Esker 1

Upgrading on strong Q2 performance

Esker 27 July 2018 Update
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Esker

Upgrading on strong Q2 performance

Q2 revenue update

Software & comp services

27 July 2018

Price

€59.7

Market cap

€318m

$1.17:€1

Net cash (€m) at end H118

12.0

Shares in issue

5.3m

Free float

81%

Code

ALESK

Primary exchange

Euronext Growth Paris

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

1.2

8.5

16.1

Rel (local)

(2.1)

7.9

9.9

52-week high/low

€61.5

€46.5

Business description

Esker provides end-to-end document automation solutions, offering on-demand and on-premise delivery models. The business generates c 55% of revenues from Europe, c 40% from the US and the remainder from Asia and Australia.

Next events

H118 results

13 September

Analysts

Katherine Thompson

+44 (0)20 3077 5730

Dan Ridsdale

+44 (0)20 3077 5729

Esker is a research client of Edison Investment Research Limited

Organic growth has accelerated through H118 and, combined with a slightly more favourable currency position and strong order intake, leads us to upgrade our forecasts for FY18 and FY19. We have increased our revenue forecasts by 1.7% in FY18 and 3.8% in FY19. Factoring in increased investment in headcount, this translates into normalised EPS upgrades of 8.2% in FY18 and 4.0% in FY19.

Year end

Revenue (€m)

PBT*
(€m)

EPS*
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/16

66.0

9.9

1.22

0.30

48.9

0.5

12/17

76.1

10.7

1.32

0.32

45.3

0.5

12/18e

85.4

13.5

1.68

0.36

35.5

0.6

12/19e

95.5

15.8

1.93

0.39

30.9

0.7

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

Positive Q2 performance

Esker reported Q218 revenues of €22.0m, equating to y-o-y revenue growth of 16% and constant currency growth of 18%. For H118, the company reported 13% growth (17% in constant currency). Q218 SaaS-related revenues grew 21% y-o-y to make up 87% of revenues. In H118, the company received orders worth 54% more than in the same period a year ago, providing good revenue visibility. At the end of H118, the company had cash of €22m and net cash of €12m. Esker recently announced a partnership with systems integrator Viveris in France, part of its strategy to shift some of the implementation work to partners to accelerate higher-margin software sales. It is still early days for this strategy, but successful progress could lead to acceleration in both revenue growth and margin expansion.

Upgrading forecasts on better growth assumptions

Management has maintained its expectations for double-digit organic revenue growth in FY18. We estimate growth of c 12% for H218 and have upgraded FY18 revenues accordingly. We now factor in revenue growth of 12.2% for FY18 and 11.9% for FY19 (up from 10.3% and 9.6% respectively). Assuming the company increases headcount investment to support and drive growth, this results in an upgrade to our normalised EPS forecasts of 8.2% in FY18 and 4.0% in FY19.

Valuation: Reflects growth potential and SaaS model

Esker trades at a premium to other DPA software providers and small-cap French software suppliers, although we highlight it is showing stronger revenue growth and profitability than both groups and has a high level of recurring revenues. Compared to US SaaS companies, which have faster growth but lower profitability, Esker is trading at a discount. Continued evidence of strong organic growth combined with margin expansion would be the key triggers for upside from this point.

Upgrading estimates

Increasing revenue growth assumptions

Esker continues to target double-digit organic revenue growth in FY18. Based on the strong constant currency revenue growth and slight weakening in the euro versus the dollar in recent weeks, we are upgrading our estimates for FY18 and FY19. The table below shows the revenue growth achieved by Esker since the beginning of 2017. Note that in FY17, reported revenues benefited from the addition of e-integration from the start of the year. Organic growth has accelerated since Q117; combined with strong order intake in H118, we have revised up our growth assumptions for H218 and FY19.

Exhibit 1: Quarterly revenue growth and exchange rates

Y-o-y revenue growth

Q117

Q217

Q317

Q417

Q118

Q218

Reported revenue

15%

13%

17%

16%

10%

16%

Organic, constant currency

8%

9%

14%

14%

16%

18%

€/$ rate

1.07

1.10

1.18

1.18

1.23

1.19

Source: Esker, Bloomberg

Revising currency assumptions

The euro strengthened against the dollar through the course of Q317-Q118 before starting to weaken in Q218. Roughly 40% of Esker’s revenues are generated in North America, so movements in this rate will have an impact on reported revenues; a smaller proportion of costs are dollar denominated so this will also have an impact at the earnings level. The spot rate now sits at €/$1.17. The company noted that if the rate remains at this level through the remainder of 2018, it will have a positive impact on reported revenue growth for H218. We have revised our currency assumptions from €/$1.22 for FY18 and FY19 to €/$1.20 in FY18 and €/$1.17 in FY19.

Changes to forecasts

The table below summarises the changes we have made to forecasts. Management typically targets operating margins in the region of 15%, and in the past has used revenue upside as an opportunity to invest more in sales and marketing and R&D rather than to expand the margin. We expect this will continue and have factored in additional headcount, particularly sales, to maintain the strong growth rates.

We have also updated our model to reflect the €0.32 dividend approved at the June AGM (we had forecast €0.33). As in the previous year, Esker paid a loyalty discount to shareholders who had held the stock for at least two years – we estimate this was roughly 25% of shareholders, implying a weighted average dividend of €0.328.

Exhibit 2: Changes to forecasts

€m

FY18e old

FY18e new

change

y-o-y

FY19e old

FY19e new

change

y-o-y

Revenues

83.9

85.4

1.7%

12.2%

92.0

95.5

3.8%

11.9%

EBITDA

18.6

19.6

5.3%

19.2%

21.5

22.1

2.7%

13.2%

EBITDA margin

22.1%

22.9%

0.8%

1.3%

23.4%

23.2%

-0.3%

0.3%

Normalised EBIT

12.2

13.2

8.2%

24.7%

14.8

15.4

3.9%

17.3%

Normalised EBIT margin

14.5%

15.4%

0.9%

1.5%

16.1%

16.2%

0.0%

0.7%

Reported EBIT

11.9

12.9

8.4%

31.2%

14.5

15.1

4.0%

17.7%

Reported EBIT margin

14.1%

15.1%

0.9%

2.2%

15.8%

15.8%

0.0%

0.8%

Normalised PBT

12.5

13.5

7.9%

26.4%

15.2

15.8

3.8%

16.9%

Normalised net income

9.0

9.7

7.9%

33.3%

10.9

11.3

3.8%

16.9%

Normalised dil. EPS (€)

1.55

1.68

8.2%

27.5%

1.85

1.93

4.0%

14.9%

Reported basic EPS (€)

1.63

1.76

8.4%

38.0%

1.95

2.03

4.1%

15.1%

Net cash

15.4

16.0

3.9%

59.4%

22.6

23.4

3.5%

46.7%

DPS (€)

0.36

0.36

0.0%

12.5%

0.39

0.39

0.0%

8.3%

Source: Edison Investment Research


Exhibit 3: Financial summary

€'000s

2014

2015

2016

2017

2018e

2019e

Year end 31 December

French GAAP

French GAAP

French GAAP

French GAAP

French GAAP

French GAAP

PROFIT & LOSS

Revenue

 

 

46,061

58,457

65,990

76,064

85,364

95,502

EBITDA

 

 

8,979

13,405

14,871

16,399

19,550

22,125

Operating Profit (before amort and except)

 

 

5,700

9,257

9,934

10,547

13,150

15,425

Amortisation of acquired intangibles

0

(302)

(200)

(300)

(300)

(300)

Exceptionals and other income

53

(245)

(474)

(456)

0

0

Other income

0

0

0

0

0

0

Operating Profit

5,753

8,710

9,260

9,791

12,850

15,125

Net Interest

220

(6)

(108)

(110)

100

100

Profit Before Tax (norm)

 

 

5,920

9,312

9,949

10,669

13,482

15,757

Profit Before Tax (FRS 3)

 

 

5,973

8,765

9,275

9,913

13,182

15,457

Tax

(1,323)

(2,292)

(2,950)

(3,148)

(3,691)

(4,328)

Profit After Tax (norm)

4,609

6,877

6,785

7,281

9,707

11,345

Profit After Tax (FRS 3)

4,650

6,473

6,325

6,765

9,491

11,129

Average No. of Shares Outstanding (m)

4.8

5.0

5.3

5.3

5.4

5.5

EPS - normalised (c)

 

 

97

138

128

138

180

207

EPS - normalised fully diluted (c)

 

 

90

131

122

132

168

193

EPS - (GAAP) (c)

 

 

97

130

120

128

176

203

Dividend per share (c)

24.00

30.00

30.00

32.00

36.00

39.00

EBITDA Margin (%)

19.5

22.9

22.5

21.6

22.9

23.2

Operating Margin (before amort. and except) (%)

12.4

15.8

15.1

13.9

15.4

16.2

BALANCE SHEET

Fixed Assets

 

 

12,552

25,184

28,324

37,912

38,620

39,134

Intangible Assets

7,709

19,603

22,381

26,673

27,681

28,595

Tangible Assets

4,470

4,985

5,158

7,115

6,815

6,415

Other

373

596

785

4,124

4,124

4,124

Current Assets

 

 

33,894

36,110

42,024

42,823

51,974

59,762

Stocks

93

161

101

176

176

176

Debtors

15,110

18,073

19,523

21,253

23,855

26,688

Cash

17,559

16,295

21,338

20,632

27,180

32,135

Other

1,132

1,581

1,062

762

762

762

Current Liabilities

 

 

(19,827)

(24,789)

(28,299)

(27,399)

(29,201)

(31,165)

Creditors

(19,827)

(24,789)

(28,299)

(27,399)

(29,201)

(31,165)

Short term borrowings

0

0

0

0

0

0

Long Term Liabilities

 

 

(5,113)

(7,317)

(7,657)

(13,716)

(11,216)

(8,716)

Long term borrowings

(5,113)

(7,317)

(7,657)

(13,716)

(11,216)

(8,716)

Other long term liabilities

0

0

0

0

0

0

Net Assets

 

 

21,506

29,188

34,392

39,620

50,177

59,015

CASH FLOW

Operating Cash Flow

 

 

9,245

14,307

15,331

17,311

18,750

21,256

Net Interest

310

(27)

(127)

(75)

100

100

Tax

(1,075)

(1,165)

(1,456)

(2,053)

(3,691)

(4,328)

Capex

(4,028)

(3,909)

(7,021)

(9,304)

(7,408)

(7,514)

Acquisitions/disposals

22

(11,700)

(335)

(7,551)

0

0

Financing

(694)

1,324

480

(345)

0

0

Dividends

(877)

(1,208)

(1,550)

(1,633)

(1,798)

(2,059)

Net Cash Flow

2,903

(2,378)

5,322

(3,650)

5,953

7,455

Opening net debt/(cash)

 

 

(11,961)

(12,446)

(8,978)

(13,681)

(10,011)

(15,964)

HP finance leases initiated

(2,293)

(1,090)

(645)

0

0

0

Other

(125)

0

26

(20)

(0)

0

Closing net debt/(cash)

 

 

(12,446)

(8,978)

(13,681)

(10,011)

(15,964)

(23,419)

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. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 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 Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. 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 2018. “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 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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, 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. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 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 Investment Research Pty Ltd (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. 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 2018. “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 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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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