Esker 1

On track; outlook maintained

Esker 20 July 2017 Update
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Esker

On track; outlook maintained

Q2 revenues

Software & comp services

20 July 2017

Price

€52.4

Market cap

€278m

$1.15/€1

Net cash (€m) at end H117

9.7

Shares in issue

5.3m

Free float

76%

Code

ALESK

Primary exchange

Alternext Paris

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

1.9

14.9

49.7

Rel (local)

3.8

9.7

23.1

52-week high/low

€53.13

€34.10

Business description

Esker provides end-to-end document automation solutions, offering on-premise and on-demand delivery models. The business generates 50% of revenues from Europe, 40% from the US and the remainder from Asia and Australia.

Next events

H117 results

14 September 2017

Analysts

Katherine Thompson

+44 (0)20 3077 5730

Bridie Barrett

+44 (0)20 3077 5700

Esker is a research client of Edison Investment Research Limited

Esker has reported H117 revenues in line with our forecasts, achieving 9% y-o-y organic constant currency growth. The e-integration acquisition is performing well and the company has maintained its guidance for double-digit organic revenue growth for 2017. Esker’s strong cash position provides resources for further M&A. We leave our forecasts unchanged, pending full H117 results on 14 September.

Year end

Revenue (€m)

PBT*
(€m)

EPS*
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/15

58.5

9.3

1.31

0.30

40.0

0.6

12/16

66.0

9.9

1.23

0.33

42.6

0.6

12/17e

75.6

11.9

1.42

0.36

36.9

0.7

12/18e

82.0

12.8

1.51

0.39

34.7

0.7

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

H1 revenues on track

Esker generated revenues of €19.1m in Q217, +13% y-o-y (+9% constant currency organic growth). H117 revenues of €37.8m were in line with our forecast, +14% y-o-y (+9% constant currency organic). The recent acquisition, e-integration, contributed revenues of €0.9m in Q217 (+24% y-o-y) and €1.8m in H117 (+20% y-o-y) – this is marginally better than expected. SaaS-based revenues grew 25% y-o-y (18% constant currency and organic) to make up 84% of revenues. The company closed H117 with cash of €23.4m and net cash of €9.7m.

Outlook maintained

The company continues to expect to achieve double-digit organic revenue growth in 2017. Clearly, H117 revenues were slightly below this rate, but as previously flagged, the legacy products business had a tough compare for H117 and this effect should diminish in H217. Recurring revenues made up 78% of the total in Q217 giving a high level of visibility. We leave our estimates unchanged. We note that with c 40% of revenues generated in the US, Esker’s reported revenues and earnings are sensitive to changes in the $/€ exchange rate. While the rate averaged $1.08:€ in H117, the euro has strengthened against the dollar since April and currently is trading at $1.15:€. We will revisit our currency assumptions when H117 results are reported in September.

Valuation: Premium rating warranted

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 approaching 80%, which provides a high level of revenue and cash flow predictability.

Exhibit 1: Financial summary

€'000s

2012

2013

2014

2015

2016

2017e

2018e

Year end 31 December

French GAAP

French GAAP

French GAAP

French GAAP

French GAAP

French GAAP

French GAAP

PROFIT & LOSS

Revenue

 

 

40,260

41,116

46,061

58,457

65,990

75,597

82,009

EBITDA

 

 

6,637

6,598

8,979

13,405

14,871

16,668

17,697

Operating Profit (before amort and except)

 

 

4,265

3,883

5,700

9,257

9,934

11,668

12,597

Amortisation of acquired intangibles

0

0

0

(302)

(200)

(200)

(200)

Exceptionals and other income

(16)

60

53

(245)

(474)

0

0

Other income

0

0

0

0

0

0

0

Operating Profit

4,249

3,943

5,753

8,710

9,260

11,468

12,397

Net Interest

38

6

220

(6)

(108)

100

100

Profit Before Tax (norm)

 

 

4,303

3,889

5,920

9,312

9,949

11,891

12,820

Profit Before Tax (FRS 3)

 

 

4,287

3,949

5,973

8,765

9,275

11,691

12,620

Tax

(1,286)

(761)

(1,323)

(2,292)

(2,950)

(3,858)

(4,165)

Profit After Tax (norm)

3,012

3,140

4,609

6,877

6,785

7,967

8,589

Profit After Tax (FRS 3)

3,001

3,188

4,650

6,473

6,325

7,833

8,455

Average Number of Shares Outstanding (m)

4.7

4.7

4.8

5.0

5.1

5.3

5.4

EPS - normalised (c)

 

 

64

67

97

138

132

150

159

EPS - normalised fully diluted (c)

 

 

60

62

90

131

123

142

151

EPS - (GAAP) (c)

 

 

64

68

97

130

123

148

157

Dividend per share (c)

14.00

18.00

24.00

30.00

33.00

36.00

39.00

Gross margin (%)

N/A

N/A

N/A

N/A

N/A

N/A

N/A

EBITDA Margin (%)

16.5

16.0

19.5

22.9

22.5

22.0

21.6

Operating Margin (before GW and except) (%)

10.6

9.4

12.4

15.8

15.1

15.4

15.4

BALANCE SHEET

Fixed Assets

 

 

8,764

9,437

12,552

25,184

28,324

36,352

38,125

Intangible Assets

5,521

6,458

7,709

19,603

22,381

30,599

32,522

Tangible Assets

2,835

2,450

4,470

4,985

5,158

4,968

4,818

Other

408

529

373

596

785

785

785

Current Assets

 

 

24,358

26,834

33,894

36,110

42,024

45,589

51,808

Stocks

100

89

93

161

101

101

101

Debtors

11,567

12,144

15,110

18,073

19,523

22,368

24,266

Cash

11,393

13,411

17,559

16,295

21,338

22,058

26,379

Other

1,298

1,190

1,132

1,581

1,062

1,062

1,062

Current Liabilities

 

 

(15,551)

(16,164)

(19,827)

(24,789)

(28,299)

(30,752)

(32,390)

Creditors

(15,551)

(16,164)

(19,827)

(24,789)

(28,299)

(30,752)

(32,390)

Short term borrowings

0

0

0

0

0

0

0

Long Term Liabilities

 

 

(2,019)

(1,450)

(5,113)

(7,317)

(7,657)

(9,757)

(9,757)

Long term borrowings

(2,019)

(1,450)

(5,113)

(7,317)

(7,657)

(7,657)

(7,657)

Other long term liabilities

0

0

0

0

0

(2,100)

(2,100)

Net Assets

 

 

15,552

18,657

21,506

29,188

34,392

41,432

47,786

CASH FLOW

Operating Cash Flow

 

 

6,163

6,539

9,245

14,307

16,303

16,276

17,437

Net Interest

122

90

310

(27)

(127)

100

100

Tax

(1,366)

(645)

(1,075)

(1,165)

(1,456)

(3,858)

(4,165)

Capex

(3,548)

(3,434)

(4,028)

(3,909)

(7,021)

(6,718)

(7,074)

Acquisitions/disposals

0

0

22

(11,700)

(948)

(3,300)

0

Financing

400

628

(694)

1,324

(581)

0

0

Dividends

(550)

(659)

(877)

(1,208)

(1,550)

(1,780)

(1,978)

Net Cash Flow

1,221

2,519

2,903

(2,378)

4,620

720

4,321

Opening net debt/(cash)

 

 

(8,526)

(9,354)

(11,961)

(12,446)

(8,978)

(13,681)

(14,401)

HP finance leases initiated

(393)

0

(2,293)

(1,090)

83

0

0

Other

(0)

88

(125)

0

0

0

0

Closing net debt/(cash)

 

 

(9,354)

(11,961)

(12,446)

(8,978)

(13,681)

(14,401)

(18,722)

Source: Esker, 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 Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Esker 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 Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. 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 2017. “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

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 Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Esker 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 Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. 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 2017. “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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