Esker 1

Strong H1 supports FY16 outlook

Esker 23 September 2016 Update

Esker

Strong H1 supports FY16 outlook

H116 results

Software & comp services

23 September 2016

Price

€38.1

Market cap

€197m

$1.12:€1

Net cash (€m) at end H116

9.7

Shares in issue

5.2m

Free float

67%

Code

ALESK

Primary exchange

Alternext Paris

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

8.0

15.2

30.9

Rel (local)

5.0

11.1

27.0

52-week high/low

€38.4

€26.5

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

Q3 revenue update

18 October 2016

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’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
end

Revenue (€m)

PBT*
(€m)

EPS*
(€)

DPS
(€)

P/E
(x)

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

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. 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 2016 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 2016. “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.

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Level 25, Aurora Place

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Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

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New Zealand

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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

Edison, the investment intelligence firm, is the future of investor interaction with corporates. Our team of over 100 analysts and investment professionals work with leading companies, fund managers and investment banks worldwide to support their capital markets activity. We provide services to more than 400 retained corporate and investor clients from our offices in London, New York, Frankfurt, Sydney and Wellington. 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 2016 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 2016. “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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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