EQS Group — Catching the whistleblowing wave

EQS Group (SCALE: EQS)

Currency in EUR

Last close As at 08/12/2023

EUR40.00

−0.50 (−1.23%)

Market capitalisation

EUR401m

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Research: TMT

EQS Group — Catching the whistleblowing wave

The German Bundesrat has finally transposed the legislation regarding whistleblowing after the unexpected delay, allowing EQS to move at full steam to start converting its sales pipeline. The Q123 figures show a good start to the year, despite the hold-up, as the implementation of similar whistleblowing legislation stimulated demand in markets such as Italy and Spain. Revenues (excluding Russia) were up 15% on Q122 and EBITDA margin recovered to 8.5% from 0.9%, putting the group on track to meet its full-year guidance. The shares continue to trade well below the level indicated by our DCF.

Fiona Orford-Williams

Written by

Fiona Orford-Williams

Director, TMT

TMT

EQS Group

Catching the whistleblowing wave

Trading update

Software

19 May 2023

Price

€25.3

Market cap

€253m

Net debt (€m) at 31 March 2023

26.0

Shares in issue

10.0m

Free float

78.4%

Code

EQS

Primary exchange

XETRA

Secondary exchange

FRA

Share price performance

%

1m

3m

12m

Abs

8.0

8.4

(22.0)

Rel (local)

6.9

5.3

(30.7)

52-week high/low

€31.8

€20.8

Business description

EQS Group is a leading international provider of regulatory technology in the fields of corporate compliance and investor relations. Its products enable corporate clients to fulfil complex national and international disclosure obligations, minimise risks and communicate transparently with stakeholders.

Next events

AGM

30 June 2023

H123 figures

11 August 2023

Analyst

Fiona Orford-Williams

+44 (0)20 3077 5739

EQS Group is a research client of Edison Investment Research Limited

The German Bundesrat has finally transposed the legislation regarding whistleblowing after the unexpected delay, allowing EQS to move at full steam to start converting its sales pipeline. The Q123 figures show a good start to the year, despite the hold-up, as the implementation of similar whistleblowing legislation stimulated demand in markets such as Italy and Spain. Revenues (excluding Russia) were up 15% on Q122 and EBITDA margin recovered to 8.5% from 0.9%, putting the group on track to meet its full-year guidance. The shares continue to trade well below the level indicated by our DCF.

Year

end

Revenue
(€m)

EBITDA
(€m)

PBT*
(€m)

EPS*
(€)

EV/EBITDA
(x)

P/E
(x)

12/21

50.2

1.7

(5.4)

(0.65)

160.5

N/A

12/22

61.4

4.6

(3.1)

(0.20)

61.2

N/A

12/23e

71.5

9.1

0.6

0.04

30.7

684.7

12/24e

88.8

16.2

8.2

0.55

17.3

46.1

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

Compliance ramping up…

Cloud-based Compliance products and services (69% of Q123 revenue) continue to drive the top line, with products up 15% and services racking up an impressive gain of 31% over Q122, albeit off a lower base. The number of Compliance SaaS customers reached just below 4k by end-March, including 238 new SaaS customers for whistleblowing systems as sales in France, Spain and Italy start to come through more strongly. The lack of initial public offerings hampered growth in the Investor Relations segment (31% of Q1 revenue), although there was modest progress in SaaS revenues for EQS’s IR COCKPIT. Operational leverage and tight cost control helped boost the EBITDA margin (excluding Russia) to 8.5% (Q122: 0.9%), with full-year FY23e guidance in a range of 12–15% unchanged, based on revenues of €71–74m and EBITDA of €9–11m. Our estimates are maintained.

…with Germany following on

The big prize for EQS is its own domestic market. The pipeline has been built up, but conversion has been an issue while the implementation of the legislation was in abeyance. With a very short timeline to full go-live of one month, the next few weeks should be extremely busy, with partner sales to second- and third-tier customers also now green-lit. Management indicates around 2k opportunities in the sales pipeline. In the longer term, regulation regarding supply chain and additional ESG reporting should provide further impetus, with both this and the whistleblowing product giving further openings for cross- and up-sells to the COCKPIT platform.

Valuation: DCF indicates upside potential

Given the current suppressed levels of profitability, traditional valuation multiples remain unhelpful. We therefore use a DCF, with a 9% weighted average cost of capital and terminal growth of 2% (unchanged). This derives a value of €35.17 per share (April 2023: €34.82), well above the current market price, despite the recent bounce in the share price in response to the progress of the German legislation.

Q123 results compatible with full-year guidance

The Q123 group results are summarised below. The accounting basis now shows the Russian business as discontinued (this was negligible in Q123, at €28k of revenue and decreasing, and with a negative EBITDA of €57k) and is already factored into the full-year guidance. We will adjust our modelling of the historical numbers at the half-year stage.

Exhibit 1: Q123 summary of results and full-year guidance

Group total

Continuing (excluding Russia)

€m

Q123

Q122

% change

Q123

Q122

% change

Full-year guidance

Compliance revenues

Cloud products

8.29

7.19

15%

Service products

2.79

2.12

31%

Total compliance

11.08

9.31

19%

Investor Relations revenues

Cloud-products

2.66

2.56

4%

Service-products

2.23

2.25

-1%

Total Investor Relations

4.90

4.81

2%

Group revenues

15.97

14.12

13%

15.94

13.81

15%

€71–74m

EBITDA

1.30

0.25

417%

1.36

0.12

1033%

€9–11m

EBITDA margin

8.2%

1.8%

8.5%

0.9%

12–15%

EBIT

(0.70)

(1.77)

N/A

(0.65)

(1.89)

N/A

Personnel expenses

10.47

9.41

11%

10.42

9.34

12%

New annually recurring revenue (ARR)

1.86

1.81

3%

€9.0–12.0m

ARR

14.0

12.4

13%

New SaaS customers

271

216

25%

2,000–3,000

Total customers

5,257

4,405

19%

Churn

5.6%

5.7%

Source: EQS Group

Targets unchanged

In our June 2022 Outlook note, we documented management’s ambition for its positioning within the European compliance market, aiming to win 5k whistleblowing customers and to convert a fifth of these new accounts into customers for the full COCKPIT offering. With the German opportunity now live, this still looks to be achievable and should help to deliver the full-year guidance, albeit weighted to the second half. The medium-term targets (defined as FY26/27e) remain for a 20–25% CAGR in Compliance revenues and 5–10% in Investor Relations, delivering a 30% EBITDA margin, which should be achievable for a platform-based business model.

Net debt at end-Q123 had reduced to €25.99m (end-FY22: €28.43m), including lease liabilities; excluding these, net debt was €22.58m, down from €24.59m. Our forecast for the year-end is for €28.7m (including lease debt) and this may prove to be conservative. The business’s capital requirements are minimal, although ongoing investment in products and services is always needed to maintain market relevance.

Exhibit 2: Financial summary

€'000s

2020

2021

2022

2023e

2024e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

37,636

50,223

61,430

71,500

88,779

Cost of Sales

0

0

0

0

0

Gross Profit

37,636

50,223

61,430

71,500

88,779

EBITDA

 

 

4,760

1,742

4,567

9,100

16,165

Operating profit (before amort. and excepts.)

 

 

819

(3,975)

(1,327)

3,131

10,146

Amortisation of acquired intangibles

(656)

(1,532)

(2,257)

(2,257)

(2,257)

Exceptionals

0

110

0

0

0

Share-based payments

0

0

0

0

0

Reported operating profit

163

(5,397)

(3,584)

874

7,889

Net Interest

(396)

(1,461)

(1,761)

(2,578)

(1,931)

Joint ventures & associates (post tax)

0

0

0

0

0

Exceptionals

0

0

1

0

0

Profit Before Tax (norm)

 

 

423

(5,436)

(3,087)

553

8,214

Profit Before Tax (reported)

 

 

(233)

(6,858)

(5,344)

(1,704)

5,957

Reported tax

(599)

229

2,013

562

(1,966)

Profit After Tax (norm)

296

(5,254)

(1,924)

370

5,504

Profit After Tax (reported)

(832)

(6,629)

(3,332)

(1,142)

3,991

Minority interests

(34)

0

1

4

0

Discontinued operations

0

0

0

0

0

Net income (normalised)

296

(5,254)

(1,924)

370

5,504

Net income (reported)

(866)

(6,629)

(3,331)

(1,137)

3,991

Average Number of Shares Outstanding (m)

7.2

8.1

9.7

10.0

10.0

EPS - normalised (€)

 

 

0.04

(0.65)

(0.20)

0.04

0.55

EPS - normalised fully diluted (c)

 

 

4.12

(64.53)

(19.76)

3.70

54.90

EPS - basic reported (€)

 

 

(0.12)

(0.81)

(0.34)

(0.11)

0.40

Dividend per share (c)

0.00

0.00

0.00

0.00

0.00

Revenue growth (%)

6.4

33.4

22.3

16.4

24.2

EBITDA Margin (%)

12.6

3.5

7.4

12.7

18.2

Normalised Operating Margin (%)

2.2

(7.9)

(2.2)

4.4

11.4

BALANCE SHEET

Fixed Assets

 

 

39,007

168,468

170,440

172,790

171,100

Intangible Assets

31,016

160,386

158,081

158,563

157,123

Tangible Assets

7,216

7,351

5,011

6,878

6,628

Investments & other

775

731

7,349

7,349

7,349

Current Assets

 

 

17,086

18,369

18,932

15,269

15,595

Stocks

0

0

0

0

0

Debtors

3,923

7,018

6,075

7,052

8,756

Cash & cash equivalents

12,074

8,653

10,654

6,014

4,636

Other

1,089

2,697

2,203

2,203

2,203

Current Liabilities

 

 

(12,381)

(89,171)

(27,066)

(30,147)

(30,790)

Creditors

(2,747)

(3,197)

(2,709)

(3,027)

(3,486)

Tax and social security

(56)

(214)

(1,350)

(1,571)

(1,951)

Short term borrowings (includes lease debt)

(3,278)

(73,095)

(8,198)

(8,198)

(8,198)

Other

(6,300)

(12,665)

(14,809)

(17,350)

(17,155)

Long Term Liabilities

 

 

(10,768)

(27,426)

(50,096)

(47,096)

(41,096)

Long term borrowings (includes lease debt)

(7,641)

(9,927)

(30,890)

(27,890)

(21,890)

Other long term liabilities

(3,127)

(17,499)

(19,206)

(19,206)

(19,206)

Net Assets

 

 

32,943

70,240

112,210

110,817

114,809

Minority interests

0

0

1

1

1

Shareholders' equity

 

 

32,943

70,240

112,210

110,818

114,809

CASH FLOW

Operating Cash Flow

3,765

(2,296)

2,786

5,065

10,248

Working capital

1,294

(1,149)

3,952

(659)

(1,246)

Exceptional & other

1,037

5,711

699

2,069

3,951

Tax

(154)

(229)

(2,013)

562

(1,966)

Net Operating Cash Flow

 

 

5,942

2,037

5,425

7,038

10,988

Capex

(2,008)

(3,149)

(2,813)

(3,250)

(3,250)

Acquisitions/disposals

0

(96,428)

(14)

(968)

0

Net interest

(157)

(1,636)

(1,666)

0

0

Equity financing

9,124

43,929

44,833

0

0

Dividends

0

0

0

0

0

Other

414

(2,772)

(2,327)

(3,117)

(3,117)

Net Cash Flow

13,315

(58,019)

43,438

(297)

4,621

Opening net debt/(cash)

 

 

13,472

(1,153)

74,372

28,434

28,733

FX

(199)

126

50

0

0

Other non-cash movements

1,509

(17,631)

2,450

0

0

Closing net debt/(cash)

 

 

(1,153)

74,372

28,434

28,733

24,113

Source: EQS Group accounts, Edison Investment Research

General disclaimer and copyright

This report has been commissioned by EQS Group and prepared and issued by Edison, in consideration of a fee payable by EQS Group. 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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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.

Copyright: Copyright 2023 Edison Investment Research Limited (Edison).

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

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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

General disclaimer and copyright

This report has been commissioned by EQS Group and prepared and issued by Edison, in consideration of a fee payable by EQS Group. 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.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

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.

Copyright: Copyright 2023 Edison Investment Research Limited (Edison).

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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