.1 |
18.5 |
||
BALANCE SHEET |
||||||||
Fixed Assets |
|
|
8,764 |
9,437 |
12,552 |
25,184 |
25,914 |
26,682 |
Intangible Assets |
5,521 |
6,458 |
7,709 |
19,603 |
20,534 |
21,552 |
||
Tangible Assets |
2,835 |
2,450 |
4,470 |
4,985 |
4,784 |
4,534 |
||
Other |
408 |
529 |
373 |
596 |
596 |
596 |
||
Current Assets |
|
|
24,358 |
26,834 |
33,894 |
36,110 |
43,609 |
52,846 |
Stocks |
100 |
89 |
93 |
161 |
161 |
161 |
||
Debtors |
11,567 |
12,144 |
15,110 |
18,073 |
19,891 |
22,172 |
||
Cash |
11,393 |
13,411 |
17,559 |
16,295 |
21,976 |
28,932 |
||
Other |
1,298 |
1,190 |
1,132 |
1,581 |
1,581 |
1,581 |
||
Current Liabilities |
|
|
(15,551) |
(16,164) |
(19,827) |
(24,789) |
(26,711) |
(28,639) |
Creditors |
(15,551) |
(16,164) |
(19,827) |
(24,789) |
(26,711) |
(28,639) |
||
Short term borrowings |
0 |
0 |
0 |
0 |
0 |
0 |
||
Long Term Liabilities |
|
|
(2,019) |
(1,450) |
(5,113) |
(7,317) |
(7,317) |
(7,317) |
Long term borrowings |
(2,019) |
(1,450) |
(5,113) |
(7,317) |
(7,317) |
(7,317) |
||
Other long term liabilities |
0 |
0 |
0 |
0 |
0 |
0 |
||
Net Assets |
|
|
15,552 |
18,657 |
21,506 |
29,188 |
35,495 |
43,571 |
CASH FLOW |
||||||||
Operating Cash Flow |
|
|
6,163 |
6,539 |
9,245 |
14,307 |
15,480 |
18,163 |
Net Interest |
122 |
90 |
310 |
(27) |
100 |
100 |
||
Tax |
(1,366) |
(645) |
(1,075) |
(1,165) |
(2,558) |
(3,341) |
||
Capex |
(3,548) |
(3,434) |
(4,028) |
(3,909) |
(5,951) |
(6,168) |
||
Acquisitions/disposals |
0 |
0 |
22 |
(11,700) |
0 |
0 |
||
Financing |
400 |
628 |
(694) |
1,324 |
159 |
0 |
||
Dividends |
(550) |
(659) |
(877) |
(1,208) |
(1,550) |
(1,798) |
||
Net Cash Flow |
1,221 |
2,519 |
2,903 |
(2,378) |
5,681 |
6,956 |
||
Opening net debt/(cash) |
|
|
(8,526) |
(9,354) |
(11,961) |
(12,446) |
(8,978) |
(14,659) |
HP finance leases initiated |
(393) |
0 |
(2,293) |
(1,090) |
0 |
0 |
||
Other |
(0) |
88 |
(125) |
0 |
0 |
0 |
||
Closing net debt/(cash) |
|
|
(9,354) |
(11,961) |
(12,446) |
(8,978) |
(14,659) |
(21,615) |
Source: Esker, Edison Investment Research
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