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Research: TMT
EQS has issued a year-end trading update, showing that it achieved its targets for number of new customers and for annually recurring revenues. However, the continuing delays to the full implementation of the whistleblowing legislation in the key German market mean that the group has missed its previously published targets for revenue and for EBITDA by €1.5m and €1.3m respectively. Guidance for FY23 now reflects an abundance of caution on the likely timing of the legislative stimulus, assuming that the law is not transposed until Q323. Our new forecasts align with the lower end of the guided range for now. Despite the delays, the shares continue to trade well below the level indicated by the DCF.
EQS Group |
Further delays in German legislation |
Trading update |
Software and comp services |
15 February 2023 |
Share price performance
Business description
Next events
Analyst
EQS Group is a research client of Edison Investment Research Limited |
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EQS has issued a year-end trading update, showing that it achieved its targets for number of new customers and for annually recurring revenues. However, the continuing delays to the full implementation of the whistleblowing legislation in the key German market mean that the group has missed its previously published targets for revenue and for EBITDA by €1.5m and €1.3m respectively. Guidance for FY23 now reflects an abundance of caution on the likely timing of the legislative stimulus, assuming that the law is not transposed until Q323. Our new forecasts align with the lower end of the guided range for now. Despite the delays, the shares continue to trade well below the level indicated by the DCF.
Year end |
Revenue |
EBITDA |
PBT* |
EPS* |
EV/EBITDA |
P/E |
12/20 |
37.6 |
4.8 |
0.4 |
0.04 |
56.0 |
570.8 |
12/21 |
50.2 |
1.7 |
(5.9) |
(0.70) |
153.1 |
N/A |
12/22e |
61.4** |
4.7** |
(5.6) |
(0.39) |
57.2 |
N/A |
12/23e |
71.0 |
9.0 |
(0.9) |
(0.06) |
29.6 |
N/A |
12/24e |
88.0 |
15.8 |
6.5 |
0.44 |
16.9 |
53.9 |
Notes: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. **Reported.
Further 12- to 18-month delay
Management had previously set medium-term targets for the group to achieve revenues of €130m on which it should achieve an EBITDA margin of 30%, with the assumption that these levels would be reached in FY25e. This was dependent on the whistleblowing legislation coming fully into force in the German market in FY22. While it was adopted, finally, by the Bundestag (the lower house of the German Parliament) in mid-December 2022, on the 10 February, it was blocked by the upper house, the Bundesrat, where it has been referred for further consultation by the Conciliation Committee. This pushes out the timeline for delivery of the financial targets by 12 to 18 months.
Forecasts reflect revised guidance
In addition to the disappointment regarding the whistleblowing, there was also an element of spending cancellation and postponement within the €1.5m revenue shortfall. Our model has been updated to reflect the revised preliminary revenue and EBITDA figures now published for FY22. We have set our FY23e modelling at the lower level of management guidance (revenue of €71m–74m, from €86.5m; EBITDA of €9m–11m, from €17.5m) until the picture on timing becomes clearer. Our provisional FY24e figures are also rebased, with revenue of €88m (was €107m) and EBITDA of €15.8m (was €27m). Balance sheet leverage remains under control, bolstered by the successful €45m fundraise earlier in FY22.
Valuation: DCF continues to indicate upside
Given the current lack of profitability, traditional valuation multiples remain unhelpful. We are therefore using a DCF, with a weighted average cost of capital of 9% and terminal growth of 2% (unchanged), which now derives a value of €32.96 per share (November 2022: €41.29), still well above the current market price.
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Exhibit 1: Financial summary |
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Source: Company accounts, Edison Investment Research |
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Research: Healthcare
Pixium has terminated its convertible note financing arrangement with the European Select Growth Opportunities Fund (ESGO) without any penalties. The termination is not surprising, given the arrangement required a minimum share price of €0.25 for Pixium to be permitted to issue any additional convertible notes beyond the initial 550 (representing €5.5m; each note had a nominal value of €10,000) that formed part of the first (and only) tranche issued. Pixium’s share price had remained below this minimum price threshold since August 2022 and the company acknowledged in October 2022 that it was not able to draw further tranches. Pixium reiterates that it is funded until the end of Q223 and is exploring various mechanisms to secure its cash flow necessary to pursue its strategic and development objectives.