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Esker reported 17% y-o-y revenue growth for Q123, with 21% y-o-y growth in SaaS revenue (83% of group revenue) on an organic constant currency (cc) basis. Strong order momentum was maintained in the quarter, providing good support for our growth forecasts. With volumes processed by the Esker platform reverting to normal levels after a brief period of weakness at the end of FY22, the company revised up its FY23 revenue guidance. We maintain our forecasts, which are at the mid-point of the new revenue guidance and continue to be at the lower end of operating margin guidance.
Esker |
Better outlook for FY23 |
Q123 revenue update |
Software and comp services |
19 April 2023 |
Share price performance
Business description
Next events
Analyst
Esker is a research client of Edison Investment Research Limited |
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Esker reported 17% y-o-y revenue growth for Q123, with 21% y-o-y growth in SaaS revenue (83% of group revenue) on an organic constant currency (cc) basis. Strong order momentum was maintained in the quarter, providing good support for our growth forecasts. With volumes processed by the Esker platform reverting to normal levels after a brief period of weakness at the end of FY22, the company revised up its FY23 revenue guidance. We maintain our forecasts, which are at the mid-point of the new revenue guidance and continue to be at the lower end of operating margin guidance.
Year end |
Revenue |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/21 |
133.6 |
18.0 |
2.37 |
0.60 |
54.1 |
0.5 |
12/22 |
159.0 |
23.4 |
3.03 |
0.65 |
42.2 |
0.5 |
12/23e |
180.1 |
24.2 |
3.01 |
0.70 |
42.5 |
0.5 |
12/24e |
205.4 |
28.7 |
3.52 |
0.75 |
36.4 |
0.6 |
Note: *PBT and EPS are normalised and fully diluted, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Solid Q123 performance; volumes back to normal
Esker reported Q123 revenue growth of 17% y-o-y or 15% on an organic cc basis. SaaS revenue increased 21% on an organic cc basis whereas implementation services revenue increased 8% on the same basis, reflecting the growth in business generated by channel partners. Volumes processed by Esker’s platform returned to normal levels after a small slowdown at the end of FY22. Order intake on an annual recurring revenue (ARR) basis increased 13% y-o-y to €4.12m (19% on an organic cc basis). Esker made good progress operationally, setting up a new Benelux subsidiary, widening its management team, gaining a US patent and signing up new OEM partners. New business wins included two US deals for Market Dojo and four customers making use of the Corpay payments integration.
Upward revision of revenue guidance
Management has slightly increased its revenue guidance for FY23. On an organic cc basis, it expects growth of 13–15%, up from 12–14% when it last reported in March. The operating margin range has been tightened, from 12–15% to 12–14%. We maintain our forecasts, which factor in organic cc growth of 14% and an operating margin of 12.3% for FY23.
Valuation: Reflects profitable growth strategy
Based on EV/sales and P/E ratios, the stock continues to trade at a premium to French software peers (CY P/E c 27x), we believe due to its 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 73x). With net cash of €35.4m at the end of Q123, the company is well-funded to take advantage of opportunities to make bolt-on acquisitions, which in the current environment may become more affordable.
Q123 revenue update
The table below summarises revenue and bookings reported for Q123.
Exhibit 1: Revenue and bookings
€m |
Q123 |
Q122 |
y-o-y reported |
y-o-y organic constant currency |
Revenue |
||||
SaaS |
35.4 |
29.3 |
21% |
18% |
Implementation services |
6.3 |
5.8 |
8% |
7% |
Legacy products |
1.1 |
1.4 |
-21% |
-21% |
42.8 |
36.5 |
17% |
15% |
|
Bookings |
||||
ARR |
4.12 |
3.64 |
13% |
19% |
Lifetime value |
16.2 |
13.3 |
22% |
N/A |
Ave length (years) |
3.9 |
3.7 |
8% |
N/A |
Source: Esker
Strong Q1 performance; volume recovery
Group revenue of €42.8m in Q123 was 17% higher y-o-y or 15% higher on an organic cc basis. The company noted that Market Dojo revenue (acquired 1 June) made up less than 1% of revenue in Q123. SaaS revenue increased 18% on an organic cc basis, while implementation services revenue increased at a slower rate, reflecting the increasing amount of business sold through partners. As expected, legacy product revenue declined and made up less than 3% of group revenue.
When the company reported FY22 results in March, it noted that volumes processed by its platform slowed towards the end of the year, reflecting macroeconomic uncertainty. However, so far this year, volumes have returned to normal levels across all geographies.
Order intake on an ARR basis increased 13% y-o-y or 19% on an organic cc basis. Orders were 29% higher in North America and 191% higher in Europe excluding France, with a large contract won in Germany (c €600k ARR). The upcoming introduction of einvoicing regulations in France has delayed orders from customers in France (-36% y-o-y), although the company expects to be a beneficiary once customers finalise their strategies for implementation.
Product, channel and operational progress
Other notable achievements in Q123 include:
■
Two deals signed in the US for Market Dojo. One was with a law firm that is a new customer for Esker, the other was with an existing industrial customer. The combined ARR for these deals was €140k.
■
OEM deals signed with Commerce Bank and Talentia Software.
■
Four customers signed up to use the integration with Corpay for credit card payment processing. Esker will be entitled to a revenue share from the transactions processed by Corpay.
■
Four customers signed contracts that use the Microsoft Dynamics 365 Finance & Operations (F&O) connector.
■
The grant of a US patent for auto-learning.
■
The creation a new Benelux subsidiary, based in Belgium, and the appointment of a Benelux country head.
Revenue outlook upgraded
In March, the company guided to organic cc revenue growth of 12–14% for FY23; it has now increased this to 13–15% and narrowed the operating margin guidance from 12–15% to 12–14%. We maintain our forecasts, which incorporate organic cc revenue growth of 14% (the mid-point of the new range) and an operating margin of 12.3% (at the lower end of the range). If order and volume momentum is maintained into Q223, the risk to our forecasts would be to the upside.
Exhibit 2: Financial summary
€'000s |
2017 |
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 |
French GAAP |
||
PROFIT & LOSS |
||||||||||
Revenue |
|
|
76,064 |
86,871 |
104,188 |
112,274 |
133,580 |
158,987 |
180,096 |
205,427 |
EBITDA |
|
|
16,399 |
18,279 |
20,054 |
21,927 |
25,653 |
31,802 |
33,927 |
39,700 |
Operating Profit (before amort and except) |
|
|
10,547 |
11,955 |
12,843 |
14,037 |
16,844 |
21,672 |
22,490 |
26,963 |
Amortisation of acquired intangibles |
(300) |
(344) |
(425) |
(425) |
(263) |
(263) |
(263) |
(263) |
||
Exceptionals and other income |
(456) |
(88) |
(62) |
0 |
0 |
0 |
0 |
0 |
||
Other income |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||
Operating Profit |
9,791 |
11,523 |
12,356 |
13,612 |
16,581 |
21,409 |
22,227 |
26,700 |
||
Net Interest |
(110) |
(57) |
268 |
(67) |
202 |
272 |
125 |
125 |
||
Profit Before Tax (norm) |
|
|
10,669 |
12,215 |
13,634 |
14,462 |
18,048 |
23,441 |
24,165 |
28,688 |
Profit Before Tax (FRS 3) |
|
|
9,913 |
11,783 |
13,147 |
14,528 |
18,188 |
22,879 |
23,902 |
28,425 |
Tax |
(3,148) |
(2,940) |
(3,402) |
(2,966) |
(3,907) |
(5,015) |
(5,736) |
(6,822) |
||
Profit After Tax (norm) |
7,281 |
9,168 |
10,106 |
11,509 |
14,171 |
18,303 |
18,365 |
21,803 |
||
Profit After Tax (FRS 3) |
6,765 |
8,843 |
9,745 |
11,562 |
14,281 |
17,864 |
18,165 |
21,603 |
||
Ave. Number of Shares Outstanding (m) |
5.3 |
5.4 |
5.4 |
5.7 |
5.8 |
5.9 |
5.9 |
6.0 |
||
EPS - normalised (c) |
|
|
138 |
170 |
186 |
203 |
242 |
310 |
311 |
364 |
EPS - normalised fully diluted (c) |
|
|
132 |
165 |
179 |
199 |
237 |
303 |
301 |
352 |
EPS - (GAAP) (c) |
|
|
128 |
164 |
180 |
204 |
244 |
303 |
308 |
360 |
Dividend per share (c) |
32 |
41 |
33 |
50 |
60 |
65 |
70 |
75 |
||
Gross margin (%) |
N/A |
N/A |
N/A |
N/A |
N/A |
N/A |
N/A |
N/A |
||
EBITDA Margin (%) |
21.6 |
21.0 |
19.2 |
19.5 |
19.2 |
20.0 |
18.8 |
19.3 |
||
Operating Margin (before GW and except) (%) |
13.9 |
13.8 |
12.3 |
12.5 |
12.6 |
13.6 |
12.5 |
13.1 |
||
BALANCE SHEET |
||||||||||
Fixed Assets |
|
|
37,912 |
39,635 |
47,201 |
48,987 |
57,229 |
71,650 |
75,600 |
79,200 |
Intangible Assets |
26,673 |
28,096 |
29,323 |
30,787 |
33,644 |
47,651 |
50,151 |
52,151 |
||
Tangible Assets |
7,115 |
7,050 |
10,434 |
10,036 |
9,896 |
8,986 |
8,886 |
8,886 |
||
Other |
4,124 |
4,489 |
7,444 |
8,164 |
13,689 |
15,013 |
16,563 |
18,163 |
||
Current Assets |
|
|
42,823 |
49,016 |
52,022 |
72,918 |
71,534 |
90,671 |
103,740 |
120,788 |
Stocks |
176 |
147 |
185 |
257 |
341 |
512 |
512 |
512 |
||
Debtors |
21,253 |
25,551 |
30,015 |
31,440 |
35,548 |
46,158 |
50,328 |
57,407 |
||
Cash |
20,632 |
22,794 |
21,357 |
40,421 |
34,978 |
42,887 |
51,786 |
61,755 |
||
Other |
762 |
524 |
465 |
800 |
667 |
1,114 |
1,114 |
1,114 |
||
Current Liabilities |
|
|
(26,206) |
(30,072) |
(34,300) |
(50,150) |
(45,872) |
(45,533) |
(48,375) |
(51,787) |
Creditors |
(26,206) |
(30,072) |
(34,300) |
(38,650) |
(44,703) |
(45,533) |
(48,375) |
(51,787) |
||
Short term borrowings |
0 |
0 |
0 |
(11,500) |
(1,169) |
0 |
0 |
0 |
||
Long Term Liabilities |
|
|
(14,909) |
(10,810) |
(8,276) |
(6,342) |
(2,497) |
(18,148) |
(18,148) |
(18,148) |
Long term borrowings |
(13,716) |
(9,318) |
(6,516) |
(3,644) |
0 |
(15,034) |
(15,034) |
(15,034) |
||
Other long term liabilities |
(1,193) |
(1,492) |
(1,760) |
(2,698) |
(2,497) |
(3,114) |
(3,114) |
(3,114) |
||
Net Assets |
|
|
39,620 |
47,769 |
56,647 |
65,413 |
80,394 |
98,640 |
112,817 |
130,053 |
CASH FLOW |
||||||||||
Operating Cash Flow |
|
|
17,311 |
18,366 |
20,290 |
24,389 |
28,844 |
22,410 |
32,599 |
36,032 |
Net Interest |
(75) |
63 |
352 |
(30) |
253 |
866 |
125 |
125 |
||
Tax |
(2,053) |
(2,795) |
(3,329) |
(884) |
(3,420) |
(5,074) |
(5,736) |
(6,822) |
||
Capex |
(9,304) |
(7,789) |
(10,995) |
(10,167) |
(11,140) |
(12,492) |
(14,100) |
(15,000) |
||
Acquisitions/disposals |
(7,551) |
(225) |
(486) |
(492) |
(5,491) |
(8,902) |
0 |
0 |
||
Financing |
(345) |
785 |
1,449 |
48 |
2,769 |
792 |
0 |
0 |
||
Dividends |
(1,633) |
(1,756) |
(2,237) |
(1,896) |
(2,897) |
(3,555) |
(3,988) |
(4,367) |
||
Net Cash Flow |
(3,650) |
6,649 |
5,044 |
10,968 |
8,918 |
(5,955) |
8,900 |
9,969 |
||
Opening net debt/(cash) |
|
|
(13,681) |
(10,016) |
(16,576) |
(21,018) |
(30,285) |
(38,609) |
(32,653) |
(41,552) |
HP finance leases initiated |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||
Other |
(15) |
(90) |
(602) |
(1,701) |
(594) |
(1) |
(0) |
0 |
||
Closing net debt/(cash) |
|
|
(10,016) |
(16,576) |
(21,018) |
(30,285) |
(38,609) |
(32,653) |
(41,552) |
(51,521) |
Source: Esker, Edison Investment Research
|
|
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