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Esker reported FY23 revenue growth of 12%, or 14% in constant currency (cc), at the lower end of its guidance range. New contract wins in Q423 were 38% higher cc than in the prior quarter and 58% higher cc y-o-y, reflecting strong demand in France and the rest of Europe. FY23 operating profitability will take a hit as sales commission for better-than-expected new business is recognised in Q423. As FY24 guidance is more conservative than we expected, we have reduced our FY24 forecasts, resulting in a normalised EPS cut of 7.6%. While current economic conditions are weighing on the volume of transactions processed by Esker’s platform, the strength of new contract wins provides good support for medium-term growth.
Esker |
Another record quarter for new business |
Q423 revenue update |
Software and comp services |
17 January 2024 |
Share price performance
Business description
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Esker is a research client of Edison Investment Research Limited |
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Esker reported FY23 revenue growth of 12%, or 14% in constant currency (cc), at the lower end of its guidance range. New contract wins in Q423 were 38% higher cc than in the prior quarter and 58% higher cc y-o-y, reflecting strong demand in France and the rest of Europe. FY23 operating profitability will take a hit as sales commission for better-than-expected new business is recognised in Q423. As FY24 guidance is more conservative than we expected, we have reduced our FY24 forecasts, resulting in a normalised EPS cut of 7.6%. While current economic conditions are weighing on the volume of transactions processed by Esker’s platform, the strength of new contract wins provides good support for medium-term growth.
Year end |
Revenue |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/21 |
133.6 |
18.0 |
2.37 |
0.60 |
63.8 |
0.4 |
12/22 |
159.0 |
23.4 |
3.04 |
0.75 |
49.6 |
0.5 |
12/23e |
178.6 |
19.7 |
2.46 |
0.80 |
61.5 |
0.5 |
12/24e |
201.6 |
25.9 |
3.18 |
0.85 |
47.5 |
0.6 |
Note: *PBT and EPS are normalised and fully diluted, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
FY23 revenue growth 14% cc, Q423 13% y-o-y cc
Esker reported Q423 revenue of €46.9m (+11% y-o-y, +13% cc) and FY23 revenue of €178.6m (+12% y-o-y, +14% cc), 0.9% below our €180.1m forecast. SaaS revenue (traffic and subscription revenue) increased 12% y-o-y (15% cc) to €38.2m, with traffic (volumes processed) growing below the usual trend as customers deal with tougher economic conditions. Esker closed FY23 with net cash of €41.5m.
European demand drives record bookings in Q423
Esker won new contracts with an annual recurring value (ARR) of €7.0m in Q423, another record quarter after the high of €5.3m in Q323. In FY23, Esker signed new contracts with an ARR of €20.8m, up 24% cc. While such a high level of new business weighs on operating profit in the short term as sales commission was paid out in Q423, it bodes well for the long-term growth of the business, particularly considering the company’s low churn rate. We have revised down our forecasts to reflect FY23 revenue, lower FY23 profitability and FY24 guidance.
Valuation: Return to upgrade path key to upside
Based on EV/sales and P/E ratios, the stock continues to trade at a premium to French software peers (CY P/E c 35x), we believe this is due to Esker’s high level of recurring revenue, history of and potential for double-digit profitable growth and strong balance sheet, and at a discount to US SaaS peers (CY P/E c 87x). Having trimmed our forecasts to reflect a more conservative outlook for FY24, potential triggers for upgrades include improving traffic volumes, successful implementation of recent contract wins, evidence of margin growth and continued strength in new business wins. With net cash of €41.5m at the end of FY23, the company is wellfunded to make bolt-on acquisitions or buy back shares.
Q423 and FY23 revenue update
Exhibit 1 summarises Esker’s revenue performance in Q423 and FY23. The company had guided to constant currency revenue growth of 14–15% for FY23 and hit the bottom of the range. This was 0.9% below our €180.1m forecast. Management noted that the volume of transactions processed by its SaaS platform remained weaker than usual, reflecting tough economic conditions and cutting a few percentage points from revenue growth for Q423.
Exhibit 1: Revenue performance, Q423 & FY23
€m |
Q423 |
Q422 |
y-o-y |
y-o-y cc |
FY23 |
FY22 |
y-o-y |
y-o-y cc |
SaaS |
38.2 |
34.2 |
12% |
15% |
146.8 |
127.7 |
15% |
17% |
Implementation services |
8.0 |
6.9 |
16% |
17% |
28.3 |
25.7 |
10% |
12% |
Legacy products |
0.7 |
1.3 |
(46%) |
(42%) |
3.5 |
5.9 |
(41%) |
(39%) |
Total revenue |
46.9 |
42.5 |
11% |
13% |
178.6 |
159.3 |
12% |
14% |
Bookings (ARR) |
7.0 |
4.5 |
56% |
58% |
20.8 |
16.6 |
25% |
24% |
Source: Esker
Another record quarter for bookings
Esker signed contracts with an ARR of €7.0m in Q423 (+58% y-o-y cc), up more than 30% from the already high level of €5.3m in Q323. Customers in France were the main driver of this (+146% yoy), although other European countries also contributed. Despite the delay to the implementation of e-invoicing regulations in France, customers have chosen to make the investment in preparing for this change well in advance of the mid-2026 deadline. Bookings from Europe increased 84% in FY23, with France up 89% and the rest of Europe up 83%. Bookings from the US were up 16% yoy in Q423, whereas bookings in Asia Pacific declined by 2% over the same period.
The company expects the imminent e-invoicing regulations in France to continue to support order intake in FY24, with regulation in other countries such as Germany, Malaysia, Singapore and Spain expected to provide opportunities as and when governments put in place timetables for adoption.
Short term margin pain from strong order inflow
Flagged as a possibility when Esker reported its Q323 revenue update in October, the high level of bookings in Q423 resulted in a higher level of sales commission payable in the quarter. The company reports according to French GAAP rather than IFRS and does not capitalise these costs, instead expensing commission when it is earned. This reduced the FY23 operating margin from the original guidance range of 11.5–12.5% to nearer 10%.
Guidance for FY24
In FY24, positive order momentum is likely to continue to be partially offset by weaker transaction volumes through the platform due to the economic environment. Management expects to generate constant currency revenue growth of 12–14% with an operating margin in the range 12–13%. This takes into account investment to be able to deliver the high level of contracts that were signed in FY23.
Changes to forecasts
We have revised our forecasts to reflect the lower revenue and profitability in FY23 and guidance for FY24. We forecast revenue growth at the midpoint of the guidance range and profitability at the lower end.
Exhibit 2: Changes to forecasts
€m |
FY23e old |
FY23e new |
change |
y-o-y |
FY24e old |
FY24e new |
change |
y-o-y |
Revenues |
180.1 |
178.6 |
(0.9%) |
12.3% |
205.4 |
201.6 |
(1.9%) |
12.9% |
EBITDA |
32.9 |
29.7 |
(9.6%) |
(6.6%) |
39.2 |
37.1 |
(5.4%) |
24.9% |
EBITDA margin |
18.2% |
16.6% |
(1.6%) |
(3.4%) |
19.1% |
18.4% |
(0.7%) |
1.8% |
Normalised EBIT |
21.4 |
18.3 |
(14.7%) |
(15.7%) |
26.5 |
24.4 |
(8.0%) |
33.4% |
Normalised EBIT margin |
11.9% |
10.2% |
(1.7%) |
(3.4%) |
12.9% |
12.1% |
(0.8%) |
1.9% |
Reported EBIT |
21.2 |
18.0 |
(14.8%) |
(15.9%) |
26.2 |
24.1 |
(8.1%) |
33.9% |
Reported EBIT margin |
11.7% |
10.1% |
(1.7%) |
(3.4%) |
12.8% |
12.0% |
(0.8%) |
1.9% |
Normalised PBT |
22.8 |
19.7 |
(13.7%) |
(16.0%) |
28.0 |
25.9 |
(7.6%) |
31.5% |
Normalised net income |
17.4 |
15.0 |
(13.7%) |
(18.2%) |
21.3 |
19.7 |
(7.6%) |
31.5% |
Reported net income |
17.2 |
14.8 |
(13.9%) |
(17.3%) |
21.1 |
19.5 |
(7.6%) |
31.9% |
Normalised dil. EPS (€) |
2.85 |
2.46 |
(13.7%) |
(19.3%) |
3.44 |
3.18 |
(7.6%) |
29.3% |
Reported basic EPS (€) |
2.91 |
2.51 |
(13.9%) |
(17.5%) |
3.52 |
3.25 |
(7.6%) |
29.7% |
Reported diluted EPS (€) |
2.81 |
2.42 |
(13.9%) |
(18.4%) |
3.40 |
3.14 |
(7.6%) |
29.8% |
Net cash |
38.6 |
39.8 |
3.3% |
22.0% |
46.1 |
46.5 |
0.9% |
16.8% |
DPS (€) |
0.80 |
0.80 |
0.0% |
6.7% |
0.85 |
0.85 |
0.0% |
6.3% |
Source: Edison Investment Research
Exhibit 3: Financial summary
€'m |
2018 |
2019 |
2020 |
2021 |
2022 |
2023e |
2024e |
||
Year end 31 December |
French GAAP |
French GAAP |
French GAAP |
French GAAP |
French GAAP |
French GAAP |
French GAAP |
||
PROFIT & LOSS |
|||||||||
Revenue |
|
|
86.9 |
104.2 |
112.3 |
133.6 |
159.0 |
178.6 |
201.6 |
EBITDA |
|
|
18.3 |
20.1 |
21.9 |
25.7 |
31.8 |
29.7 |
37.1 |
Normalised Operating Profit |
|
|
12.0 |
12.8 |
14.0 |
16.8 |
21.7 |
18.3 |
24.4 |
Amortisation of acquired intangibles |
(0.3) |
(0.4) |
(0.4) |
(0.3) |
(0.3) |
(0.3) |
(0.3) |
||
Exceptionals and other income |
(0.1) |
(0.1) |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Operating Profit |
11.5 |
12.4 |
13.6 |
16.6 |
21.4 |
18.0 |
24.1 |
||
Net Interest |
(0.1) |
0.3 |
(0.1) |
0.2 |
0.3 |
0.1 |
0.1 |
||
Associates & joint ventures |
0.3 |
0.5 |
0.5 |
1.0 |
1.5 |
1.3 |
1.4 |
||
Exceptionals |
0.0 |
0.0 |
0.5 |
0.4 |
(0.3) |
0.0 |
0.0 |
||
Profit Before Tax (norm) |
|
|
12.2 |
13.6 |
14.5 |
18.0 |
23.4 |
19.7 |
25.9 |
Profit Before Tax (FRS 3) |
|
|
11.8 |
13.1 |
14.5 |
18.2 |
22.9 |
19.4 |
25.6 |
Tax |
(2.9) |
(3.4) |
(3.0) |
(3.9) |
(5.0) |
(4.7) |
(6.2) |
||
Profit After Tax (norm) |
9.2 |
10.1 |
11.5 |
14.2 |
18.3 |
15.0 |
19.7 |
||
Profit After Tax (FRS 3) |
8.8 |
9.7 |
11.6 |
14.3 |
17.9 |
14.8 |
19.5 |
||
Ave. No. of Shares Outstanding (m) |
5.4 |
5.4 |
5.7 |
5.8 |
5.9 |
5.9 |
6.0 |
||
EPS - normalised (€) |
|
|
1.70 |
1.86 |
2.03 |
2.42 |
3.11 |
2.54 |
3.28 |
EPS - normalised fully diluted (€) |
|
|
1.65 |
1.79 |
1.99 |
2.37 |
3.04 |
2.46 |
3.18 |
EPS - (GAAP) (€) |
|
|
1.64 |
1.80 |
2.04 |
2.44 |
3.04 |
2.51 |
3.25 |
Dividend per share (€) |
0.41 |
0.33 |
0.50 |
0.60 |
0.75 |
0.80 |
0.85 |
||
Gross margin (%) |
N/A |
N/A |
N/A |
N/A |
N/A |
N/A |
N/A |
||
EBITDA Margin (%) |
21.0 |
19.2 |
19.5 |
19.2 |
20.0 |
16.6 |
18.4 |
||
Normalised Operating Margin (%) |
13.8 |
12.3 |
12.5 |
12.6 |
13.6 |
10.2 |
12.1 |
||
BALANCE SHEET |
|||||||||
Fixed Assets |
|
|
39.6 |
47.2 |
49.0 |
57.2 |
71.7 |
76.9 |
81.8 |
Intangible Assets |
28.1 |
29.3 |
30.8 |
33.6 |
47.7 |
51.7 |
55.2 |
||
Tangible Assets |
7.1 |
10.4 |
10.0 |
9.9 |
9.0 |
8.9 |
8.9 |
||
Other |
4.5 |
7.4 |
8.2 |
13.7 |
15.0 |
16.3 |
17.7 |
||
Current Assets |
|
|
49.0 |
52.0 |
72.9 |
71.5 |
90.7 |
96.2 |
108.9 |
Stocks |
0.1 |
0.2 |
0.3 |
0.3 |
0.5 |
0.5 |
0.5 |
||
Debtors |
25.6 |
30.0 |
31.4 |
35.5 |
46.2 |
46.5 |
52.5 |
||
Cash |
22.8 |
21.4 |
40.4 |
35.0 |
42.9 |
48.1 |
54.8 |
||
Other |
0.5 |
0.5 |
0.8 |
0.7 |
1.1 |
1.1 |
1.1 |
||
Current Liabilities |
|
|
(30.1) |
(34.3) |
(50.2) |
(45.9) |
(45.5) |
(48.2) |
(51.3) |
Creditors |
(30.1) |
(34.3) |
(38.7) |
(44.7) |
(45.5) |
(48.2) |
(51.3) |
||
Short term borrowings |
0.0 |
0.0 |
(11.5) |
(1.2) |
0.0 |
0.0 |
0.0 |
||
Long Term Liabilities |
|
|
(10.8) |
(8.3) |
(6.3) |
(2.5) |
(18.1) |
(16.1) |
(16.1) |
Long term borrowings |
(9.3) |
(6.5) |
(3.6) |
0.0 |
(15.0) |
(13.0) |
(13.0) |
||
Other long term liabilities |
(1.5) |
(1.8) |
(2.7) |
(2.5) |
(3.1) |
(3.1) |
(3.1) |
||
Net Assets |
|
|
47.8 |
56.6 |
65.4 |
80.4 |
98.6 |
108.7 |
123.2 |
CASH FLOW |
|||||||||
Operating Cash Flow |
|
|
18.4 |
20.3 |
24.4 |
28.8 |
22.4 |
32.0 |
34.2 |
Net Interest |
0.1 |
0.4 |
(0.0) |
0.3 |
0.9 |
0.1 |
0.1 |
||
Tax |
(2.8) |
(3.3) |
(0.9) |
(3.4) |
(5.1) |
(4.7) |
(6.2) |
||
Capex |
(7.8) |
(11.0) |
(10.2) |
(11.1) |
(12.6) |
(15.6) |
(16.5) |
||
Acquisitions/disposals |
(0.2) |
(0.5) |
(0.5) |
(5.5) |
(8.9) |
0.0 |
0.0 |
||
Financing |
0.8 |
1.4 |
0.0 |
2.8 |
0.8 |
0.0 |
0.0 |
||
Dividends |
(1.8) |
(2.2) |
(1.9) |
(2.9) |
(3.6) |
(4.6) |
(5.0) |
||
Net Cash Flow |
6.6 |
5.0 |
11.0 |
8.9 |
(6.1) |
7.3 |
6.7 |
||
Opening net debt/(cash) |
|
|
(10.0) |
(16.6) |
(21.0) |
(30.3) |
(38.6) |
(32.5) |
(39.8) |
HP finance leases initiated |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other |
(0.1) |
(0.6) |
(1.7) |
(0.6) |
(0.0) |
(0.0) |
0.0 |
||
Closing net debt/(cash) |
|
|
(16.6) |
(21.0) |
(30.3) |
(38.6) |
(32.5) |
(39.8) |
(46.5) |
Source: Esker, Edison Investment Research
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