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Ramping up whistleblowing sales

EQS Group 12 April 2021 Update
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EQS Group

Ramping up whistleblowing sales

Final results

Software & comp services

12 April 2021

Price

€32.60

Market cap

€257m

Net cash (€m) at 31 December 2020
(including lease debt)

1.2

Shares in issue

7.9m

Free float

69%

Code

E1SX

Primary exchange

XETRA

Secondary exchange

FRA

Share price performance

%

1m

3m

12m

Abs

(5.1)

24.4

180.0

Rel (local)

(11.7)

15.6

82.0

52-week high/low

€39.60

€12.20

Business description

EQS Group is a leading international provider of regulatory technology in the fields of corporate compliance and investor relations. Its products enable corporate clients to fulfil complex national and international disclosure obligations, minimise risks and communicate transparently with stakeholders.

Next events

Q1 results

14 May 2021

Half year results

13 August 2021

Analyst

Fiona Orford-Williams

+44 (0)20 3077 5739

EQS Group is a research client of Edison Investment Research Limited

EQS had a clear benefit in FY20 from the demand for virtual corporate communications but the key to future growth is in the corporate compliance segment. Its cloud-based products are set to be the core growth driver over the medium term. With the imminent implementation of European whistleblowing regulation, there is a short-term opportunity to gain new clients, with the potential to expand accounts after. To make the most of this, the group is investing an additional €5.6m in sales and marketing in FY21, reflected in our revised forecasts.

Year end

Revenue (€m)

EBITDA
(€m)

PBT*
(€m)

EPS*
(c)

EV/EBITDA
(x)

P/E
(x)

12/19

35.4

2.6

(0.3)

(7.4)

100.1

N/A

12/20

37.6

4.8

0.4

4.1

53.7

791.3

12/21e

45.5

1.1

(3.1)

(26.7)

232.5

N/A

12/22e

53.2

4.3

0.1

(0.3)

59.5

N/A

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

Additional investment in FY21

There were no real surprises with the publication of the accounts, with the preliminary figures having been published in February. The Investor Relations segment grew 26% (pro-forma, adjusted for sale of ARIVA in FY20), to 47% of group revenue, while Compliance segment revenues were up 12% pro-forma. Reporting has been simplified, with revenues split between Investor Relations and Compliance, with each split between Cloud Products (SaaS) and Cloud Services. It is the SaaS revenues that are set to drive the stronger growth over the planned period through to FY25. For FY21, our EBITDA forecast is reduced from €6.1m to €1.1m to reflect the flagged additional investment in sales and marketing, which implies a slightly better underlying margin than we had built into our earlier forecast. Management guidance is for FY21 EBITDA to be in the €1.0–2.0m range, with the ambition to build group revenue to €100m, with an EBITDA margin of over 30%, by FY25e unchanged. On our modelling this looks challenging but achievable.

Funding in place

The group raised €9.1m gross in Q420 (placing at €26/share), with which it bought a 23% stake in C2S2 (in January 2021), a SaaS policy management provider with intelligence search functionality and 100% of Got Ethics (see December update) for €10m, again settled in January 2021. Got Ethics is an established provider of digital whistleblowing in Northern Europe. EQS raised a further €13.6m with a placing at €38/share in February. Having ended FY20 with net cash of €1.2m (€7.1m if leases are excluded), the group has the liquidity to support this further investment phase.

Valuation: Looking to the potential

With two recent placings, the share price has come off recent highs (€39.4 in February). On EV/sales, averaged across FY20–22e, the valuation is still at a discount of around 52% to larger peers, while earnings multiples are distorted by the additional investment.

New segmentation clarifies the narrative

With these results, management has moved on from the previous segmentation, which was becoming much less helpful in clarifying how the business was developing. The two key elements of Investor Relations and Corporate Compliance are maintained, but the smaller revenue streams, such as LEI customers, are now merged in with others. It is the Cloud Products that are set to be the main revenue drivers, based on the group’s COCKPIT platform. The revenue splits are shown below, along with our revised revenue forecast for FY21 and our new forecast for FY22. We have assumed that the main impetus for growth in FY21 is in Compliance Cloud Products, in line with the step up in the sales and marketing efforts behind the promotion of the whistleblowing solutions.

While this EU whistleblowing regulation is now active, the deadline for implementation in national laws is two years, which will be in December 2021. We would therefore expect the benefit to be heavily skewed to H221 and into H122, while the additional sales cost will be in place for most of H121. While we do not publish quarterly or half-yearly forecasts, it is clear that our forecast FY21 EBITDA will accrue in the second half. Management’s ambition is to gain 5k whistleblowing clients by FY25, of whom about 1k will choose to operate on EQS’s Compliance COCKPIT. There is obviously then considerable scope for cross-and up-selling.

Got Ethics, which will sell under the Integrity Line brand (and therefore report within Compliance Cloud-Products), should add €2.7–3.0m of annualised revenues.

Exhibit 1: New revenue segmentation

€000s

FY19

FY20

FY21e

FY22e

Investor Relations

Cloud-products

5,286

7,849

9,811

11,774

growth (%)

0%

48%

25%

20%

Service-products

8,717

9,818

10,309

10,721

growth (%)

0%

13%

5%

4%

Discontinued operation (ARIVA.DE AG)

2,072

0

0

0

Total Investor Relations

16,075

17,667

20,120

22,495

growth (%)

10%

14%

12%

Like-for-like growth (%)

26%

Compliance

Cloud-products

9,332

10,696

15,458

20,089

growth (%)

0%

15%

45%

30%

Service-products

8,535

9,273

9,922

10,617

growth (%)

0%

9%

7%

7%

Discontinued operation (ARIVA.DE AG)

1,425

0

0

0

Total Compliance

19,292

19,969

25,380

30,706

growth (%)

4%

27%

21%

Like-for-like growth (%)

12%

Group

35,367

37,636

45,500

53,200

growth

6%

21%

17%

Like-for-like growth (%)

18%

Source: Company accounts, Edison Investment Research

EQS continues to report other key metrics such as new annualised recurring revenues (ARR) (€5.32m), new SaaS customers (301) and SaaS contracts signed for the IR COCKPIT (631). Management’s goal is to win 1,500–2,000 new customers in FY21, with a target of €6m new ARR.

Our revised forecasts are shown in summary below. The main change is clearly the €5.6m of EBITDA identified by management as sacrificed to the sales effort. Our new FY22e figures reflect the benefit of that push on revenues. Guidance is for FY21 total revenue growth of 20–30% (including Got Ethics). We have come in at the low end of that range (with our FY21 Compliance revenue growth forecast of 27% below management’s indication of 30–40%) until we see evidence that the additional sales push will convert into active revenue.

Our EBITDA forecast is similarly at the low end of guided range of €1.0–2.0m.

Exhibit 2: Revisions to FY21 forecasts and new FY22 forecasts

EPS (c)

PBT (€m)

EBITDA (€m)

Old

New

% chg.

Old

New

% chg.

Old

New

% chg.

2020

13.7

4.1

-70

1.4

0.4

-71

4.9

4.8

-2

2021e

20.3

(26.7)

N/A

2.2

(3.1)

N/A

6.1

1.1

-82

2022e

-

(0.3)

N/A

-

0.1

N/A

-

4.3

N/A

Source: Company accounts, Edison Investment Research. Note: FY20 ‘new’ is actual

Management’s business plan is unchanged: FY25e revenues of €100m, split 68% Compliance, 32% Investor Relations, achieving an EBITDA margin of over 30%.

The recent fund-raises have put the group in a good financial position to weather the planned temporary reduction in EBITDA, as well as facilitating the bolt-on acquisitions of Got Ethics and the stake in C2S2. Having closed FY20 with net cash of €1.2m, our model indicates a build to €3.9m by end FY21e, with cash flow accelerating the following year. The underlying cash characteristics of the business model should be strong, with subscription income and a scalable product that should not demand further extensive capital investment.

Valuation: Off recent highs

Exhibit 3: Peer valuations

Price (reporting currency)

Market

cap (m)

YTD

%

EV/sales (x)

EV/EBITDA (x)

P/E (x)

FY0

FY1

FY2

FY0

FY1

FY2

FY0

FY1

FY2

Euromoney (£)

950

1,038

-11

3.2

3.2

2.9

16.1

15.3

11.9

22.3

23.5

16.7

Thomson Reuters (US$)

90

56,229

9

7.8

7.5

7.2

23.6

24.7

21.2

48.8

51.3

39.4

Envestnet (US$)

74

4,025

-10

4.4

3.9

3.5

18.1

18.2

16.3

28.9

34.6

31.5

Swissquote Group (€)

130

1,999

52

20.6

13.1

12.1

29.3

26.8

21.5

17.9

15.9

GlobalData (£)

1,370

1,621

0

9.6

9.0

8.9

30.3

27.9

26.4

44.8

42.5

37.3

MSCI (US$)

441

36,461

-1

22.7

19.9

18.1

39.7

33.7

30.3

56.3

47.3

41.8

S&P Global (US$)

367

88,446

12

12.3

11.7

11.0

21.9

21.1

19.7

31.4

29.6

26.9

MarketAxess Holding (US$)

520

19,758

-9

28.0

24.6

22.1

42.6

37.9

66.2

62.2

55.8

Average

5

13.6

11.6

10.7

25.0

26.6

23.8

40.0

38.6

33.2

Median

0

11.0

10.4

10.0

22.8

26.3

23.8

38.1

38.6

34.4

EQS (€)

34.6

260.0

27

6.8

5.6

4.8

53.7

232.5

59.5

791.4

N/A

N/A

(Discount)/Premium

-50%

-52%

-55%

115%

774%

150%

1877%

N/A

N/A

Source: Refinitiv. Note: Prices at 6 April 2021.

EQS’s share price climbed from €14.8 to €26.8 over the course of FY20, continuing to rise to a high of €39.6 in early February 2021 shortly before the second fund-raise.

On EV/sales, EQS remains valued at a substantial discount to larger global peers of 52%, averaged across FY20–22 to smooth out any COVID-19 impacts. This discount has narrowed from 65% at the time of our December update. Earnings-based multiples are obviously affected by the temporary reduction in profitability.

Exhibit 4: Financial summary

€'000

2018

2019

2020

2021e

2022e

31-December

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

36,210

35,367

37,636

45,500

53,200

Cost of Sales

0

0

0

0

0

Gross Profit

36,210

35,367

37,636

45,500

53,200

EBITDA

 

 

239

2,554

4,760

1,100

4,300

Operating Profit (before amort. and except.)

 

 

(1,299)

(2,433)

819

(2,841)

359

Amortisation of acquired intangibles

(821)

(743)

(656)

(656)

(656)

Exceptionals

0

0

0

0

0

Share-based payments

0

0

0

0

0

Reported operating profit

(2,120)

(3,176)

163

(3,497)

(297)

Net Interest

1,954

2,093

(396)

(239)

(221)

Joint ventures & associates (post tax)

0

0

0

0

0

Exceptionals

0

0

0

0

0

Profit Before Tax (norm)

 

 

655

(340)

423

(3,080)

138

Profit Before Tax (reported)

 

 

(166)

(1,083)

(233)

(3,736)

(518)

Reported tax

913

(610)

(599)

1,271

83

Profit After Tax (norm)

439

(532)

296

(2,055)

(25)

Profit After Tax (reported)

747

(1,693)

(832)

(2,465)

(435)

Minority interests

20

121

(34)

(44)

(51)

Discontinued operations

0

0

0

0

0

Net income (normalised)

439

(532)

296

(2,055)

(25)

Net income (reported)

767

(1,572)

(866)

(2,509)

(486)

Average Number of Shares Outstanding (m)

7,175

7,175

7,195

7,704

7,882

EPS - normalised (c)

 

 

6.12

(7.41)

4.12

(26.68)

(0.32)

EPS - normalised fully diluted (c)

 

 

6.12

(7.41)

4.12

(26.68)

(0.32)

EPS - basic reported (€)

 

 

0.11

(0.22)

(0.12)

(0.33)

(0.06)

Dividend per share (c)

0.00

0.00

0.00

0.00

0.00

Revenue growth (%)

19.3

(2.3)

6.4

20.9

16.9

EBITDA Margin (%)

0.7

7.2

12.6

2.4

8.1

Normalised Operating Margin (%)

(3.6)

(6.9)

2.2

(6.2)

0.7

BALANCE SHEET

Fixed Assets

 

 

41,219

43,841

39,447

49,018

50,042

Intangible Assets

37,293

32,008

31,016

40,552

41,541

Tangible Assets

2,241

8,838

7,216

7,251

7,286

Investments & other

1,685

2,995

1,215

1,215

1,215

Current Assets

 

 

7,250

6,094

17,086

20,862

21,170

Stocks

0

0

0

0

0

Debtors

5,030

3,841

3,923

4,941

5,778

Cash & cash equivalents

1,308

1,184

12,074

14,832

14,303

Other

912

1,069

1,089

1,089

1,089

Current Liabilities

 

 

(14,326)

(14,563)

(12,381)

(12,725)

(13,063)

Creditors

(1,472)

(1,848)

(1,651)

(1,996)

(2,333)

Tax and social security

(129)

(46)

(56)

(56)

(56)

Short term borrowings (includes lease debt)

(6,961)

(7,173)

(3,276)

(3,276)

(3,276)

Other

(5,764)

(5,496)

(7,398)

(7,398)

(7,398)

Long Term Liabilities

 

 

(6,660)

(10,195)

(11,208)

(11,208)

(11,208)

Long term borrowings (includes lease debt)

(3,475)

(7,481)

(7,641)

(7,641)

(7,641)

Other long term liabilities

(3,185)

(2,714)

(3,567)

(3,567)

(3,567)

Net Assets

 

 

27,483

25,177

32,944

45,946

46,940

Minority interests

420

(34)

0

0

0

Shareholders' equity

 

 

27,902

25,143

32,944

45,946

46,940

CASH FLOW

Op Cash Flow before WC and tax

3,106

4,037

3,765

2,132

4,162

Working capital

1,270

1,061

(1,037)

(273)

(499)

Exceptional & other

(1,646)

(2,516)

3,212

(685)

435

Tax

(135)

(188)

(154)

1,271

83

Net operating cash flow

 

 

2,595

2,394

5,786

2,445

4,181

Capex

(5,441)

(3,120)

(2,007)

(1,500)

(1,500)

Acquisitions/disposals

(5,115)

4,888

63

(11,500)

(3,000)

Net interest

0

0

0

0

0

Equity financing

0

0

9,124

13,523

0

Dividends

0

0

0

0

0

Other

1,792

(4,408)

350

(210)

(210)

Net Cash Flow

(6,169)

(246)

13,316

2,758

(529)

Opening net debt/(cash)

 

 

3,556

9,127

13,472

(1,155)

(3,911)

FX

75

53

(199)

0

0

Other non-cash movements

522

(4,153)

1,511

0

0

Closing net debt/(cash)

 

 

9,127

13,472

(1,155)

(3,911)

(3,383)

Source: Company accounts, Edison Investment Research

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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 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.

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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 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.

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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.

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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.

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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

1185 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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