EQS Group — Making progress

EQS Group (SCALE: EQS)

Last close As at 28/03/2024

40.80

−0.40 (−0.97%)

Market capitalisation

409m

More on this equity

Research: TMT

EQS Group — Making progress

EQS Group delivered FY19 revenue and EBITDA in line with market expectations and is making good progress in its transformation to a cloud-based provider of corporate compliance and investor relations solutions. Some effects of COVID-19 play to EQS’s strengths, such as virtual AGMs and hosting webcasts. However, the dearth of IPOs and longer-term likely increase in corporate insolvencies reduce the potential client pool. FY20 forecasts may need to be reviewed as the economic situation clarifies. The valuation remains well below peers.

Fiona Orford-Williams

Written by

Fiona Orford-Williams

Director, TMT

TMT

EQS Group

Making progress

Media

Scale research report - Update

14 April 2020

Price

€74

Market cap

€104m

Share price graph

Share details

Code

EQS

Listing

Deutsche Börse Scale

Shares in issue

1.4m

Net debt (€m) at 31 December 2019 (non-IFRS)

5.8

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.

Bull

Increased corporate digitalisation

Financial market regulation.

High percentage of recurring and repeatable income.

Bear

COVID-19 impact on corporate health

Some macro sensitivity

Dividend payment on hold.

Analysts

Fiona Orford-Williams

+44 (0)20 3077 5739

Russell Pointon

+44 (0) 20 3077 5757

EQS Group delivered FY19 revenue and EBITDA in line with market expectations and is making good progress in its transformation to a cloud-based provider of corporate compliance and investor relations solutions. Some effects of COVID-19 play to EQS’s strengths, such as virtual AGMs and hosting webcasts. However, the dearth of IPOs and longer-term likely increase in corporate insolvencies reduce the potential client pool. FY20 forecasts may need to be reviewed as the economic situation clarifies. The valuation remains well below peers.

11% underlying revenue growth

FY19 results were in line with management indications, as reset at the Q3 figures. Comparatives are against a full year of ownership of ARIVA (sold in July 2019, at a €2.2m net gain), and underlying revenue growth was 11%. This was despite a lacklustre year for IPOs and M&A activity, delays in new modules on the COCKPIT platform and a longer sales cycle than initially hoped. Nevertheless, underlying revenues from the Compliance segment were up 15% year-on-year, with Investor Relations activities 5% ahead. The COCKPIT platform forms the basis for management’s medium-term growth projections to build to a revenue CAGR of over 20% to FY25. FY20 projections obviously depend on the impact of COVID-19 restrictions on the broader global economy.

Balance sheet set to strengthen

At the year-end, the group had net debt of €13.5m. Excluding leases, net debt was €5.8m, against an equity base of €26.1m. Market forecasts indicate net debt starting to decrease through FY20, ending the year at €12.2m. From FY20, capex is anticipated to run at around €1.25m, with the bulk of the platform investment completed. This turns the group operational cash flow positive.

Valuation: Clear discount to peers

Having fallen from a high of €80.5 in late February post the publication of preliminary 2019 figures down to €50 on 19 March, EQS’s share price has since recovered to within 10% of that previous high. This suggests that investors may now be pricing in a less pronounced impact from the coronavirus pandemic on the company’s business. With EBITDA not a useful metric due to the distorting impact of IFRS 16, peer comparison for now can predominantly be done on EV/sales, on which basis EQS trades at around a third below larger peers.

Consensus estimates

Year end

Revenue (€m)

PBT*
(€m)

EPS*
(€)

DPS
(€)

P/E
(x)

EV/EBITDA
(x)

Yield
(%)

12/18

36.2

(0.1)

0.75

0.0

N/A

41.0

0.0

12/19

35.4

(0.3)

(0.90)

0.0

N/A

46.9

0.0

12/20e

37.4

0.2

(0.01)

0.0

N/A

26.8

0.0

12/21e

44.2

3.5

1.68

0.0

44.1

15.1

0.0

Source: Refinitiv. Note: *Historic adjustments to PBT and EPS are as per Refinitiv.

Edison Investment Research provides qualitative research coverage on companies in the Deutsche Börse Scale segment in accordance with section 36 subsection 3 of the General Terms and Conditions of Deutsche Börse AG for the Regulated Unofficial Market (Freiverkehr) on Frankfurter Wertpapierbörse (as of 1 March 2017). Two to three research reports will be produced per year. Research reports do not contain Edison analyst financial forecasts.

Review of FY19 results

The group has now published its full FY19 results, with preliminary figures having been published in late February. These show good progress, particularly through Q4. Management continues to anticipate good top line growth for FY20, with improving margins as the investment peak falls away. FY20 market forecasts are based on the current situation, which may be marginally acting in EQS’s favour. However, with COVID-19 putting global economies into uncharted territory, this may prove to have been overly optimistic.

Revenues building

Exhibit 1: Quarterly progression

Q119

Q219

H119

Q319

Q419

FY19

Investor Relations

 

 

Revenue Large Caps €m

3.44

3.58

7.02

3.39

3.59

14.00

# Large Cap Customers

2,083

2,103

2,103

2,132

2,172

2,172

 

 

Compliance

 

 

Revenue Large Caps €m

2.28

2.42

4.70

2.32

2.31

9.33

# Large Cap Customers

1,170

1,206

1,206

1,236

1,280

1,280

 

 

XML Revenues €m

0.71

1.94

2.65

1.69

2.13

6.47

# XML Customers

4,363

4,249

4,249

4,013

4,771

4,771

 

 

LEI Revenues €m

0.46

0.37

0.83

0.48

0.76

2.07

# LEI Customers

33,580

34,093

34,093

36,062

35,575

35,575

 

 

Total Compliance €m

3.45

4.73

8.18

4.49

5.20

17.87

Discontinued (ARIVA) €m

 

3.50

Total Group €m

6.89

8.31

15.2

7.88

8.79

35.37

Source: Company accounts, Edison Investment Research

Exhibit 1 above shows the key revenue drivers as identified by management, but it is also important to note that there has been progress in migrating customers across to the new COCKPIT platform, with 300 making the move. This means that they can be serviced far more efficiently. More pertinent, though, is that it should make it far easier to cross- and up-sell them additional modules as they are added to the platform.

During FY19, EQS added €3.8m of annual recurring revenues and 205 new COCKPIT SaaS contracts. While overall group revenues were up by 11%, operating expenses were held level, resulting in an uplift in pre-IFRS 16 EBITDA from €53k to €459k, excluding ARIVA. IFRS 16 numbers, which make a substantial difference to EQS’s reporting, adding €2.05m to the published number. Capital investment in the cloud-based programme was €1.6m, in line with the reduction indicated at Q3. Management has indicated that this figure is set to fall further with the bulk of the investment programme completed, to €1.0m for FY20.

The largest gains in underlying EBITDA were generated from domestic markets, accounted for €2.0m of the €2.5m increase. Total income edged ahead of operating expenses in Q3 and had opened a wider gap in Q419.

COVID-19 impact to date

Through Q1, the effect of the spread of COVID-19 was broadly beneficial for EQS. The need for corporate entities to communicate with their stakeholders grew and webcasting, such as provided by the group, is an obvious method. Arrangements for virtual general meetings are also being put in place across the DACH area, where voting is normally at the meeting rather than in advance as in the UK. Questions can be submitted in advance through the platform provided.

This is winning the group new clients and could act as a good ‘door-opener’ for more significant sales once the present crisis has passed. Revenues per meeting are relatively modest, so it is this longer-term benefit that is of more relevance.

Against this, the number of IPOs lined up for European markets has unsurprisingly dwindled and IPOs have been a useful source of revenue historically. The length and severity of the economic impact will also affect the numbers of companies going out of business entirely, but this is not yet quantifiable. For EQS, the sales cycle will lengthen, with the larger contracts more likely to be postponed. However, the group is still winning business at the lower contract value price points for COCKPIT clients, which bodes well for future revenue growth.

No client represents more than 5% of revenue and nearly all are below the €50k mark.

Planned growth for FY20 and on

Within the Investor relations segment, management anticipates that growth will come from new COCKPIT capabilities and increasing client numbers. This is against a backdrop of a consolidating provider base, reflecting the increasing complexity of what needs to be delivered to make an effective service.

For Corporate compliance, the emphasis is on the launch of new products such as Policy Manager, and Approval Manager, which will provide an audit trail for decision making. We assume there will be a reduction in the quantity of LEI to be issued in FY20, but a step up in the amount of electronic filing by corporates through XML and XBRL.

Management has guided to revenue growth of 10–20% for FY20, but it should be noted this is against a top line excluding ARIVA revenues so is not inconsistent with our forecast uplift of 5%. Management guidance is based on assumptions of 320–400 new large cap customers and a further €4.5–5.5m of annual recurring revenues being added to the books.

Valuation

As the internal investment is affecting profitability from FY18–20, the most reliable traditional multiple is that of EV/Sales. There is a wide range of multiples for the peer group and it is not clear by how much forecasts have yet been adjusted for any impact from COVID-19, if at all. With that proviso, for FY1 EQS is trading at 3.2x sales versus the average for the peer group of 4.8x, a discount of around one third. For FY21e, the discount opens to 40%.

Exhibit 1: Quoted financial platform peers

Price
(reporting ccy)

YRD perf (%)

Market cap (m)

EV/Sales (x)

EV/EBITDA (x)

P/E (x)

FY0

FY1

FY2

FY0

FY1

FY2

FY0

FY1

FY2

Euromoney (£)

8.49

-35

924

2.2

2.3

2.1

7.9

9.7

7.5

10.9

14.7

10.8

Thomson Reuters (C$)

70.1

6

48,860

6.3

6.0

5.8

24.9

19.1

18.0

54.3

37.0

33.3

Envestnet (U$)

55.41

-20

2,931

3.8

3.4

3.1

17.7

16.0

14.1

25.8

25.7

22.8

GlobalData (£)

10.65

-17

1,253

7.6

7.3

6.9

30.5

27.4

24.9

36.9

37.4

34.1

Average

5.0

4.8

4.5

20.3

18.1

16.1

32.0

28.7

25.3

EQS

74

18

107

3.4

3.2

2.7

46.9

26.8

15.1

N/A

N/A

44.1

Source: Refinitiv. Note: Prices at 9 April 2020


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.

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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

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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).

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The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. 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

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 2020 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2020. “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 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

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

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. 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

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