MotorK — Cash-generative strategy in place

MotorK (AMS: MTRK)

Last close As at 24/02/2024

EUR4.09

0.04 (0.99%)

Market capitalisation

EUR184m

More on this equity

Research: TMT

MotorK — Cash-generative strategy in place

MotorK’s FY22 results showed a 40% y-o-y increase in reported revenue and a 78% increase in annual recurring revenue (ARR, 40% organic growth), driven by new enterprise contract wins, higher retail average contract values (ACV) and contributions from newly acquired companies. Customer churn remained low, while net retention benefited from higher levels of cross- and up-selling, underpinned by multi-product adoption. Higher marketing and R&D costs affected cash in FY22 but should support operating leverage from FY23 now that most of the investment is complete.

Max Hayes

Written by

Max Hayes

Associate Analyst

Transportation and technology concept. ITS (Intelligent Transport Systems). Mobility as a service.

TMT

MotorK

Cash-generative strategy in place

FY22 results

Software and comp services

1 March 2023

Price

€2.34

Market cap

€101m

Net cash (€m) at end FY22

6.3

Shares in issue

40.5m

Free float

23.1%

Code

MTRK

Primary exchange

Euronext Amsterdam

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

111.0

58.7

(59.0)

Rel (local)

108.8

52.7

(60.3)

52-week high/low

€6.42

€1.10

Business description

MotorK is a European SaaS provider operating in the automotive retail industry, selling mainly in the EU5 but with a global presence. Its cloud-based platform, SparK, offers OEMs and dealers a suite of digital tools to support the vehicle lifecycle end-to-end.

Next events

FY22 annual report

30 March 2023

Q123 trading update

20 April 2023

Analysts

Max Hayes

+44 (0)20 3077 5721

Katherine Thompson

+44 (0)20 3077 5730

MotorK is a research client of Edison Investment Research Limited

MotorK’s FY22 results showed a 40% y-o-y increase in reported revenue and a 78% increase in annual recurring revenue (ARR, 40% organic growth), driven by new enterprise contract wins, higher retail average contract values (ACV) and contributions from newly acquired companies. Customer churn remained low, while net retention benefited from higher levels of cross- and up-selling, underpinned by multi-product adoption. Higher marketing and R&D costs affected cash in FY22 but should support operating leverage from FY23 now that most of the investment is complete.

Year end

Revenue
(€m)

ARR

(€m)

PBT*

(€m)

Diluted EPS* (€)

DPS

(€m)

EV/sales

(x)

EV/EBITDA(x)

12/21

27.6

15.1

(8.2)

(0.37)

0.00

3.4

112.9

12/22

38.5

26.9

(8.8)

(0.22)

0.00

2.4

402.8

12/23e

55.8

39.0

2.8

0.05

0.00

1.7

6.4

12/24e

67.8

51.9

8.8

0.16

0.00

1.4

4.0

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

FY22 results

MotorK’s FY22 reported revenue grew by 40% y-o-y to €38.5m, or €40.6m pro forma including a full 12-month contribution from acquired companies. ARR of €26.9m was up 40% organically y-o-y (up 78% y-o-y including M&A), but below our estimate of €28m. Growth was driven by enterprise contract wins and a 20% y-o-y uplift in ACV among its retail clients to €17.8k. Continued customer multi-product adoption underpins the growth in ACV and could be further catalysed by its SparK platform (launched Q422). Investments in SparK drove an 82% y-o-y increase in total R&D costs to €14.3m, leading to a €9.6m increase in cash EBITDA loss (a free cash flow proxy) to €15.6m. Now that most of these investments are complete, the company is well positioned for margin expansion as it continues to scale.

Outlook and updates to forecasts

We have increased our FY23 ARR forecast by 2% to €39m (management’s guidance: €39–43m). The company closed FY22 with an additional €5.2m of committed ARR (more detail in our last Flash note), covering c 43% of the ARR growth we have factored in for FY23. Our FY24 forecasts indicate another 33% rise in ARR to €51.9m, driven by cross- and up-selling through its SparK platform to drive higher ACV. Our FY23 cash EBITDA forecast is within management’s guidance at a loss of €6.8m, a €3m improvement from our previous forecast, underpinned by the confirmation that it has now completed the planned investments in the platform. Stronger operating leverage could move the company to a positive cash EBITDA position by FY24 (our forecast: €1.6m), which should strengthen its balance sheet.

Valuation: Start of 2023 providing positive signs

On EV/sales, MotorK trades at an average discount to peers of 59% across FY23e and FY24e, significantly less than the 89% average in our last update, benefiting from its share price almost doubling in the year to date. Management's progress towards profitable growth could help further close this discount to peers.

FY22 results summary and forecasts

As per its January trading update, MotorK reported FY22 revenue and ARR below our forecasts (see Exhibit 3), with its record Q4 performance not enough to offset the impact of the longer sales cycles seen in the second half of the year. However, the company closed FY22 with an additional €5.2m of committed ARR: this is ARR from contracts that have been signed but not yet implemented and billed. It includes contractual price increases and enterprise deals.

Total operating costs before depreciation and amortisation (D&A) were broadly in line with our forecast, with investments in research and development (R&D) and sales and marketing (S&M) offset by high levels of capitalised development costs (€8.7m versus our €6.9m forecast). Lower revenue and higher D&A resulted in a normalised operating loss of €7.8m compared to our €0.3m profit forecast.

M&A and lower profitability in FY22 resulted in a €28.0m reduction in net cash to €6.3m, which was partly offset by the sale of its B2C DriveK business in Q422 for €3m, in line with the net book value we stated in our latest Flash note. We also note the company has completed €1.8m of share repurchases to date, out of the potential €3m buyback programme first announced on 18 July 2022.

In its FY22 results, management also started reporting cash EBITDA as a proxy for free cash flow, providing a useful metric to monitor its progress towards its goal of improving profitability and cash generation. We provide a reconciliation from adjusted EBITDA (which excludes share-based payments and exceptional costs) to cash EBITDA in Exhibit 1, accounting for the cash costs related to capitalised development costs and movement in contract assets.

Exhibit 1: Reconciliation from adjusted EBITDA

(€'000s)

FY21

FY22

FY23e

FY24e

Adjusted EBITDA

835

234

14,751

23,615

– capitalised development costs

3,490

8,707

9,606

10,482

– change in contract assets

3,376

7,154

11,948

11,486

Cash EBITDA

(6,031)

(15,628)

(6,802)

1,647

Source: MotorK, Edison Investment Research

Contract assets represent the difference between the revenue recognised at the start of a contract (under IFRS 15), which typically has a two-year lifespan, and the amount billed for each reporting period. During times of growth, contract assets can exceed the change in recurring revenue from year to year due to increases in ACV from cross- or up-selling. The appendix of our initiation has more information on MotorK’s revenue recognition.

Finishing FY22 positioned for growth

Since 2019, MotorK’s revenues have grown at an average of 44% a year, primarily driven by the investments made in module development and supported by accretive M&A. Bar FY20, the company’s net retention rate (NRR) has remained over 100%, highlighting the success of its land and expand strategy. In FY22, NRR reached a high of 122%, driven by management’s ability to cross- and up-sell to customers.

The acquisitions of Dapda, FranceProNet, Fidcar, Carflow and WebMobil24 during FY21 and FY22 have supported new module development, but more importantly enabled the company to diversify its customer base across Europe. During FY22, its operations in Spain and France saw strong triple-digit revenue growth of 196% and 187% respectively, and more than 55% of the company’s ARR is now generated outside of its Italy core market (FY21: 37%).

Exhibit 2: Revenue, ARR and margin progression, FY20–24e

Source: MotorK, Edison Investment Research

Investments in growth have limited margin expansion, with higher levels of development and marketing costs leading to an FY22 adjusted EBITDA margin of 1% (Exhibit 2).

Management has announced that the platform’s major investments are now completed, after a significant expansion of its employee base, positioning the company for strong margin expansion as it continues to scale. We forecast an adjusted EBITDA margin of 26.5% in FY23e and 34.8% in FY24e.

Stronger profitability and cash flow expected

Management believes that the company has hit critical mass and is now in a position to benefit from operational leverage and top-line growth, which we have reflected in our cash and profit forecasts for FY23e and FY24e.

For FY23e, we have increased our adjusted EBITDA forecast to €14.8m (+€3.8m) at a margin of 26.5%, as we have factored in slower employee growth for the year as indicated by management. We have also increased our estimate for capitalised development costs from €7.5m to €9.6m, based on growth from the level capitalised in FY22. In FY24, we estimate that adjusted EBITDA will grow to €23.6m at a margin of 34.8%, which means that the company is well on track to achieve its >40% margin target in FY26, as discussed in our initiation.

As show in in Exhibit 2, higher profitability should help reduce cash burn from the level seen in FY22 and we expect the company to achieve positive cash EBITDA in FY24. This should strengthen the company’s balance sheet, helping to provide funds for internal and external investment. Net cash at year-end was €6.3m, comprising gross cash of €19.2m and total financial liabilities of €12.9m. Currently, MotorK’s main source of debt is a bank loan from Illimity, which matures in FY24. Management stated that it is seeking a dedicated debt facility to support its M&A strategy, which it still sees as a vital component of its growth strategy.

Exhibit 3: Summary of forecast changes

€'m

FY22

FY23e

FY24e

Estimate

Actual

Change

Old

New

Change

y-o-y

Old

New

Change

y-o-y

Revenues

44.1

38.5

-12.6%

60.9

55.8

-8.4%

44.7%

73.4

67.8

-7.6%

21.6%

Adjusted EBITDA

5.6

0.2

-95.8%

11.0

14.8

34.4%

N/A

17.2

23.6

37.2%

N/A

Adjusted EBITDA margin

12.7%

0.6%

-12.1%

18.0%

26.5%

8.4%

25.8%

23.5%

34.8%

11.4%

8.4%

Cash EBITDA*

(8.9)

(15.6)

75.0%

(9.8)

(6.8)

-30.8%

-56.5%

(5.0)

1.6

N/A

N/A

Cash EBITDA margin

-20.2%

-40.5%

-20.3%

-16.1%

-12.2%

3.9%

28.3%

-6.8%

2.4%

9.2%

14.6%

Normalised operating profit

0.3

(7.8)

N/A

4.4

3.4

N/A

N/A

9.0

9.4

N/A

N/A

Normalised operating profit margin

0.7%

-20.2%

-20.9%

7.3%

6.0%

-1.2%

26.2%

12.3%

13.8%

1.5%

7.8%

Reported operating profit

(3.7)

(12.9)

243.2%

0.6

1.8

N/A

N/A

7.4

7.8

N/A

N/A

Reported operating margin

-8.5%

-33.4%

-24.9%

1.0%

3.2%

2.2%

N/A

10.1%

11.4%

1.4%

8.2%

Normalised PBT

(0.2)

(8.8)

4734.2%

3.8

2.8

-27.7%

N//A

8.4

8.8

3.9%

216.2%

Reported PBT

(4.3)

(13.9)

226.3%

0.0

1.2

N/A

N/A

6.8

7.2

5.7%

496.5%

Normalised net income

(0.2)

(8.9)

5644.7%

3.1

2.2

-27.7%

N/A

6.4

6.7

3.9%

200.4%

Reported net income

(3.9)

(7.3)

87.6%

0.0

1.0

N/A

N/A

5.2

5.5

5.7%

466.7%

Normalised basic EPS (€)

(0.00)

(0.22)

5672.5%

0.08

0.06

-27.0%

N/A

0.16

0.17

4.9%

200.4%

Normalised diluted EPS (€)

(0.00)

(0.22)

5672.5%

0.07

0.05

-27.1%

N/A

0.15

0.16

4.9%

200.4%

Reported basic EPS (€)

(0.10)

(0.18)

88.5%

0.00

0.02

N/A

N/A

0.13

0.14

6.7%

466.7%

Dividend per share (€)

0.00

0.00

N/A

0.00

0.00

N/A

N/A

0.00

0.00

N/A

N/A

Net debt/(cash)

(12.9)

(6.3)

-51.2%

(2.4)

(1.9)

N/A

N/A

11.3

4.4

-60.6%

N/A

ARR

28.0

26.9

-3.9%

38.3

39.0

1.8%

45.0%

51.7

51.9

0.3%

33.0%

Source: MotorK, Edison Investment Research. Note: *Cash EBITDA is adjusted EBITDA less change in contract assets and R&D capitalisation, providing a proxy for free cash flow.

Exhibit 4: Financial summary

€m

2019

2020

2021

2022e

2023e

2024e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

27.9

19.3

27.6

38.5

55.8

67.8

Annualised recurring revenue

 

 

7.5

10.0

15.1

26.9

39.0

51.9

Operating costs excl. D&A

(26.5)

(20.5)

(26.7)

(38.3)

(41.0)

(44.2)

EBITDA

 

 

1.5

(1.1)

0.8

0.2

14.8

23.6

Normalised operating profit

 

 

(0.8)

(4.3)

(3.4)

(7.8)

3.4

9.4

Amortisation of acquired intangibles

0.0

0.0

0.0

0.0

0.0

0.0

Exceptionals

(0.0)

(0.1)

(3.2)

(3.5)

0.0

0.0

Share-based payments

(0.2)

(0.1)

(9.7)

(1.5)

(1.6)

(1.6)

Reported operating profit

(1.1)

(4.5)

(16.4)

(12.9)

1.8

7.8

Net Interest

(1.4)

(1.8)

(4.8)

(1.0)

(0.6)

(0.6)

Joint ventures & associates (post tax)

0.0

0.0

0.0

0.0

0.0

0.0

Exceptionals

0.0

0.0

0.0

0.0

0.0

0.0

Profit Before Tax (norm)

 

 

(2.3)

(6.1)

(8.2)

(8.8)

2.8

8.8

Profit Before Tax (reported)

 

 

(2.5)

(6.3)

(21.2)

(13.9)

1.2

7.2

Reported tax

1.1

0.9

(2.8)

(0.1)

(0.2)

(1.7)

Profit After Tax (norm)

(1.1)

(5.2)

(11.0)

(8.9)

2.2

6.7

Profit After Tax (reported)

(1.4)

(5.4)

(23.9)

(14.0)

1.0

5.5

Minority interests

0.0

0.0

0.0

0.0

0.0

0.0

Discontinued operations

1.6

0.0

0.4

6.7

0.0

0.0

Exceptionals

(0.0)

(0.2)

(0.0)

0.0

0.0

0.0

Net income (normalised)

(1.1)

(5.2)

(11.0)

(8.9)

2.2

6.7

Net income (reported)

0.2

(5.5)

(23.5)

(7.3)

1.0

5.5

Basic average number of shares outstanding (m)

26

27

30

40

40

40

EPS - basic normalised (€)

 

 

(0.04)

(0.19)

(0.37)

(0.22)

0.06

0.17

EPS - diluted normalised (€)

 

 

(0.04)

(0.19)

(0.37)

(0.22)

0.05

0.16

EPS - basic reported (€)

 

 

0.01

(0.20)

(0.79)

(0.18)

0.02

0.14

Dividend (€)

0.00

0.00

0.00

0.00

0.00

0.00

Revenue growth (%)

128.8

-30.8

42.6

39.9

44.7

21.6

EBITDA Margin (%)

5.3

-5.9

3.0

0.6

26.5

34.8

Normalised Operating Margin (%)

-3.0

-22.3

-12.3

-20.2

6.0

13.8

BALANCE SHEET

Fixed Assets

 

 

22.8

16.8

26.2

53.2

56.5

60.4

Intangible Assets

11.2

9.9

18.0

35.9

36.2

34.5

Tangible Assets

1.6

1.7

3.1

5.0

2.0

1.9

Investments & other

10.1

5.2

5.2

12.4

18.3

24.1

Current Assets

 

 

25.4

28.3

63.4

42.8

48.7

51.0

Stocks

0.0

0.0

0.0

0.0

0.0

0.0

Debtors

16.0

11.5

16.0

23.6

33.8

42.5

Cash & cash equivalents

9.4

11.8

43.3

19.2

14.9

8.5

Other

0.0

4.9

4.2

0.0

0.0

0.0

Current Liabilities

 

 

(13.6)

(14.5)

(15.2)

(18.8)

(25.2)

(29.6)

Creditors

(11.1)

(6.1)

(8.3)

(14.3)

(20.6)

(25.1)

Tax and social security

0.0

0.0

(2.9)

(0.8)

(0.8)

(0.8)

Short term borrowings

(2.5)

(7.1)

(2.7)

(3.6)

(3.6)

(3.6)

Other

0.0

(1.3)

(1.3)

(0.1)

(0.1)

(0.1)

Long Term Liabilities

 

 

(27.1)

(28.5)

(10.0)

(16.3)

(18.5)

(12.4)

Long term borrowings

(23.5)

(25.6)

(6.2)

(9.3)

(9.3)

(9.3)

Other long term liabilities

(3.7)

(2.9)

(3.8)

(7.0)

(9.2)

(3.1)

Net Assets

 

 

7.5

2.1

64.4

60.9

61.4

69.4

Minority interests

0.0

0.0

0.0

0.0

0.0

0.0

Shareholders' equity

 

 

7.5

2.1

64.4

60.9

61.4

69.4

CASH FLOW

Net income

0.2

(5.4)

(23.5)

(7.3)

1.0

5.5

Depreciation & amortisation

2.7

3.8

4.2

8.0

11.4

14.2

Working capital

(7.4)

2.5

(2.0)

(6.5)

(7.6)

(16.1)

Exceptional & other

1.6

1.9

15.0

(0.6)

2.2

2.2

Tax

(0.1)

(1.2)

2.6

(0.0)

0.0

0.0

Net operating cash flow

 

 

(3.0)

1.7

(3.6)

(6.5)

6.9

5.8

Capex

(3.6)

(3.2)

(3.9)

(9.1)

(9.9)

(10.8)

Acquisitions/disposals

(0.6)

0.0

(5.4)

(5.4)

0.0

0.0

Net interest

(0.5)

(0.5)

(6.9)

(1.1)

(0.5)

(0.5)

Equity financing

0.0

0.0

70.1

(0.7)

0.0

0.0

Dividends

0.0

0.0

0.0

0.0

0.0

0.0

Other

(0.1)

0.1

0.2

(4.4)

0.0

0.0

Net Cash Flow

(7.8)

(1.9)

50.5

(27.2)

(3.5)

(5.5)

Opening net debt/(cash)

 

 

8.5

16.6

20.9

(34.3)

(6.3)

(1.9)

FX

(0.2)

0.0

0.0

0.0

0.0

0.0

Other non-cash movements

0.0

(2.4)

4.7

(0.8)

(0.8)

(0.8)

Closing net debt/(cash)

 

 

16.6

20.9

(34.3)

(6.3)

(1.9)

4.4

Source: MotorK accounts, Edison Investment Research


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United Kingdom

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This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

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United States

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Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

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. 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 (i.e. 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.

United Kingdom

This document is prepared and provided by Edison 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.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison 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. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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Research: Healthcare

Incannex Healthcare — Strong cash position supports clinical progression

Following its Q223 cash flow report in February, Incannex has reported detailed interim H123 results. The period was mainly focused on enhanced clinical efforts across its drug development portfolio, including initiation of a bioavailability and bioequivalence study for its lead clinical asset IHL-42X, a positive pre-IND meeting with the FDA on IHL216A (for concussion and traumatic brain injury) and the completion of patient dosing in the Phase I trial of IHL-675A. IHL-675A is being considered for rheumatoid arthritis (RA), inflammatory bowel disease and lung inflammation, and the company started a Phase II study in late February 2023 in RA. We expect continued clinical progress over CY23, including anticipated IND applications and additional clinical study starts. With the recent private placement of A$13m (US$8.7m), the company’s net cash position stood at A$41.4m (US$27.8m), which, based on our estimates, provides a cash runway to the second half of FY24. We value Incannex at US$745.8m or US$11.75/ADR (US$736.6m or US$11.7/ADR previously).

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