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Research: TMT
Expert System has met two key milestones in the execution of its new five-year growth plan, raising €25m from the issue of 9.26m shares at €2.7 per share and launching expert.ai, its NL API (natural language application programming interface). The first supports the investment required to execute the plan and the second is the first stage in the development of the cloud platform.
Expert System |
Fund-raising target achieved |
Fund-raise |
Software & comp services |
6 August 2020 |
Share price performance
Business description
Next events
Analysts
Expert System is a research client of Edison Investment Research Limited |
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Expert System has met two key milestones in the execution of its new five-year growth plan, raising €25m from the issue of 9.26m shares at €2.7 per share and launching expert.ai, its NL API (natural language application programming interface). The first supports the investment required to execute the plan and the second is the first stage in the development of the cloud platform.
Year end |
Revenue (€m) |
EBITDA* |
EPS* |
DPS |
P/E |
EV/EBITDA |
12/18 |
30.5 |
4.6 |
(1.4) |
0.0 |
N/A |
26.0 |
12/19 |
33.7 |
5.5 |
(1.6) |
0.0 |
N/A |
22.1 |
12/20e |
33.2 |
2.0 |
(10.6) |
0.0 |
N/A |
59.9 |
12/21e |
34.4 |
(5.0) |
(22.7) |
0.0 |
N/A |
N/A |
12/22e |
47.7 |
(0.5) |
(16.5) |
0.0 |
N/A |
N/A |
Note: *EBITDA and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
€25m raised to fund growth plan
When Expert System announced its five-year growth plan in June, it outlined its intention to invest in ramping up its sales and marketing capacity in the US as well as the development of its SaaS platform. Management estimated that it would need to raise €25m to fund the company until it reached a cash flow positive position in FY24. Through a combination of an entitlement offer and an accelerated book build (ABB), the company has raised €25m from the issue of 9.26m shares at €2.7 per share (18% dilution). We have revised our forecasts to reflect the cash proceeds and higher share count, with a forecast net cash position of €23.6m at year-end.
First technical milestone reached; senior hires made to drive sales and marketing plans
On 27 July, the company launched expert.ai, its NL API. This enables data scientists, computational linguists, knowledge engineers and developers to embed advanced natural language understanding and processing functionality into their applications. This is the first stage in the development of the full SaaS platform and allows Expert System to offer its technology via a freemium model. Since the funds were raised, the company has hired a chief revenue officer (Colin Matthews) and chief marketing officer (Keith C Lincoln) to help drive the sales and marketing effort in the US.
Valuation: Considerable upside if executed well
With the full SaaS platform not scheduled to launch until the end of Q121, the plan calls for significant investment before adoption of the SaaS platform is expected to drive material revenue growth in FY22. Based on a DCF valuation, we estimate that successful execution of the plan could see the stock valued in the region of €5.0 per share. To monitor progress towards the revenue inflection, we look to track the number of users signing up to use the platform, length and frequency of platform usage, conversion rates to paid subscriptions, net dollar retention and contribution from channel partners.
Changes to forecasts
Exhibit 1: Changes to forecasts
Year end 31 December (€m) |
FY20e old |
FY20e new |
% change |
% |
FY21e old |
FY21e new |
% change |
% |
FY22e old |
FY22e new |
% change |
% |
Sales |
31.7 |
31.7 |
0.0% |
0.3% |
32.9 |
32.9 |
0.0% |
3.8% |
46.2 |
46.2 |
0.0% |
40.2% |
Other income & grants |
1.5 |
1.5 |
0.0% |
(27.1%) |
1.5 |
1.5 |
0.0% |
0.0% |
1.5 |
1.5 |
0.0% |
0.0% |
Total revenues |
33.2 |
33.2 |
0.0% |
(1.4%) |
34.4 |
34.4 |
0.0% |
3.6% |
47.7 |
47.7 |
0.0% |
38.5% |
Capitalised development costs & changes in WIP |
6.5 |
6.5 |
0.0% |
8.3% |
8.0 |
8.0 |
0.0% |
22.3% |
10.3 |
10.3 |
0.0% |
29.6% |
Production value |
39.8 |
39.8 |
0.0% |
0.1% |
42.4 |
42.4 |
0.0% |
6.7% |
58.0 |
58.0 |
0.0% |
36.8% |
EBITDA |
2.0 |
2.0 |
0.0% |
(63.2%) |
(5.0) |
(5.0) |
0.0% |
(347%) |
(0.5) |
(0.5) |
0.0% |
(90.4%) |
EBITDA margin |
6.0% |
6.0% |
0.0% |
(10.1%) |
(14.4%) |
(14.4%) |
0.0% |
(20.5%) |
(1.0%) |
(1.0%) |
0.0% |
13.4% |
D&A |
(6.4) |
(6.4) |
0.0% |
(6.9) |
(6.9) |
0.0% |
(7.9) |
(7.9) |
0.0% |
|||
Normalised operating profit |
(4.4) |
(4.4) |
0.0% |
1135.7% |
(11.9) |
(11.9) |
0.0% |
168.3% |
(8.4) |
(8.4) |
0.0% |
(29.6%) |
Normalised operating margin |
(13.3%) |
(13.3%) |
0.0% |
(12.3%) |
(34.5%) |
(34.5%) |
0.0% |
(21.2%) |
(17.5%) |
(17.5%) |
0.0% |
16.9% |
Amortisation of acquired intangibles |
(0.9) |
(0.9) |
0.0% |
N/A |
0.0 |
0.0 |
0.0% |
N/A |
0.0 |
0.0 |
N/A |
|
Exceptional items |
0.0 |
0.0 |
0.0% |
N/A |
0.0 |
0.0 |
0.0% |
N/A |
0.0 |
0.0 |
N/A |
|
Reported operating profit |
(5.3) |
(5.3) |
0.0% |
N/A |
(11.9) |
(11.9) |
0.0% |
N/A |
(8.4) |
(8.4) |
0.0% |
N/A |
Normalised net income |
(4.7) |
(4.7) |
0.7% |
N/A |
(11.7) |
(11.5) |
(1.9%) |
142.8% |
(8.8) |
(8.3) |
(27.6%) |
|
Reported net income |
(0.9) |
(0.9) |
3.9% |
6.5% |
(11.7) |
(11.5) |
(1.9%) |
N/A |
(8.8) |
(8.3) |
27.6% |
|
Diluted normalised EPS (c) |
(11.5) |
(10.6) |
(7.9%) |
N/A |
(28.4) |
(22.7) |
(19.9%) |
N/A |
(21.5) |
(16.5) |
(23.5%) |
27.6% |
Net debt/(cash) |
0.4 |
(23.6) |
N/A |
N/A |
14.2 |
(10.1) |
N/A |
(57.2%) |
25.6 |
0.7 |
N/A |
(107%) |
Source: Edison Investment Research
Exhibit 2: Financial summary
€'000s |
2015 |
2016 |
2017 |
2018 |
2019 |
2020e |
2021e |
2022e |
|||
31-December |
IT GAAP |
IT GAAP |
IT GAAP |
IT GAAP |
IT GAAP |
IT GAAP |
IT GAAP |
IT GAAP |
|||
PROFIT & LOSS |
|||||||||||
Revenue |
|
|
19,368 |
25,057 |
27,783 |
30,457 |
33,712 |
33,248 |
34,445 |
47,699 |
|
EBITDA |
|
|
1,463 |
(2,245) |
1,711 |
4,638 |
5,459 |
2,011 |
(4,962) |
(477) |
|
Operating Profit (before amort. and except.) |
(1,226) |
(5,941) |
(3,189) |
(662) |
(358) |
(4,426) |
(11,875) |
(8,361) |
|||
Intangible Amortisation |
(2,549) |
(2,608) |
(2,608) |
(2,567) |
(2,520) |
(902) |
0 |
0 |
|||
Exceptionals |
0 |
0 |
(700) |
0 |
0 |
0 |
0 |
0 |
|||
Other |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
|||
Operating Profit |
(3,775) |
(8,549) |
(6,496) |
(3,229) |
(2,878) |
(5,328) |
(11,875) |
(8,361) |
|||
Net Interest |
213 |
(156) |
(2,191) |
97 |
(123) |
(817) |
(855) |
(855) |
|||
Profit Before Tax (norm) |
|
|
(1,013) |
(6,097) |
(5,380) |
(565) |
(481) |
(5,243) |
(12,730) |
(9,216) |
|
Profit Before Tax (reported) |
|
|
(3,562) |
(8,705) |
(8,687) |
(3,131) |
(780) |
(1,021) |
(12,730) |
(9,216) |
|
Tax |
277 |
579 |
348 |
(650) |
(203) |
102 |
1,273 |
922 |
|||
Profit After Tax (norm) |
(934) |
(5,692) |
(5,164) |
(508) |
(607) |
(4,719) |
(11,457) |
(8,294) |
|||
Profit After Tax (reported) |
(3,284) |
(8,126) |
(8,339) |
(3,781) |
(983) |
(919) |
(11,457) |
(8,294) |
|||
Average Number of Shares Outstanding (m) |
22.8 |
25.8 |
28.1 |
35.8 |
38.6 |
44.6 |
50.4 |
50.4 |
|||
EPS - normalised (c) |
|
|
(4.1) |
(22.0) |
(18.3) |
(1.4) |
(1.6) |
(10.6) |
(22.7) |
(16.5) |
|
EPS - normalised and fully diluted (c) |
|
(4.1) |
(22.0) |
(18.3) |
(1.4) |
(1.6) |
(10.6) |
(22.7) |
(16.5) |
||
EPS - (IFRS) (c) |
|
|
(14.4) |
(31.5) |
(29.6) |
(10.6) |
(2.5) |
(2.1) |
(22.7) |
(16.5) |
|
Dividend per share (c) |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
|||
EBITDA Margin (%) |
7.6 |
-9.0 |
6.2 |
15.2 |
16.2 |
6.0 |
-14.4 |
-1.0 |
|||
Adj Operating Margin (%) |
-6.3 |
-23.7 |
-11.5 |
-2.2 |
-1.1 |
-13.3 |
-34.5 |
-17.5 |
|||
BALANCE SHEET |
|||||||||||
Fixed Assets |
|
|
20,301 |
20,379 |
18,864 |
16,655 |
14,761 |
14,190 |
15,748 |
18,694 |
|
Intangible Assets |
18,539 |
18,372 |
16,944 |
14,734 |
13,092 |
12,790 |
14,380 |
17,373 |
|||
Tangible Assets |
916 |
915 |
792 |
715 |
702 |
684 |
652 |
604 |
|||
Investments |
846 |
1,092 |
1,128 |
1,206 |
968 |
716 |
716 |
716 |
|||
Current Assets |
|
|
42,588 |
37,012 |
37,634 |
38,004 |
51,442 |
81,007 |
68,766 |
62,463 |
|
Stocks |
1,797 |
627 |
99 |
109 |
59 |
59 |
59 |
59 |
|||
Debtors |
10,228 |
10,233 |
12,384 |
15,792 |
20,447 |
21,060 |
21,060 |
24,641 |
|||
Cash |
11,249 |
9,063 |
11,235 |
7,883 |
21,647 |
50,497 |
36,982 |
26,178 |
|||
Other |
19,314 |
17,088 |
13,916 |
14,220 |
9,289 |
9,392 |
10,665 |
11,586 |
|||
Current Liabilities |
|
|
(20,517) |
(22,679) |
(19,480) |
(21,170) |
(22,839) |
(23,264) |
(24,037) |
(28,975) |
|
Creditors |
(15,082) |
(16,459) |
(14,104) |
(15,511) |
(16,945) |
(17,370) |
(18,144) |
(23,081) |
|||
Short term borrowings |
(5,435) |
(6,219) |
(5,376) |
(5,659) |
(5,893) |
(5,893) |
(5,893) |
(5,893) |
|||
Long Term Liabilities |
|
|
(22,227) |
(18,275) |
(17,742) |
(18,411) |
(22,464) |
(24,852) |
(24,852) |
(24,852) |
|
Long term borrowings |
(18,240) |
(15,252) |
(14,683) |
(14,811) |
(18,588) |
(20,976) |
(20,976) |
(20,976) |
|||
Other long term liabilities |
(3,987) |
(3,023) |
(3,060) |
(3,600) |
(3,876) |
(3,876) |
(3,876) |
(3,876) |
|||
Net Assets |
|
|
20,145 |
16,437 |
19,276 |
15,077 |
20,901 |
47,082 |
35,625 |
27,330 |
|
CASH FLOW |
|||||||||||
Operating Cash Flow |
|
|
2,738 |
2,088 |
(1,921) |
2,583 |
2,479 |
1,802 |
(4,208) |
860 |
|
Net Interest |
(324) |
(155) |
(626) |
(441) |
(558) |
(797) |
(835) |
(835) |
|||
Tax |
(1,576) |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
|||
Capex |
(20,045) |
(6,378) |
(6,321) |
(5,830) |
(6,749) |
(7,020) |
(8,472) |
(10,830) |
|||
Acquisitions/disposals |
3,045 |
46 |
1,275 |
(76) |
7,496 |
5,375 |
0 |
0 |
|||
Financing |
6,573 |
4,418 |
11,178 |
0 |
7,084 |
27,100 |
0 |
0 |
|||
Dividends |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
|||
Net Cash Flow |
(9,588) |
18 |
3,585 |
(3,764) |
9,753 |
26,461 |
(13,514) |
(10,805) |
|||
Opening net debt/(cash) |
|
|
2,839 |
12,426 |
12,408 |
8,824 |
12,587 |
2,834 |
(23,627) |
(10,113) |
|
HP finance leases initiated |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
|||
Other |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
|||
Closing net debt/(cash) |
|
|
12,426 |
12,408 |
8,824 |
12,587 |
2,834 |
(23,627) |
(10,113) |
692 |
|
Source: Expert System, Edison Investment Research
|
|
Research: TMT
Media and Games Invest (MGI) is a fast-growing and profitable games and digital media business. In its maiden results following the group’s Scale listing in July, the group has reported a like-for-like increase in Q2 revenues of 97% to €30.0m, with EBITDA up 68% to €6.3m. These results were driven by sustained supernormal levels of demand for MGI’s games in Q220, supported by acquisitions. The group reported preliminary H120 revenues of €56.6m (H119: €28.6m) and EBITDA of €11.6m (H119: €7.5m). Given this performance, management raised its guidance for FY20, with a revised revenue target of €115–125m (growth of 37–49% y-o-y). Management also introduced EBITDA guidance, with FY20 EBITDA expected to be €20–23m (growth of 29–48% y-o-y). These forecasts exclude the impact of any potential M&A in H220. The half-year report is due on 12 August 2020.