EQS Group — Further delays in German legislation

EQS Group (SCALE: EQS)

Last close As at 20/04/2024

40.80

−0.40 (−0.97%)

Market capitalisation

409m

More on this equity

Research: TMT

EQS Group — Further delays in German legislation

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.

Fiona Orford-Williams

Written by

Fiona Orford-Williams

Director, TMT

samson-ZGjbiukp_-A-unsplash

TMT

EQS Group

Further delays in German legislation

Trading update

Software and comp services

15 February 2023

Price

€23.5

Market cap

€236m

Net debt (€m) at 30 September 2022

29.3

Shares in issue

10.0m

Free float

78.4%

Code

E1SX

Primary exchange

XETRA

Secondary exchange

FRA

Share price performance

%

1m

3m

12m

Abs

3.9

(9.5)

(29.7)

Rel (local)

1.9

(15.8)

(30.9)

52-week high/low

€34.4

€22.0

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

FY22 results

31 March 23

Analyst

Fiona Orford-Williams

+44 (0) 20 3077 5739

EQS Group is a research client of Edison Investment Research Limited

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
(€m)

EBITDA
(€m)

PBT*
(€m)

EPS*
(€)

EV/EBITDA
(x)

P/E
(x)

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.

Exhibit 1: Financial summary

€'000s

2020

2021

2022e

2023e

2024e

31-December

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

37,636

50,223

61,440

71,000

88,000

Cost of Sales

0

0

0

0

0

Gross Profit

37,636

50,223

61,440

71,000

88,000

EBITDA

 

 

4,760

1,742

4,660

9,000

15,781

Operating profit (before amort. and excepts.)

 

 

819

(4,417)

(2,704)

1,442

8,223

Amortisation of acquired intangibles

(656)

(1,090)

(1,350)

(1,350)

(1,350)

Exceptionals

0

110

0

0

0

Share-based payments

0

0

0

0

0

Reported operating profit

163

(5,397)

(4,054)

92

6,873

Net Interest

(396)

(1,461)

(2,903)

(2,305)

(1,697)

Joint ventures & associates (post tax)

0

0

0

0

0

Exceptionals

0

0

0

0

0

Profit Before Tax (norm)

 

 

423

(5,878)

(5,607)

(863)

6,526

Profit Before Tax (reported)

 

 

(233)

(6,858)

(6,957)

(2,213)

5,176

Reported tax

(599)

229

2,296

730

(1,708)

Profit After Tax (norm)

296

(5,682)

(3,757)

(578)

4,372

Profit After Tax (reported)

(832)

(6,629)

(4,661)

(1,483)

3,468

Minority interests

(34)

0

0

0

0

Discontinued operations

0

0

0

0

0

Net income (normalised)

296

(5,682)

(3,757)

(578)

4,372

Net income (reported)

(866)

(6,629)

(4,661)

(1,483)

3,468

Average Number of Shares Outstanding (m)

7.2

8.1

9.6

10.0

10.0

EPS - normalised (€)

 

 

0.04

(0.70)

(0.39)

(0.06)

0.44

EPS - normalised fully diluted (c)

 

 

4.12

(69.77)

(39.00)

(5.77)

43.64

EPS - basic reported (€)

 

 

(0.12)

(0.81)

(0.48)

(0.15)

0.35

Dividend per share (c)

0.00

0.00

0.00

0.00

0.00

Revenue growth (%)

6.4

33.4

22.3

15.6

23.9

EBITDA Margin (%)

12.6

3.5

7.6

12.7

17.9

Normalised Operating Margin (%)

2.2

(8.8)

(4.4)

2.0

9.3

BALANCE SHEET

Fixed Assets

 

 

39,007

168,468

167,204

176,653

184,875

Intangible Assets

31,016

160,386

159,479

171,821

182,585

Tangible Assets

7,216

7,351

6,345

3,845

1,345

Investments & other

775

731

1,380

987

945

Current Assets

 

 

17,086

18,369

8,435

4,221

3,738

Stocks

0

0

0

0

0

Debtors

3,923

7,018

8,416

9,532

11,814

Cash & cash equivalents

12,074

8,653

(2,728)

(8,057)

(10,823)

Other

1,089

2,697

2,747

2,747

2,747

Current Liabilities

 

 

(12,381)

(89,171)

(47,071)

(34,558)

(29,278)

Creditors

(2,747)

(3,197)

(3,227)

(3,717)

(4,283)

Tax and social security

(56)

(214)

(552)

(638)

(791)

Short term borrowings (includes lease debt)

(3,278)

(73,095)

(27,756)

(24,756)

(18,756)

Other

(6,300)

(12,665)

(15,536)

(5,448)

(5,449)

Long Term Liabilities

 

 

(10,768)

(27,426)

(22,438)

(22,438)

(22,439)

Long term borrowings (includes lease debt)

(7,641)

(9,927)

(7,423)

(7,423)

(7,423)

Other long-term liabilities

(3,127)

(17,499)

(15,015)

(15,015)

(15,016)

Net Assets

 

 

32,943

70,240

106,131

123,879

136,896

Minority interests

0

0

0

0

0

Shareholders' equity

 

 

32,943

70,240

106,131

123,879

136,896

CASH FLOW

Operating Cash Flow

3,765

(1,306)

2,053

5,426

10,376

Working capital

1,294

(1,149)

(1,369)

(625)

(1,716)

Exceptional & other

1,037

4,721

659

1,627

3,459

Tax

(154)

(229)

2,296

730

(1,708)

Operating Cash Flow

 

 

5,942

2,037

3,639

7,158

10,411

Capex

(2,008)

(3,149)

(3,250)

(3,250)

(3,250)

Acquisitions/disposals

0

(96,428)

(1,608)

(2,310)

0

Net interest

(157)

(1,636)

0

0

0

Equity financing

9,124

43,929

39,104

0

0

Dividends

0

0

0

0

0

Other

414

(2,772)

(3,927)

(3,927)

(3,927)

Net Cash Flow

13,315

(58,019)

33,958

(2,329)

3,234

Opening net debt/(cash)

 

 

13,472

(1,153)

74,372

37,910

40,240

FX

(199)

126

0

0

0

Other non-cash movements

1,509

(17,631)

2,504

0

0

Closing net debt/(cash)

 

 

(1,153)

74,372

37,910

40,240

37,007

Source: Company 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.

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.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

More on EQS Group

View All

Latest from the TMT sector

View All TMT content

Research: Healthcare

Pixium Vision — End of ESGO arrangement comes as no surprise

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.

Continue Reading
Pixium-Vision_resized

Subscribe to Edison

Get access to the very latest content matched to your personal investment style.

Sign up for free