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Research: TMT
Continued strong demand for Esker’s SaaS-based software in H119, with group revenue growth of 17% y-o-y and the value of contracts signed 51% higher y-o-y, prompts us to upgrade our revenue forecasts for FY19 and FY20. In our view, high levels of recurring revenue, a strong balance sheet and a focus on investing to maintain growth justify Esker’s premium valuation.
Esker |
Another record quarter |
Q2 revenue update |
Software & comp services |
18 July 2019 |
Share price performance
Business description
Next events
Analyst
Esker is a research client of Edison Investment Research Limited |
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Continued strong demand for Esker’s SaaS-based software in H119, with group revenue growth of 17% y-o-y and the value of contracts signed 51% higher y-o-y, prompts us to upgrade our revenue forecasts for FY19 and FY20. In our view, high levels of recurring revenue, a strong balance sheet and a focus on investing to maintain growth justify Esker’s premium valuation.
Year end |
Revenue (€m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/17 |
76.1 |
10.7 |
1.32 |
0.32 |
64.6 |
0.4 |
12/18 |
86.9 |
12.2 |
1.64 |
0.41 |
51.9 |
0.5 |
12/19e |
100.6 |
14.4 |
1.81 |
0.45 |
47.0 |
0.5 |
12/20e |
114.6 |
17.8 |
2.19 |
0.50 |
38.9 |
0.6 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Positive revenue momentum continues in H1
Esker’s Q219 revenue update confirmed continued strong demand for its SaaS software: Q2 revenue €26.1m (+18% y-o-y/+16% constant currency (cc)); H119 revenue €50.1m (+17% y-o-y/+15% cc). SaaS-based revenues made up 90% of Q2 revenues and grew 21% cc y-o-y. Despite being in long-term decline, legacy products (4% of revenues) were up 9% cc in Q219 and H119. Esker had gross cash of €21.5m and net cash of €15.0m at the end of H119. The value of contracts signed in H119 was 51% higher y-o-y, providing good support for medium-term growth. As H1 revenues have typically made up 49% of annual revenues, the company expects to achieve revenues in excess of €100m for FY19, assuming no major FX changes. We have revised up our revenue forecasts by 1.6% in FY19 and 1.7% in FY20, but maintain our EPS forecasts reflecting the initial costs of new contract implementations and the impact of the stronger dollar on the cost base.
New sales and technology partnerships
In June, Esker announced it had partnered with KPMG in the Netherlands. KPMG will market Esker’s cloud-based Accounts Payable solution as part of its RPA and Finance Transformation offering. This week, Esker announced that it had made an investment in B/2BNOW, a Wisconsin-based start-up providing electronic data interchange (EDI) solutions for SAP S/4HANA Cloud ERP systems. Steve Smith, Esker’s US head, will join the board of B/2BNOW.
Valuation: Reflects high levels of recurring revenue
The stock is up 38% year-to-date and continues to trade at a premium to document processing automation peers and French software peers, in our view due to its superior growth and profitability. With 90% of revenues from SaaS activities, we view US SaaS software peers as more relevant and Esker trades at a discount on all metrics. In our view, high levels of recurring revenue, a strong balance sheet and a focus on investing to maintain growth justify Esker’s premium valuation.
Changes to forecasts
We have revised our forecasts to reflect strong H119 revenues, a stronger dollar versus the euro and higher dividend forecasts for FY19 and FY20; this has no impact on our normalised EBIT or EPS forecasts. We have also revised the amount paid for the dividend announced and paid in June. The company paid a dividend of €0.41 (versus our €0.36 forecast), which was increased to €0.451 for investors who had held their shares for at least two years (we assume 25% of shareholders were entitled to the higher amount).
Exhibit 1: Forecast revisions
€m |
FY19e old |
FY19e new |
change |
y-o-y |
FY20e old |
FY20e new |
change |
y-o-y |
Revenues |
99.1 |
100.6 |
1.6% |
15.9% |
112.7 |
114.6 |
1.7% |
13.9% |
EBITDA |
21.0 |
21.0 |
0.0% |
13.2% |
24.8 |
24.8 |
0.0% |
18.2% |
EBITDA margin |
21.2% |
20.8% |
(0.3%) |
(0.5%) |
22.0% |
21.6% |
(0.4%) |
0.8% |
Normalised EBIT |
14.0 |
14.0 |
0.0% |
17.4% |
17.4 |
17.4 |
0.0% |
24.4% |
Normalised EBIT margin |
14.1% |
13.9% |
(0.2%) |
0.2% |
15.4% |
15.2% |
(0.3%) |
1.3% |
Reported EBIT |
13.7 |
13.7 |
0.0% |
18.7% |
17.1 |
17.1 |
0.0% |
25.0% |
Reported EBIT margin |
13.8% |
13.6% |
(0.2%) |
0.3% |
15.2% |
14.9% |
(0.2%) |
1.3% |
Normalised PBT |
14.4 |
14.4 |
0.1% |
18.4% |
17.8 |
17.8 |
0.1% |
23.7% |
Normalised net income |
10.4 |
10.4 |
0.1% |
13.6% |
12.8 |
12.8 |
0.1% |
23.7% |
Normalised dil. EPS (€) |
1.812 |
1.813 |
0.0% |
10.5% |
2.19 |
2.19 |
0.1% |
20.6% |
Reported basic EPS (€) |
1.839 |
1.832 |
(0.4%) |
11.8% |
2.24 |
2.23 |
(0.8%) |
21.5% |
Reported diluted EPS (€) |
1.77 |
1.77 |
0.0% |
11.7% |
2.15 |
2.15 |
0.1% |
21.1% |
Net cash |
23.7 |
23.3 |
(1.9%) |
40.6% |
32.0 |
31.2 |
(2.7%) |
33.8% |
DPS (€) |
0.39 |
0.45 |
15.4% |
9.8% |
0.43 |
0.50 |
16.3% |
11.1% |
Source: Edison Investment Research
Exhibit 2: Financial summary
€'000s |
2014 |
2015 |
2016 |
2017 |
2018 |
2019e |
2020e |
|||||
Year end 31 December |
French GAAP |
French GAAP |
French GAAP |
French GAAP |
French GAAP |
French GAAP |
French GAAP |
|||||
PROFIT & LOSS |
||||||||||||
Revenue |
|
|
46,061 |
58,457 |
65,990 |
76,064 |
86,871 |
100,649 |
114,596 |
|||
EBITDA |
|
|
8,979 |
13,405 |
14,871 |
16,399 |
18,529 |
20,980 |
24,794 |
|||
Operating Profit (before amort and except) |
|
|
5,700 |
9,257 |
9,934 |
10,547 |
11,911 |
13,980 |
17,394 |
|||
Amortisation of acquired intangibles |
0 |
(302) |
(200) |
(300) |
(300) |
(300) |
(300) |
|||||
Exceptionals and other income |
53 |
(245) |
(474) |
(456) |
(88) |
0 |
0 |
|||||
Other income |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
|||||
Operating Profit |
5,753 |
8,710 |
9,260 |
9,791 |
11,523 |
13,680 |
17,094 |
|||||
Net Interest |
220 |
(6) |
(108) |
(110) |
(57) |
100 |
100 |
|||||
Profit Before Tax (norm) |
|
|
5,920 |
9,312 |
9,949 |
10,669 |
12,171 |
14,410 |
17,824 |
|||
Profit Before Tax (FRS 3) |
|
|
5,973 |
8,765 |
9,275 |
9,913 |
11,783 |
14,110 |
17,524 |
|||
Tax |
(1,323) |
(2,292) |
(2,950) |
(3,148) |
(2,940) |
(3,951) |
(4,907) |
|||||
Profit After Tax (norm) |
4,609 |
6,877 |
6,785 |
7,281 |
9,135 |
10,375 |
12,833 |
|||||
Profit After Tax (FRS 3) |
4,650 |
6,473 |
6,325 |
6,765 |
8,843 |
10,159 |
12,617 |
|||||
Ave. No. of Shares Outstanding (m) |
4.8 |
5.0 |
5.3 |
5.3 |
5.4 |
5.5 |
5.7 |
|||||
EPS - normalised (c) |
|
|
97 |
138 |
128 |
138 |
169 |
187 |
226 |
|||
EPS - normalised fully diluted (c) |
|
|
90 |
131 |
122 |
132 |
164 |
181 |
219 |
|||
EPS (GAAP) (c) |
|
|
97 |
130 |
120 |
128 |
164 |
183 |
223 |
|||
Dividend per share (c) |
24.00 |
30.00 |
30.00 |
32.00 |
41.00 |
45.00 |
50.00 |
|||||
Gross margin (%) |
N/A |
N/A |
N/A |
N/A |
N/A |
N/A |
N/A |
|||||
EBITDA Margin (%) |
19.5 |
22.9 |
22.5 |
21.6 |
21.3 |
20.8 |
21.6 |
|||||
Operating Margin (before GW and except) (%) |
12.4 |
15.8 |
15.1 |
13.9 |
13.7 |
13.9 |
15.2 |
|||||
BALANCE SHEET |
||||||||||||
Fixed Assets |
|
|
12,552 |
25,184 |
28,324 |
37,912 |
39,635 |
40,292 |
40,666 |
|||
Intangible Assets |
7,709 |
19,603 |
22,381 |
26,673 |
28,096 |
29,253 |
30,227 |
|||||
Tangible Assets |
4,470 |
4,985 |
5,158 |
7,115 |
7,050 |
6,550 |
5,950 |
|||||
Other |
373 |
596 |
785 |
4,124 |
4,489 |
4,489 |
4,489 |
|||||
Current Assets |
|
|
33,894 |
36,110 |
42,024 |
42,823 |
49,016 |
58,914 |
68,185 |
|||
Stocks |
93 |
161 |
101 |
176 |
147 |
147 |
147 |
|||||
Debtors |
15,110 |
18,073 |
19,523 |
21,253 |
25,551 |
28,127 |
32,024 |
|||||
Cash |
17,559 |
16,295 |
21,338 |
20,632 |
22,794 |
30,116 |
35,490 |
|||||
Other |
1,132 |
1,581 |
1,062 |
762 |
524 |
524 |
524 |
|||||
Current Liabilities |
|
|
(19,827) |
(24,789) |
(28,299) |
(26,206) |
(30,072) |
(32,555) |
(35,069) |
|||
Creditors |
(19,827) |
(24,789) |
(28,299) |
(26,206) |
(30,072) |
(32,555) |
(35,069) |
|||||
Short term borrowings |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
|||||
Long Term Liabilities |
|
|
(5,113) |
(7,317) |
(7,657) |
(14,909) |
(10,810) |
(8,310) |
(5,810) |
|||
Long term borrowings |
(5,113) |
(7,317) |
(7,657) |
(13,716) |
(9,318) |
(6,818) |
(4,318) |
|||||
Other long term liabilities |
0 |
0 |
0 |
(1,193) |
(1,492) |
(1,492) |
(1,492) |
|||||
Net Assets |
|
|
21,506 |
29,188 |
34,392 |
39,620 |
47,769 |
58,340 |
67,972 |
|||
CASH FLOW |
||||||||||||
Operating Cash Flow |
|
|
9,245 |
14,307 |
15,331 |
17,311 |
18,366 |
20,887 |
23,411 |
|||
Net Interest |
310 |
(27) |
(127) |
(75) |
63 |
100 |
100 |
|||||
Tax |
(1,075) |
(1,165) |
(1,456) |
(2,053) |
(2,795) |
(3,951) |
(4,907) |
|||||
Capex |
(4,028) |
(3,909) |
(7,021) |
(9,304) |
(7,792) |
(7,957) |
(8,074) |
|||||
Acquisitions/disposals |
22 |
(11,700) |
(335) |
(7,551) |
(264) |
0 |
0 |
|||||
Financing |
(694) |
1,324 |
480 |
(345) |
785 |
0 |
0 |
|||||
Dividends |
(877) |
(1,208) |
(1,550) |
(1,633) |
(1,756) |
(2,357) |
(2,656) |
|||||
Net Cash Flow |
2,903 |
(2,378) |
5,322 |
(3,650) |
6,607 |
6,723 |
7,873 |
|||||
Opening net debt/(cash) |
|
|
(11,961) |
(12,446) |
(8,978) |
(13,681) |
(10,011) |
(16,576) |
(23,298) |
|||
HP finance leases initiated |
(2,293) |
(1,090) |
(645) |
0 |
0 |
0 |
0 |
|||||
Other |
(125) |
0 |
26 |
(20) |
(43) |
0 |
0 |
|||||
Closing net debt/(cash) |
|
|
(12,446) |
(8,978) |
(13,681) |
(10,011) |
(16,576) |
(23,298) |
(31,172) |
|||
Source: Esker, Edison Investment Research
|
|
Research: Real Estate
Town Centre Securities (TCS) will release its results for the year ending 30 June 2019 (FY19) on 24 September. Despite the tough retail environment, in a trading update the company states that the year ended in line with expectations. We expect a robust recurring earnings performance and an unchanged but fully covered and attractive dividend yield. The year saw continuing progress with the strategy of repositioning the portfolio away from retail and recycling capital into more attractive opportunities, including the group’s significant pipeline of development opportunities.