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Last close As at 24/03/2023
EUR21.50
▲ −0.10 (−0.46%)
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EUR217m
Research: TMT
Progress of whistleblowing legislation through the German Bundestag has been slower than hoped, with transposition now likely in December, with a three-month implementation period. This delay means that management is now guiding to FY22e revenue growth of 25%, with EBITDA of €6.0m (was €6–10m). The EBITDA figure is in line with our forecast, despite the lower revenue (€3.2m below) reflecting a degree of flexibility on costs. The underlying boost from legislation coming into force across Europe remains a strong positive from FY23. EQS reported 9M22 revenue growth of 27% (10% organic), with 702 new SaaS customers signed up, including 555 for whistleblowing.
EQS Group |
German whistleblowing law now before year end |
Q3 results |
Software & comp services |
15 November 2022 |
Share price performance
Business description
Next events
Analysts
EQS Group is a research client of Edison Investment Research Limited |
Progress of whistleblowing legislation through the German Bundestag has been slower than hoped, with transposition now likely in December, with a three-month implementation period. This delay means that management is now guiding to FY22e revenue growth of 25%, with EBITDA of €6.0m (was €6–10m). The EBITDA figure is in line with our forecast, despite the lower revenue (€3.2m below) reflecting a degree of flexibility on costs. The underlying boost from legislation coming into force across Europe remains a strong positive from FY23. EQS reported 9M22 revenue growth of 27% (10% organic), with 702 new SaaS customers signed up, including 555 for whistleblowing.
Year end |
Revenue |
EBITDA |
PBT* |
EPS* |
EV/EBITDA |
P/E |
12/20 |
37.6 |
4.8 |
0.4 |
0.04 |
56.2 |
573.2 |
12/21 |
50.2 |
1.7 |
(5.9) |
(0.70) |
153.5 |
N/A |
12/22e |
62.8 |
6.0 |
(4.3) |
(0.30) |
44.6 |
N/A |
12/23e |
86.5 |
17.5 |
7.6 |
0.51 |
15.3 |
46.2 |
12/24e |
107.0 |
27.0 |
17.7 |
1.19 |
9.9 |
19.9 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Compliance segment drives growth
Revenues from cloud-based compliance products, which comprise roughly half of 9M22 group revenues and include the whistleblowing products, were ahead 73% on 9M21 (+29% adjusting for the base effect of Business Keeper). This is without the stimulus of the German legislation coming into force, now expected in December. Sales through partners are yet to fully kick in, although the pipeline is building encouragingly. Compliance cloud service 9M revenues (18% of group) were up 6%, boosted by the European Single Electronic Format Regulation requirements in filing. On the Investor Relations side, cloud products revenues (16% of group) grew 9% as subscriptions built on the COCKPIT platform. However, cloud service revenues (16% of group) were down 11%, reflecting the complete absence of IPOs.
Refinancing agreed
EQS bought Business Keeper for €95m in June 2021, assisted by an acquisition loan of €50m from Commerzbank. Half of this was repaid with the proceeds of the subscription fund-raising in Q122 (at €33.0/share). The remainder has now been refinanced over five years, and extended by a further €5m, with Deutsche Bank and Kreissparkasse Biberach added to the banking consortium. Interest is at Euribor plus a margin, which varies with leverage and achievement of sustainability objectives. Repayments will be in equal instalments starting mid-2023.
Valuation: DCF indicates meaningful upside
EQS’s share price is down 47% year-to-date, while valuations of financial B2B companies have fallen 30% (excluding Euromoney, subject to a bid) and application software companies by 36%. With traditional valuation multiples unhelpful, we use a DCF, with a WACC of 9% and terminal growth of 2% (unchanged), deriving a value of €41.29/share (August 2022: €47.73), well above the current market price.
Key growth indicators show scale of progress
Looking at the quarterly figures shows the frustration inherent in the timing slippage of legislative transposition, which had been expected for Q322 for Germany. Other countries within the EU have also suffered delays, but the German market is the most significant within the EU and particularly so for EQS, for which it is the home market. Only Denmark succeeded in timely transposition of the law, with delays in France stemming from not obtaining Presidential decree until October.
Although the revenue line effectively stalled in Q322; the amount of new recurring revenue recorded of €5.54m was €1.99m ahead of the end H122 figure. The previous full year guidance was for this to build to between €11m and €16m, dependent on when the law finally took effect. Following these further delays, management has reduced this figure to €9m for the year.
Exhibit 1: Growth in key figures
€000s |
Q122 |
Q222 |
Q322 |
9M22 y-o-y change (%) |
Total revenue |
14,115 |
15,802 |
15,051 |
+27 |
Compliance |
||||
Cloud-products |
7,190 |
7,560 |
7,520 |
+73 |
Cloud-services |
2,120 |
3,240 |
2,760 |
+6 |
Investor Relations |
||||
Cloud-products |
2,560 |
2,460 |
2,470 |
+9 |
Cloud-services |
2,250 |
2,540 |
2,300 |
-11 |
New annual recurring revenue |
1,810 |
3,550 |
5,540 |
|
Operating expenses |
(14,582) |
(15,578) |
(14,281) |
+26 |
EBITDA |
252 |
891 |
1,400 |
+12 |
Margin |
2% |
6% |
9% |
|
EBIT |
(1,766) |
(1,141) |
(653) |
|
Group earnings |
(971) |
(818) |
(354) |
|
Operating cash flow |
879 |
(1,301) |
1,654 |
+107 |
Equity ratio (%) |
50 |
62 |
62 |
|
SaaS customers |
4,405 |
4,591 |
4,786 |
+25 |
Source: EQS Group accounts, Edison Investment Research
Recurring revenues across the board now account for 88% of group revenues, reflecting the build up in cloud-based subscription products.
The Compliance cloud-based products growth is being driven by whistleblowing, as described above. The progress in cloud-based services of 26% growth January to September 2022 over prior year is higher than we might have anticipated, supported by new European Single Electronic Filing regulation and continued demand for legal entity identifier issuance.
Trim to revenue forecast, EBITDA intact
We were previously forecasting group revenues of €66.0m for FY22, which was equivalent to year-on-year growth of 31%. Revised guidance is for revenue growth of 25%, which equates to €62.8m. We have assumed some knock on to FY23e, where we reduce our revenue forecast from €90.0m to €86.5m, with year-on-year growth of 38% (was +36%) reflecting demand from Germany picking up.
Operating expenses were up by 33% in H122 over H121, with Business Keeper consolidated from mid-July 202, so ‘lapped’ in Q322. Personnel expenses make up the bulk of operating costs (65% of 9M22). Management guidance is now for FY22 EBITDA of €6.0m, as we had previously modelled, at the bottom end of the previously guided range of €6–10m. For FY23e, we now look for EBITDA of €17.5m, a small reduction from our earlier figure of €18.0m.
Exhibit 2: Financial summary
€'000s |
2020 |
2021 |
2022e |
2023e |
2024e |
||
Year end 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
INCOME STATEMENT |
|||||||
Revenue |
|
|
37,636 |
50,223 |
62,800 |
86,500 |
107,000 |
Cost of Sales |
0 |
0 |
0 |
0 |
0 |
||
Gross Profit |
37,636 |
50,223 |
62,800 |
86,500 |
107,000 |
||
EBITDA |
|
|
4,760 |
1,742 |
6,000 |
17,500 |
27,000 |
Operating Profit (before amort. and excepts.) |
|
|
819 |
(4,417) |
(1,364) |
9,942 |
19,442 |
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) |
(2,714) |
8,592 |
18,092 |
||
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) |
(4,267) |
7,637 |
17,745 |
Profit Before Tax (reported) |
|
|
(233) |
(6,858) |
(5,617) |
6,287 |
16,395 |
Reported tax |
(599) |
229 |
1,854 |
(2,075) |
(5,410) |
||
Profit After Tax (norm) |
296 |
(5,682) |
(2,859) |
5,117 |
11,889 |
||
Profit After Tax (reported) |
(832) |
(6,629) |
(3,763) |
4,212 |
10,985 |
||
Minority interests |
(34) |
0 |
0 |
0 |
0 |
||
Discontinued operations |
0 |
0 |
0 |
0 |
0 |
||
Net income (normalised) |
296 |
(5,682) |
(2,859) |
5,117 |
11,889 |
||
Net income (reported) |
(866) |
(6,629) |
(3,763) |
4,212 |
10,985 |
||
Average Number of Shares Outstanding (m) |
7.2 |
8.1 |
9.6 |
10.0 |
10.0 |
||
EPS - normalised (€) |
|
|
0.04 |
(0.70) |
(0.30) |
0.51 |
1.19 |
EPS - normalised fully diluted (€) |
|
|
4.12 |
(0.70) |
(0.30) |
0.51 |
1.19 |
EPS - basic reported (€) |
|
|
(0.12) |
(0.81) |
(0.39) |
0.42 |
1.10 |
Dividend per share (c) |
0.00 |
0.00 |
0.00 |
0.00 |
0.00 |
||
Revenue growth (%) |
6.4 |
33.4 |
25.0 |
37.7 |
23.7 |
||
EBITDA Margin (%) |
12.6 |
3.5 |
9.6 |
20.2 |
25.2 |
||
Normalised Operating Margin (%) |
2.2 |
(8.8) |
(2.2) |
11.5 |
18.2 |
||
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 |
9,334 |
11,195 |
18,295 |
Stocks |
0 |
0 |
0 |
0 |
0 |
||
Debtors |
3,923 |
7,018 |
8,603 |
11,612 |
14,364 |
||
Cash & cash equivalents |
12,074 |
8,653 |
(2,016) |
(3,164) |
1,184 |
||
Other |
1,089 |
2,697 |
2,747 |
2,747 |
2,747 |
||
Current Liabilities |
|
|
(12,381) |
(89,171) |
(47,072) |
(35,062) |
(29,876) |
Creditors |
(2,747) |
(3,197) |
(3,228) |
(4,098) |
(4,731) |
||
Tax and social security |
(56) |
(214) |
(552) |
(760) |
(941) |
||
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 |
107,029 |
130,349 |
150,856 |
Minority interests |
0 |
0 |
0 |
0 |
0 |
||
Shareholders' equity |
|
|
32,943 |
70,240 |
107,029 |
130,349 |
150,856 |
|
|||||||
CASH FLOW |
|||||||
Operating Cash Flow |
3,765 |
(1,306) |
2,951 |
11,121 |
17,893 |
||
Working capital |
1,294 |
(1,149) |
(1,554) |
(2,140) |
(2,119) |
||
Exceptional & other |
1,037 |
4,721 |
1,101 |
4,432 |
7,161 |
||
Tax |
(154) |
(229) |
1,854 |
(2,075) |
(5,410) |
||
Operating Cash Flow |
|
|
5,942 |
2,037 |
4,352 |
11,339 |
17,524 |
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) |
34,671 |
1,852 |
10,347 |
||
Opening net debt/(cash) |
|
|
13,472 |
(1,153) |
74,372 |
37,198 |
35,347 |
FX |
(199) |
126 |
0 |
0 |
0 |
||
Other non-cash movements |
1,509 |
(17,631) |
2,504 |
0 |
1 |
||
Closing net debt/(cash) |
|
|
(1,153) |
74,372 |
37,198 |
35,347 |
25,000 |
Source: Company accounts, Edison Investment Research
|
|
Research: Investment Companies
HgCapital Trust (HGT) posted a 2.3% increase in NAV per share total return (TR) in Q322, as positive earnings growth across the portfolio over the last 12 months (LTM) again outweighed multiple contraction. Despite the latter, the average EV/LTM EBITDA across HGT’s top 20 holdings stands at 28.8x vs 27.4x at end-2021 (see our previous note for a discussion on HGT’s valuations). The weaker global economy and tightening credit conditions weigh on both HGT’s near-term portfolio performance outlook and private equity deal activity. Still, the secular digitalisation trend remains intact with, as Gartner forecasted in October 2022, growth in global software and IT services spending of 11.3% and 7.9% in 2023, respectively. HGT’s shares trade at a 18% discount to NAV, while they traded close to NAV in 2021.
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