Esker — Another record quarter for new business

Esker (PAR: ALESK)

Last close As at 20/04/2024

EUR180.10

−2.90 (−1.58%)

Market capitalisation

EUR1,089m

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Research: TMT

Esker — Another record quarter for new business

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.

Katherine Thompson

Written by

Katherine Thompson

Director

Esker_resized

TMT

Esker

Another record quarter for new business

Q423 revenue update

Software and comp services

17 January 2024

Price

€151

Market cap

€890m

$1.09/€

Net cash (€m) at end FY23

41.5

Shares in issue

5.9m

Free float

78%

Code

ALESK

Primary exchange

Euronext Growth Paris

Secondary exchange

OTCQX

Share price performance

%

1m

3m

12m

Abs

(2.9)

30.7

(5.2)

Rel (local)

(0.4)

24.0

(8.9)

52-week high/low

€168.10

€111.70

Business description

Esker provides end-to-end SaaS-based document automation solutions supporting order-to-cash and procure-to-pay processes. In H123, the business generated 53% of revenues from Europe, 41% from North America and the remainder from Asia and Australia.

Next event

FY23 results

27 March

Analyst

Katherine Thompson

+44 (0)20 3077 5700

Esker is a research client of Edison Investment Research Limited

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
(€m)

PBT*
(€m)

EPS*
(€)

DPS
(€)

P/E
(x)

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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This report has been commissioned by Esker and prepared and issued by Edison, in consideration of a fee payable by Esker. Edison Investment Research standard fees are £60,000 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 Esker and prepared and issued by Edison, in consideration of a fee payable by Esker. Edison Investment Research standard fees are £60,000 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.

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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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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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Ultimovacs — INITIUM: March 2024 top-line timeline confirmed

Ultimovacs has confirmed that top-line results for the Phase II INITIUM trial (investigating lead candidate UV1 in combination with ipilimumab and nivolumab as first-line treatment for malignant melanoma, n=156) will be reported as planned in March 2024. This is a positive indicator that the trial is progressing, in our view, as the timeline had previously been pushed back twice (to H223 and H124) due to patients taking longer than expected to experience disease progression. Management has also confirmed that, while 70 progression events have not yet occurred, 18 months of follow-up for the last enrolled patient has been completed, thus enabling data analysis to commence. We view the latest announcement as an encouraging sign and believe that the upcoming INITIUM readout could be a significant catalyst for investor attention.

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