Esker |
Strong H1 supports FY16 outlook |
H116 results |
Software & comp services |
23 September 2016 |
Share price performance
Business description
Next events
Analysts
Esker is a research client of Edison Investment Research Limited |
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Esker’s H116 results confirmed that the company is on track to meet its revenue growth target for FY16 and profitability has increased on a year-on-year and sequential basis. SaaS-based revenues continue to grow and make up an increasing proportion of revenues. We leave our forecasts substantially unchanged.
Year |
Revenue (€m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/14 |
46.1 |
5.9 |
0.90 |
0.24 |
42.5 |
0.6 |
12/15 |
58.5 |
9.3 |
1.31 |
0.30 |
29.2 |
0.8 |
12/16e |
67.0 |
11.9 |
1.63 |
0.33 |
23.4 |
0.9 |
12/17e |
73.9 |
14.2 |
1.89 |
0.36 |
20.1 |
0.9 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
H116 results on track
Esker generated year-on-year revenue growth of 17.6% in H116; on a like-for-like basis revenues grew 15% year-on-year. EBITDA margins and operating margins expanded 240bp and 160bp respectively compared to H115. SaaS-based revenues grew 22% y-o-y to make up 76% of revenues, up from 72% in FY15. We note that the joint venture with Néopost generated a positive contribution in the period. Net cash increased by €0.7m since the end of FY15 to finish the period at €9.7m. We note that the company has borrowed funds at low interest rates to be ready to make acquisitions when they are identified.
Positive outlook maintained
The company has maintained its outlook for organic revenue growth in the range 13-18%. We have maintained operating profit forecasts for FY16 and FY17; we forecast revenue growth of 14.6% in FY16 and 10.4% in FY17. We have factored in a positive contribution from the joint venture in both years, resulting in a 0.2% increase in our normalised EPS forecasts in FY16 and 0.1% in FY17.
Valuation: Supported by recurring revenues
On an EV/sales basis, Esker is trading in line with document process automation (DPA) software companies and at a premium to French small-cap software companies. Esker’s forecast revenue growth and operating margins are higher than both groups. On a P/E basis, Esker trades at a premium to 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 already generating strong growth and margins. The company has recurring revenues approaching 80%, which provides a high level of revenue and cash flow predictability.
Review of H116 results
Esker reported H116 results on 15 September. We highlight the key results in Exhibit 1. Reported revenues grew 17.6% y-o-y. On a like-for-like basis (adjusting for currency and acquisitions), revenues grew 15% y-o-y. SaaS-based revenues grew 22% y-o-y (vs +24% for FY15) to make up 76% of revenues (72% in FY15). On-premise software sales declined 2% y-o-y and legacy products declined 6% y-o-y. Operating expenses increased 14% y-o-y, with headcount increasing to 397 at the end of H116 from 375 at the end of FY15. Overall this resulted in a 30% y-o-y increase in EBITDA and EBITDA margin expansion to 24.9%. Reported net income is after exceptional costs of €174k (the cost of moving the company’s headquarters in Lyon) and a €74k contribution from the Néopost joint venture. Net cash at the end of H116 was €9.7m, up from €9.0m at the end of FY15. We note that this is made up of gross debt of €8.3m and cash of €17.9m – the company has taken out loans at very low interest rates to have funds on hand if and when it identifies appropriate acquisition targets.
Exhibit 1: Esker H1 results highlights
H116 |
H115 |
Y-o-y |
|
Revenues |
33.2 |
28.2 |
17.6% |
EBITDA |
8.3 |
6.4 |
30.2% |
EBITDA margin |
24.9% |
22.5% |
2.4% |
Reported operating profit |
5.7 |
4.4 |
29.7% |
Operating margin |
17.1% |
15.5% |
1.6% |
Reported net income |
4.0 |
3.1 |
28.6% |
Source: Esker
Outlook and changes to forecasts
The company continues to guide to organic growth of 13-18% for FY16. We have reduced our FY16 and FY17 revenue forecasts marginally – this corresponds to H216 y-o-y growth of 12%. However, taking into account the cost base in H116, our EBITDA and operating profit forecasts for both years are unchanged. We were not previously forecasting a contribution from the JV – we have now factored in a contribution of €0.15m in FY16 and FY17. We have also factored in the one-off cost of moving the HQ. Combined with slightly higher capitalised development costs, this reduces our net cash forecast marginally in FY16 and FY17.
Exhibit 2: Changes to forecasts
€m |
FY16e old |
FY16e new |
change |
y-o-y |
FY17e old |
FY17e new |
change |
y-o-y |
Revenues |
67.4 |
67.0 |
-0.7% |
14.6% |
74.4 |
73.9 |
-0.7% |
10.4% |
EBITDA |
16.3 |
16.3 |
0.0% |
21.9% |
18.9 |
18.9 |
0.0% |
15.6% |
EBITDA margin |
24.2% |
24.4% |
0.2% |
1.5% |
25.4% |
25.5% |
0.2% |
1.1% |
EBIT |
11.62 |
11.62 |
0.0% |
25.5% |
14.0 |
14.0 |
0.0% |
20.4% |
EBIT margin |
17.2% |
17.4% |
0.1% |
1.5% |
18.8% |
18.9% |
0.1% |
1.6% |
PBT |
11.7 |
11.9 |
1.3% |
27.5% |
14.1 |
14.2 |
1.0% |
20.0% |
Net income |
8.8 |
8.9 |
1.3% |
29.4% |
10.6 |
10.7 |
1.0% |
20.0% |
Normalised EPS |
1.63 |
1.63 |
0.2% |
25.0% |
1.89 |
1.89 |
0.1% |
15.9% |
Reported EPS |
1.65 |
1.63 |
-1.3% |
25.1% |
1.92 |
1.93 |
0.1% |
18.4% |
Net cash |
15.7 |
15.3 |
-2.2% |
70.8% |
23.2 |
22.6 |
-2.7% |
47.4% |
DPS |
0.33 |
0.33 |
0.0% |
10.0% |
0.36 |
0.36 |
0.0% |
9.1% |
Source: Edison Investment Research
Exhibit 3: Financial summary
€'000s |
2012 |
2013 |
2014 |
2015 |
2016e |
2017e |
||
Year end 31 December |
French GAAP |
French GAAP |
French GAAP |
French GAAP |
French GAAP |
French GAAP |
||
PROFIT & LOSS |
||||||||
Revenue |
|
|
40,260 |
41,116 |
46,061 |
58,457 |
66,966 |
73,947 |
EBITDA |
|
|
6,637 |
6,598 |
8,979 |
13,405 |
16,341 |
18,892 |
Operating Profit (before amort and except) |
|
|
4,265 |
3,883 |
5,700 |
9,257 |
11,621 |
13,992 |
Amortisation of acquired intangibles |
0 |
0 |
0 |
(302) |
(500) |
(500) |
||
Exceptionals and other income |
(16) |
60 |
53 |
(245) |
(174) |
0 |
||
Other income |
0 |
0 |
0 |
0 |
0 |
0 |
||
Operating Profit |
4,249 |
3,943 |
5,753 |
8,710 |
10,947 |
13,492 |
||
Net Interest |
38 |
6 |
220 |
(6) |
100 |
100 |
||
Profit Before Tax (norm) |
|
|
4,303 |
3,889 |
5,920 |
9,312 |
11,869 |
14,240 |
Profit Before Tax (FRS 3) |
|
|
4,287 |
3,949 |
5,973 |
8,765 |
11,195 |
13,740 |
Tax |
(1,286) |
(761) |
(1,323) |
(2,292) |
(2,799) |
(3,435) |
||
Profit After Tax (norm) |
3,012 |
3,140 |
4,609 |
6,877 |
8,902 |
10,680 |
||
Profit After Tax (FRS 3) |
3,001 |
3,188 |
4,650 |
6,473 |
8,396 |
10,305 |
||
Average Number of Shares Outstanding (m) |
4.7 |
4.7 |
4.8 |
5.0 |
5.2 |
5.3 |
||
EPS - normalised (c) |
|
|
64 |
67 |
97 |
138 |
173 |
200 |
EPS - normalised fully diluted (c) |
|
|
60 |
62 |
90 |
131 |
163 |
189 |
EPS - (IFRS) (c) |
|
|
64 |
68 |
97 |
130 |
163 |
193 |
Dividend per share (c) |
14.00 |
18.00 |
24.00 |
30.00 |
33.00 |
36.00 |
||
Gross margin (%) |
N/A |
N/A |
N/A |
N/A |
N/A |
N/A |
||
EBITDA Margin (%) |
16.5 |
16.0 |
19.5 |
22.9 |
24.4 |
25.5 |
||
Operating Margin (before GW and except) (%) |
10.6 |
9.4 |
12.4 |
15.8 |
17.4 |
18.9 |
||
BALANCE SHEET |
||||||||
Fixed Assets |
|
|
8,764 |
9,437 |
12,552 |
25,184 |
25,914 |
26,682 |
Intangible Assets |
5,521 |
6,458 |
7,709 |
19,603 |
20,534 |
21,552 |
||
Tangible Assets |
2,835 |
2,450 |
4,470 |
4,985 |
4,784 |
4,534 |
||
Other |
408 |
529 |
373 |
596 |
596 |
596 |
||
Current Assets |
|
|
24,358 |
26,834 |
33,894 |
36,110 |
44,578 |
53,948 |
Stocks |
100 |
89 |
93 |
161 |
161 |
161 |
||
Debtors |
11,567 |
12,144 |
15,110 |
18,073 |
20,181 |
22,285 |
||
Cash |
11,393 |
13,411 |
17,559 |
16,295 |
22,655 |
29,921 |
||
Other |
1,298 |
1,190 |
1,132 |
1,581 |
1,581 |
1,581 |
||
Current Liabilities |
|
|
(15,551) |
(16,164) |
(19,827) |
(24,789) |
(26,957) |
(28,735) |
Creditors |
(15,551) |
(16,164) |
(19,827) |
(24,789) |
(26,957) |
(28,735) |
||
Short term borrowings |
0 |
0 |
0 |
0 |
0 |
0 |
||
Long Term Liabilities |
|
|
(2,019) |
(1,450) |
(5,113) |
(7,317) |
(7,317) |
(7,317) |
Long term borrowings |
(2,019) |
(1,450) |
(5,113) |
(7,317) |
(7,317) |
(7,317) |
||
Other long term liabilities |
0 |
0 |
0 |
0 |
0 |
0 |
||
Net Assets |
|
|
15,552 |
18,657 |
21,506 |
29,188 |
36,218 |
44,577 |
CASH FLOW |
||||||||
Operating Cash Flow |
|
|
6,163 |
6,539 |
9,245 |
14,307 |
16,400 |
18,566 |
Net Interest |
122 |
90 |
310 |
(27) |
100 |
100 |
||
Tax |
(1,366) |
(645) |
(1,075) |
(1,165) |
(2,799) |
(3,435) |
||
Capex |
(3,548) |
(3,434) |
(4,028) |
(3,909) |
(5,951) |
(6,168) |
||
Acquisitions/disposals |
0 |
0 |
22 |
(11,700) |
0 |
0 |
||
Financing |
400 |
628 |
(694) |
1,324 |
159 |
0 |
||
Dividends |
(550) |
(659) |
(877) |
(1,208) |
(1,550) |
(1,798) |
||
Net Cash Flow |
1,221 |
2,519 |
2,903 |
(2,378) |
6,360 |
7,266 |
||
Opening net debt/(cash) |
|
|
(8,526) |
(9,354) |
(11,961) |
(12,446) |
(8,978) |
(15,338) |
HP finance leases initiated |
(393) |
0 |
(2,293) |
(1,090) |
0 |
0 |
||
Other |
(0) |
88 |
(125) |
0 |
0 |
(0) |
||
Closing net debt/(cash) |
|
|
(9,354) |
(11,961) |
(12,446) |
(8,978) |
(15,338) |
(22,604) |
Source: Esker, Edison Investment Research
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