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Research: TMT
EQS Group
EQS Group |
Pushing ahead in Asia |
Q3 figures |
Media |
3 December 2015 |
Share price performance
Business description
Next events
Analysts
EQS Group is a research client of Edison Investment Research Limited |
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EQS’s Q315 numbers show that is making good progress in building its Asian business, albeit at a cost to margin in the current year. The strong growth in revenues for both Websites & Platforms (buoyed by Asia) and for Reports & Webcasts more than made up for the weakness in Distribution & Media as the SME bond market ground to a halt. Regulatory Information & News performance continues to be constrained by de- and down-listings in the German market. The group’s valuation should expand as management demonstrates successful delivery on its overseas expansion plans.
Year end |
Revenue |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/13 |
15.9 |
3.4 |
1.91 |
0.75 |
15.7 |
2.5 |
12/14 |
16.5 |
3.5 |
2.05 |
0.75 |
14.7 |
2.5 |
12/15e |
18.5 |
3.2 |
1.84 |
0.75 |
16.3 |
2.5 |
12/16e |
19.8 |
3.8 |
2.14 |
0.80 |
14.0 |
2.7 |
12/17e |
20.9 |
4.2 |
2.36 |
0.85 |
12.7 |
2.8 |
Note: *PBT and EPS are normalised, excluding intangible amortisation, exceptional items and share-based payments.
Expectations updated
We have adjusted our FY15 expectations on the back of the Q3 performance, tax and in the light of movements in exchange rates, which have been broadly favourable. For FY16 and FY17, we have trimmed numbers a little on lower global GDP forecasts. Russia remains difficult, unlikely to recover short term, but the group has opened a new front in the Arab states via a marketing co-operation agreement in Dubai, commenced in September. We expect to see a strong uplift in operating margin in FY16 and FY17 as the first benefits of the push into Asia start producing returns. Success in Asia, leveraging 2014’s acquisition of TodayIR, would be transformative both for the scale of the group and for its financial performance.
Investing in new geographies and the product set
The group has been investing heavily in its products and services, which are at the heart of its proposition to expedite the day-to-day tasks of the corporate IR manager. In addition to geographic expansion and investment in IT, further capabilities have now been built into the COCKPIT, which draws together various information streams into one dashboard, to ease integration with clients’ own CRM systems, including the ability to send emails and newsletters.
Valuation: Scale discount to peers
Our valuation framework for EQS is three sets of peers: software companies in the financial and B2B sectors, global financial information service majors and B2B media companies. Many of these latter groups are large and complex global enterprises, but some legacy business requiring reinvention for new channels. On our revised numbers, EQS still trades at a discount of around 20-30% to these companies, and at a greater discount to the software stocks. We would expect this to close as EQS proves it can expand overseas and that it can generate a good ROI, internally and by acquisition.
Q3 figures and trading update
Formal guidance from the company for FY15 has not been changed. However, we have made modest adjustments to our numbers on the back of the Q3 figures, which are now towards the lower end of the range. For the following years, we have trimmed on a slightly more cautious outlook on global GDP assumptions and we have also input a higher tax charge than we had previously factored in, based on mix.
Exhibit 1: Revisions to forecasts
EPS (€) |
PBT (€m) |
EBITDA (€m) |
|||||||
Old |
New |
% chg. |
Old |
New |
% chg. |
Old |
New |
% chg. |
|
2015e |
1.96 |
1.84 |
-6 |
3.4 |
3.2 |
-6 |
4.0 |
4.0 |
u/c |
2016e |
2.46 |
2.14 |
-13 |
4.1 |
3.8 |
-7 |
4.7 |
4.6 |
-2 |
2017e |
2.63 |
2.36 |
-10 |
4.4 |
4.2 |
-5 |
5.0 |
5.0 |
u/c |
Source: Edison Investment Research
Over the first nine months of 2015, like-for-like growth in group revenues was 8% (adjusted for TodayIR). The Asian expansion, including the IT infrastructure and support centre in Kochi, India, led to a 21% rise in personnel costs and an increase in other operating expenses, also up due to the office move to new headquarters in Germany. These factors were already built into our forecasts. In total, over the course of 2015, the cost of the Asian expansions is estimated by management at €1.0m.
Full description of the group’s activities and markets are available in our initiation note, published in September 2015.
Asian scale remains the big prize
The scale of the opportunity in Asia dwarves the potential offered in the existing geographies. The group has already established a foothold in Hong Kong, Singapore and Taiwan. Hong Kong has continued to see good growth in market listings, with the number of listed companies up 5.5% in the year to end September, up 1.3% in Q315, with Singapore and Taiwan both also showing increases, albeit smaller in percentage terms. The turmoil seen earlier in the year in mainland Chinese stock markets, leading to a temporary ban on IPOs, may prove to have been very helpful to EQS’s cause. Chinese markets are implementing new regulations and aim to meet international investors’ requirements for transparency. To meet these enhanced requirements, listed companies will need to buy in the expertise they need or develop it internally. Working with a partner such as EQS, they can access knowledge of best practice in public markets, coupled with experience built up over the years and the technical ability to execute appropriate solutions.
Cash flow to fund investment
The group has inherently strong cash generation, particularly in its Regulatory News & Information segment. This cash has funded the development of the platforms and products, as well as the acquisition of TodayIR. The Asian expansion was further funded by the long-term loans of €3.575m, at effective interest rates of between 1.0% and 1.4%, maturing in 2019 and 2020.
The continuing investment in technical capability and deliverables is restricting the pay-down of the debt in the short term, but providing the foundation for a much stronger and more substantial business.
Exhibit 2: Financial summary
€'000s |
2013 |
2014 |
2015e |
2016e |
2017e |
||
31-December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
|||||||
Revenue |
|
|
15,915 |
16,500 |
18,500 |
19,822 |
20,943 |
Cost of Sales |
0 |
0 |
0 |
0 |
0 |
||
Gross Profit |
15,915 |
16,500 |
18,500 |
19,822 |
20,943 |
||
EBITDA |
|
|
3,572 |
3,729 |
4,002 |
4,612 |
5,029 |
Operating Profit (before amort. and except.) |
3,418 |
3,380 |
3,158 |
3,807 |
4,189 |
||
Intangible Amortisation |
(140) |
(280) |
(356) |
(356) |
(356) |
||
Exceptionals |
0 |
0 |
0 |
0 |
0 |
||
Other |
28 |
177 |
99 |
35 |
10 |
||
Operating Profit |
3,306 |
3,277 |
2,901 |
3,486 |
3,843 |
||
Net Interest |
(29) |
(52) |
(45) |
(47) |
(39) |
||
Profit Before Tax (norm) |
|
|
3,418 |
3,505 |
3,212 |
3,795 |
4,160 |
Profit Before Tax (FRS 3) |
|
|
3,278 |
3,225 |
2,856 |
3,439 |
3,804 |
Tax |
(1,096) |
(1,105) |
(985) |
(1,181) |
(1,311) |
||
Profit After Tax (norm) |
2,283 |
2,403 |
2,190 |
2,542 |
2,813 |
||
Profit After Tax (FRS 3) |
2,182 |
2,121 |
1,871 |
2,258 |
2,494 |
||
Average Number of Shares Outstanding (m) |
1.19 |
1.17 |
1.19 |
1.19 |
1.19 |
||
EPS - normalised (€) |
|
|
1.91 |
2.05 |
1.84 |
2.14 |
2.36 |
EPS - (IFRS) (€) |
|
|
1.83 |
1.81 |
1.57 |
1.90 |
2.10 |
Dividend per share (€) |
0.75 |
0.75 |
0.75 |
0.80 |
0.85 |
||
Gross Margin (%) |
100.0 |
100.0 |
100.0 |
100.0 |
100.0 |
||
EBITDA Margin (%) |
22.4 |
22.6 |
21.6 |
23.3 |
24.0 |
||
Operating Margin (before GW and except.) (%) |
21.5 |
20.5 |
17.1 |
19.2 |
20.0 |
||
BALANCE SHEET |
|||||||
Fixed Assets |
|
|
13,658 |
19,383 |
20,133 |
20,793 |
21,453 |
Intangible Assets |
10,524 |
15,827 |
15,827 |
15,827 |
15,827 |
||
Tangible Assets |
1,032 |
1,468 |
2,218 |
2,878 |
3,538 |
||
Investments |
2,103 |
2,088 |
2,088 |
2,088 |
2,088 |
||
Current Assets |
|
|
6,055 |
4,750 |
4,509 |
4,927 |
5,216 |
Stocks |
0 |
0 |
0 |
0 |
0 |
||
Debtors |
2,971 |
3,282 |
3,679 |
3,942 |
4,165 |
||
Cash |
2,980 |
1,370 |
732 |
887 |
953 |
||
Other |
104 |
98 |
98 |
98 |
98 |
||
Current Liabilities |
|
|
(3,274) |
(4,380) |
(4,715) |
(4,930) |
(4,913) |
Creditors |
(2,273) |
(2,689) |
(3,015) |
(3,230) |
(3,413) |
||
Short term borrowings |
(1,001) |
(1,691) |
(1,700) |
(1,700) |
(1,500) |
||
Long Term Liabilities |
|
|
(1,070) |
(3,882) |
(3,882) |
(3,882) |
(3,882) |
Long term borrowings |
(982) |
(2,500) |
(2,500) |
(2,500) |
(2,500) |
||
Other long term liabilities |
(88) |
(1,382) |
(1,382) |
(1,382) |
(1,382) |
||
Net Assets |
|
|
15,369 |
15,870 |
16,045 |
16,908 |
17,874 |
CASH FLOW |
|||||||
Operating Cash Flow |
|
|
2,476 |
2,844 |
3,600 |
4,500 |
4,800 |
Net Interest |
(29) |
(52) |
(45) |
(47) |
(39) |
||
Tax |
(1,096) |
(1,105) |
(1,075) |
(1,034) |
(1,213) |
||
Capex |
(3,088) |
(3,669) |
(1,594) |
(1,500) |
(1,500) |
||
Acquisitions/disposals |
0 |
0 |
(126) |
0 |
0 |
||
Equity Financing |
(202) |
26 |
356 |
0 |
100 |
||
Dividends |
(892) |
(1,623) |
(1,764) |
(1,764) |
(1,882) |
||
Net Cash Flow |
(2,831) |
(3,579) |
(647) |
155 |
266 |
||
Opening net debt/(cash) |
|
|
(3,827) |
(996) |
2,821 |
3,468 |
3,313 |
HP finance leases initiated |
0 |
0 |
0 |
0 |
0 |
||
Other |
0 |
(238) |
0 |
0 |
0 |
||
Closing net debt/(cash) |
|
|
(996) |
2,821 |
3,468 |
3,313 |
3,047 |
Source: Company accounts, Edison Investment Research
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