Expert has raised gross proceeds of €10m from the issue of 7.7m shares at €1.30 through a combination of a rights issue and an accelerated book build. The company continues to make good progress in the insurance market where its software can improve the efficiency of business processes, particularly claims management.
Expert System |
€10m raised to fund growth |
Fund-raise |
Software & comp services |
12 February 2018 |
Share price performance
Business description
Next events
Analysts
Expert System is a research client of Edison Investment Research Limited |
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Expert has raised gross proceeds of €10m from the issue of 7.7m shares at €1.30 through a combination of a rights issue and an accelerated book build. The company continues to make good progress in the insurance market where its software can improve the efficiency of business processes, particularly claims management.
Year end |
Revenue (€m) |
EBITDA |
EPS* |
DPS |
P/E |
EV/EBITDA |
12/15 |
19.4 |
1.5 |
(4.1) |
0.0 |
N/A |
41.0 |
12/16 |
25.1 |
(2.2) |
(22.0) |
0.0 |
N/A |
N/A |
12/17e |
25.1 |
(1.5) |
(14.0) |
0.0 |
N/A |
N/A |
12/18e |
28.6 |
3.0 |
(3.4) |
0.0 |
N/A |
19.8 |
Note: *EPS is normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Successful rights issue and accelerated book build
In November, Expert announced the launch of a rights issue, giving shareholders the right to acquire two shares for every 15 held at a price of €1.30 per share. This was fully subscribed, raising €4.84m from the issue of 3.719m shares. We note that management participated in the rights issue. In December, the company announced an accelerated book build, which was also fully subscribed. This raised a further €5.16m from the issue of 3.971m shares at €1.30 per share. We have revised our forecasts to reflect the proceeds (we assume net proceeds of €9.7m) and new share count. This results in a new net debt forecast of €4.3m as at the end of FY17, down from our previous €14.0m forecast. This provides Expert with the funds to support the growth of the business, in particular to fund R&D and sales and marketing.
Continued adoption in the insurance market
Last year, Expert announced that it had signed a global agreement with Zurich Insurance Group to provide cognitive computing solutions to units worldwide and signed up Lloyds of London to support its members. Expert recently announced an agreement with Generali to provide support for its business processes, starting with registration and claims management. Expert’s Cogito software will be used to classify millions of inbound customer emails; the project will go live in Spain in Q118.
Valuation: DCF suggests upside
Expert System trades on an EV/EBITDA of 19.8x FY18e. This is at a premium to enterprise search and information management companies, and Italian software and services peers, and at a discount to high-growth big data analytics software companies. Our DCF valuation of Expert System suggests a value of €1.83/share (previously €1.97). Expert’s ability to convert customer interest in the fast-growing data mining and analytics market into commercial contracts, combined with achieving targeted cost cuts, will be key to share price upside from this point.
Exhibit 1: Financial summary
€000s |
2012 |
2013 |
2014 |
2015 |
2016 |
2017e |
2018e |
||
31-December |
IT GAAP |
IT GAAP |
IT GAAP |
IT GAAP |
IT GAAP |
IT GAAP |
IT GAAP |
||
PROFIT & LOSS |
|||||||||
Revenue |
|
|
11,593 |
11,109 |
13,045 |
19,368 |
25,057 |
25,118 |
28,623 |
EBITDA |
|
|
2,624 |
2,014 |
2,339 |
1,463 |
(2,245) |
(1,528) |
3,021 |
Operating Profit (before amort. and except.) |
1,765 |
916 |
609 |
(1,226) |
(5,941) |
(5,575) |
(1,417) |
||
Intangible Amortisation |
0 |
0 |
0 |
(2,549) |
(2,608) |
(2,608) |
(2,608) |
||
Exceptionals |
(319) |
45 |
59 |
0 |
0 |
0 |
0 |
||
Other |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||
Operating Profit |
1,446 |
961 |
669 |
(3,775) |
(8,549) |
(8,183) |
(4,025) |
||
Net Interest |
(298) |
(376) |
29 |
213 |
(156) |
(468) |
(428) |
||
Profit Before Tax (norm) |
|
|
1,467 |
539 |
638 |
(1,013) |
(6,097) |
(6,043) |
(1,846) |
Profit Before Tax (reported) |
|
|
1,148 |
584 |
697 |
(3,562) |
(8,705) |
(8,650) |
(4,453) |
Tax |
(452) |
(359) |
(609) |
277 |
579 |
3,028 |
1,559 |
||
Profit After Tax (norm) |
1,015 |
180 |
29 |
(934) |
(5,692) |
(3,928) |
(1,200) |
||
Profit After Tax (reported) |
697 |
225 |
89 |
(3,284) |
(8,126) |
(5,623) |
(2,894) |
||
Average Number of Shares Outstanding (m) |
22.0 |
22.0 |
22.0 |
22.8 |
25.8 |
28.1 |
35.7 |
||
EPS - normalised (c) |
|
|
4.6 |
0.8 |
0.1 |
(4.1) |
(22.0) |
(14.0) |
(3.4) |
EPS - normalised and fully diluted (c) |
|
4.6 |
0.8 |
0.1 |
(4.1) |
(22.0) |
(14.0) |
(3.4) |
|
EPS - (IFRS) (c) |
|
|
3.2 |
1.0 |
0.4 |
(14.4) |
(31.5) |
(20.0) |
(8.1) |
Dividend per share (p) |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Gross Margin (%) |
100.0 |
100.0 |
100.0 |
100.0 |
100.0 |
100.0 |
100.0 |
||
EBITDA Margin (%) |
22.6 |
18.1 |
17.9 |
7.6 |
-9.0 |
-6.1 |
10.6 |
||
Adj Operating Margin (%) |
15.2 |
8.2 |
4.7 |
-6.3 |
-23.7 |
-22.2 |
-5.0 |
||
BALANCE SHEET |
|||||||||
Fixed Assets |
|
|
6,691 |
9,905 |
5,719 |
20,301 |
20,379 |
18,924 |
17,679 |
Intangible Assets |
1,111 |
2,462 |
4,640 |
18,539 |
18,372 |
16,976 |
15,705 |
||
Tangible Assets |
635 |
606 |
692 |
916 |
915 |
856 |
882 |
||
Investments |
4,945 |
6,836 |
387 |
846 |
1,092 |
1,092 |
1,092 |
||
Current Assets |
|
|
12,767 |
15,491 |
32,681 |
42,588 |
37,012 |
40,566 |
40,399 |
Stocks |
722 |
476 |
1,563 |
1,797 |
627 |
627 |
627 |
||
Debtors |
5,488 |
5,820 |
7,866 |
10,228 |
10,233 |
10,233 |
11,768 |
||
Cash |
2,065 |
2,967 |
4,900 |
11,249 |
9,063 |
13,748 |
11,487 |
||
Other |
4,492 |
6,228 |
18,352 |
19,314 |
17,088 |
15,958 |
16,517 |
||
Current Liabilities |
|
|
(8,871) |
(10,333) |
(13,639) |
(20,517) |
(22,679) |
(21,957) |
(22,605) |
Creditors |
(6,538) |
(7,350) |
(10,698) |
(15,082) |
(16,459) |
(16,419) |
(17,067) |
||
Short term borrowings |
(2,332) |
(2,984) |
(2,940) |
(5,435) |
(6,219) |
(5,538) |
(5,538) |
||
Long Term Liabilities |
|
|
(4,642) |
(5,172) |
(7,803) |
(22,227) |
(18,275) |
(15,838) |
(16,672) |
Long term borrowings |
(4,642) |
(5,172) |
(4,799) |
(18,240) |
(15,252) |
(12,466) |
(13,300) |
||
Other long term liabilities |
0 |
0 |
(3,005) |
(3,987) |
(3,023) |
(3,372) |
(3,372) |
||
Net Assets |
|
|
5,945 |
9,890 |
16,958 |
20,145 |
16,437 |
21,695 |
18,801 |
CASH FLOW |
|||||||||
Operating Cash Flow |
|
|
8,077 |
2,891 |
737 |
2,738 |
2,088 |
3,302 |
3,134 |
Net Interest |
(298) |
(376) |
29 |
(324) |
(155) |
(468) |
(428) |
||
Tax |
(452) |
(359) |
(609) |
(1,576) |
0 |
0 |
0 |
||
Capex |
(3,095) |
(2,384) |
(3,905) |
(20,045) |
(6,378) |
(5,200) |
(5,800) |
||
Acquisitions/disposals |
0 |
0 |
(6,436) |
3,045 |
46 |
0 |
0 |
||
Financing |
0 |
0 |
12,341 |
6,573 |
4,418 |
10,559 |
0 |
||
Dividends |
0 |
(180) |
0 |
0 |
0 |
0 |
0 |
||
Net Cash Flow |
4,232 |
(408) |
2,156 |
(9,588) |
18 |
8,193 |
(3,095) |
||
Opening net debt/(cash) |
|
|
6,352 |
4,909 |
4,822 |
2,839 |
12,426 |
12,408 |
4,256 |
HP finance leases initiated |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||
Other |
(2,788) |
128 |
(173) |
0 |
0 |
(41) |
0 |
||
Closing net debt/(cash) |
|
|
4,909 |
5,189 |
2,839 |
12,426 |
12,408 |
4,256 |
7,351 |
Source: Expert System, Edison Investment Research
|
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Proxama ended the year with £1.1m in net cash, the cost base has been halved and the new management team has put the foundations in place to start scaling the Location Sciences division. In a short space of time, it has built a large footprint in terms of audience reach and during 2018 it will be working towards the commercialisation of its new product sets.