Esker 1

Proving resilient despite COVID-19 pressures

Esker 20 July 2020 Update
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Esker

Proving resilient despite COVID-19 pressures

H1 revenue update

Software & comp services

20 July 2020

Price

€135.8

Market cap

€774m

$1.14/€

Net cash (€m) at end H120

22.9

Shares in issue

5.7m

Free float

68%

Code

ALESK

Primary exchange

Euronext Growth Paris

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

14.9

37.2

59.6

Rel (local)

13.3

21.6

75.6

52-week high/low

€135.80

€76.70

Business description

Esker provides end-to-end document automation solutions, offering on-demand and on-premise delivery models. In FY19, the business generated 57% of revenues from Europe, 38% from the US and the remainder from Asia and Australia.

Next events

H120 results

10 September

Analyst

Katherine Thompson

+44 (0)20 3077 5730

Esker is a research client of Edison Investment Research Limited

Esker’s Q2 revenue update confirmed that transaction-based SaaS revenues were hit by lower levels of customer activity in April and May but from June have started to rebound. The company continued to win new business, launch new functionality and expand its channel partnerships during H1. With the FY20 outlook maintained, we leave our revenue and EPS forecasts unchanged. The strong balance sheet, continued positive new business momentum and high level of recurring revenues make this an attractive stock to be invested in during the pandemic.

Year end

Revenue (€m)

PBT*
(€m)

Diluted EPS*
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/18

86.9

12.2

1.64

0.41

82.8

0.3

12/19

104.2

13.6

1.76

0.33

77.2

0.2

12/20e

114.8

14.7

1.73

0.35

78.4

0.3

12/21e

132.9

17.9

2.07

0.40

65.5

0.3

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

Q2 weaker as expected but June up on April/May

Esker reported Q220 revenues of €26.1m, flat year-on-year, with H120 revenues up 8% (or 7% constant currency (cc)). Q220 SaaS-based revenues (92% of the total) grew 3% (2% cc), while licence-based and legacy products declined 26% y-o-y. The company noted that the usage-based revenue component of its SaaS contracts (45% of total revenues) saw a 24% y-o-y decline in April and May, with harder hit areas (France, Spain, Italy, UK, Asia) down 30% and less affected areas (Australia, the US, Germany) down 12–16%. In June, these revenues have rebounded, with overall SaaS revenues up 12%. The company has not reduced working hours or furloughed any staff and ended Q2 with net cash of €22.9m. Gross cash of €38.3m includes a government-guaranteed €11.5m loan.

FY20 outlook maintained

Although transaction-related revenues declined during Q2, SaaS-related consulting revenues were 11% higher year-on-year and Esker continued to sign new contracts (the value of contracts signed in H1 was up 3% y-o-y to €12.1m). Management continues to expect organic revenue growth of c 10% for FY20 and profitability in line with FY19. We note that Esker had a busy H1 expanding its partnership channel and launching new product features. We maintain our underlying forecasts although we revise our model for the recently announced FY19 dividend (€0.33 per share) and reduce our dividend forecasts.

Valuation: Resilience attracts a premium

The stock has rebounded 66% from the low of €82 in mid-March, ahead of the 33% growth in the Euronext Growth index over the same period and is currently trading at an all-time high. While the stock continues to trade at a premium to document automation software and French software peers on EV/sales and P/E multiples, it is trading more in line with US SaaS software companies, which likewise have high recurring revenues, high growth and web-based delivery.

Changes to estimates

As Esker has maintained its outlook for FY20, we make no changes to underlying forecasts. On 19 June, the company announced a dividend for FY19 of €0.33 per share and a 10% bonus for those shareholders who have held the shares for at least two years (ie €0.363 per share). We have revised our model to reflect the cash payment for this. We have also reduced our dividend forecasts for FY20 and FY21.

Exhibit 1: Changes to estimates

€m

FY20e
old

FY20e
new

change

y-o-y

FY21e
old

FY21e
new

change

y-o-y

Revenues

114.8

114.8

0.0%

10.2%

132.9

132.9

(0.0%)

15.8%

EBITDA

22.0

22.0

0.0%

9.8%

25.9

25.9

(0.0%)

17.7%

EBITDA margin

19.1%

19.2%

0.0%

(0.1%)

19.5%

19.5%

(0.0%)

0.3%

Normalised EBIT

14.0

14.0

0.0%

9.9%

17.2

17.2

(0.0%)

22.8%

Normalised EBIT margin

12.2%

12.2%

0.0%

(0.0%)

13.0%

12.9%

(0.0%)

0.7%

Reported EBIT

13.7

13.7

0.0%

10.7%

16.9

16.9

(0.0%)

23.3%

Reported EBIT margin

11.9%

11.9%

0.0%

0.1%

12.7%

12.7%

(0.0%)

0.8%

Normalised PBT

14.7

14.7

0.0%

8.6%

17.9

17.9

(0.0%)

21.7%

Normalised net income

10.2

10.2

0.0%

1.1%

12.4

12.4

(0.0%)

21.7%

Normalised diluted EPS (€)

1.73

1.73

0.0%

(1.5%)

2.07

2.07

(0.0%)

19.6%

Reported basic EPS (€)

1.75

1.75

0.0%

(2.6%)

2.10

2.10

(0.0%)

20.1%

Reported diluted EPS (€)

1.69

1.69

0.0%

(1.6%)

2.03

2.03

(0.0%)

20.1%

Net cash

26.1

26.8

2.7%

27.5%

31.9

33.5

5.0%

24.8%

DPS (€)

0.50

0.35

(30.0%)

6.1%

0.55

0.40

(27.3%)

14.3%

Source: Edison Investment Research


Exhibit 2: Financial summary

€'000s

2016

2017

2018

2019

2020e

2021e

Year end 31 December

French GAAP

French GAAP

French GAAP

French GAAP

French GAAP

French GAAP

PROFIT & LOSS

Revenue

 

 

65,990

76,064

86,871

104,174

114,765

132,936

EBITDA

 

 

14,871

16,399

18,237

20,011

21,980

25,871

Operating Profit (before amort and except)

 

 

9,934

10,547

11,913

12,762

14,024

17,215

Amortisation of acquired intangibles

(200)

(300)

(344)

(344)

(344)

(344)

Exceptionals and other income

(474)

(456)

(88)

(62)

0

0

Other income

0

0

0

0

0

0

Operating Profit

9,260

9,791

11,481

12,356

13,680

16,871

Net Interest

(108)

(110)

(57)

268

100

100

Profit Before Tax (norm)

 

 

9,949

10,669

12,173

13,553

14,724

17,915

Profit Before Tax (FRS 3)

 

 

9,275

9,913

11,741

13,147

14,380

17,571

Tax

(2,950)

(3,148)

(2,940)

(3,402)

(4,458)

(5,447)

Profit After Tax (norm)

6,785

7,281

9,125

10,046

10,159

12,361

Profit After Tax (FRS 3)

6,325

6,765

8,801

9,745

9,922

12,124

Ave. Number of Shares Outstanding (m)

5.3

5.3

5.4

5.5

5.7

5.8

EPS - normalised (c)

 

 

128

138

169

182

179

215

EPS - normalised fully diluted (c)

 

 

122

132

164

176

173

207

EPS - (GAAP) (c)

 

 

120

128

164

180

175

210

Dividend per share (c)

30

32

41

33

35

40

Gross margin (%)

N/A

N/A

N/A

N/A

N/A

N/A

EBITDA Margin (%)

22.5

21.6

21.0

19.2

19.2

19.5

Operating Margin (before GW and except) (%)

15.1

13.9

13.7

12.3

12.2

12.9

BALANCE SHEET

Fixed Assets

 

 

28,324

37,912

39,635

47,201

48,601

49,501

Intangible Assets

22,381

26,673

28,096

29,323

30,823

32,023

Tangible Assets

5,158

7,115

7,050

10,434

10,334

10,034

Other

785

4,124

4,489

7,444

7,444

7,444

Current Assets

 

 

42,024

42,823

49,016

52,022

63,567

72,797

Stocks

101

176

147

185

185

185

Debtors

19,523

21,253

25,551

30,015

32,071

37,149

Cash

21,338

20,632

22,794

21,357

30,846

34,998

Other

1,062

762

524

465

465

465

Current Liabilities

 

 

(28,299)

(26,206)

(30,072)

(34,300)

(36,169)

(39,375)

Creditors

(28,299)

(26,206)

(30,072)

(34,300)

(36,169)

(39,375)

Short term borrowings

0

0

0

0

0

0

Long Term Liabilities

 

 

(7,657)

(14,909)

(10,810)

(8,276)

(5,776)

(3,276)

Long term borrowings

(7,657)

(13,716)

(9,318)

(6,516)

(4,016)

(1,516)

Other long term liabilities

0

(1,193)

(1,492)

(1,760)

(1,760)

(1,760)

Net Assets

 

 

34,392

39,620

47,769

56,647

70,223

79,647

CASH FLOW

Operating Cash Flow

 

 

15,944

17,311

18,324

20,290

21,792

23,999

Net Interest

(127)

(75)

63

352

100

100

Tax

(1,456)

(2,053)

(2,795)

(3,329)

(4,458)

(5,447)

Capex

(7,021)

(9,304)

(7,789)

(10,958)

(9,700)

(9,900)

Acquisitions/disposals

(935)

(7,551)

(225)

(523)

0

0

Financing

467

(345)

785

1,449

0

0

Dividends

(1,550)

(1,633)

(1,756)

(2,237)

(1,946)

(2,099)

Net Cash Flow

5,322

(3,650)

6,607

5,044

5,789

6,653

Opening net debt/(cash)

 

 

(8,978)

(13,681)

(10,016)

(16,576)

(21,041)

(26,830)

HP finance leases initiated

(645)

0

0

0

0

0

Other

26

(15)

(48)

(579)

0

0

Closing net debt/(cash)

 

 

(13,681)

(10,016)

(16,576)

(21,041)

(26,830)

(33,482)

Source: Esker accounts, Edison Investment Research


General disclaimer and copyright

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

General disclaimer and copyright

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