EQS Group — German whistleblowing law set for end Q3

EQS Group (SCALE: EQS)

Last close As at 23/05/2024

40.80

−0.40 (−0.97%)

Market capitalisation

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Research: TMT

EQS Group — German whistleblowing law set for end Q3

The long and frustrating wait for the EU directive on whistleblowing to be passed into law in Germany should finally end in late September and we would expect EQS to have a very busy final quarter. The delays mean management is now guiding to the lower end of the cited revenue range of €65–70m and EBITDA range of €6–10m and we have adjusted our model to reflect this. We have left our FY23 estimates for revenue and EBITDA unchanged for now and are publishing our first thoughts on FY24. H122 revenues were up 33% (11% organic) but the EBITDA margin remains suppressed by the additional costs being carried.

Fiona Orford-Williams

Written by

Fiona Orford-Williams

Director, TMT

TMT

EQS Group

German whistleblowing law set for end Q3

H121 results

Software and comp services

15 August 2022

Price

€29.9

Market cap

€300m

Net debt (€m) at 30 June 22 (excluding lease liabilities)

31.1

Shares in issue

10.0m

Free float

78.4%

Code

E1SX

Primary exchange

XETRA

Secondary exchange

FRA

Share price performance

%

1m

3m

12m

Abs

(5.4)

(0.7)

(24.2)

Rel (local)

(11.5)

(1.1)

(12.5)

52-week high/low

€47.00

€28.80

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

Q322 results

11 November 2022

Analyst

Fiona Orford-Williams

+44 (0)20 3077 5739

EQS Group is a research client of Edison Investment Research Limited

The long and frustrating wait for the EU directive on whistleblowing to be passed into law in Germany should finally end in late September and we would expect EQS to have a very busy final quarter. The delays mean management is now guiding to the lower end of the cited revenue range of €65–70m and EBITDA range of €6–10m and we have adjusted our model to reflect this. We have left our FY23 estimates for revenue and EBITDA unchanged for now and are publishing our first thoughts on FY24. H122 revenues were up 33% (11% organic) but the EBITDA margin remains suppressed by the additional costs being carried.

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

69.5

N/A

12/21

50.2

1.7

(5.9)

(0.70)

189.9

N/A

12/22e

66.0

6.0

(5.0)

(0.34)

55.1

N/A

12/23e

90.0

18.0

8.2

0.53

18.4

56.0

12/24e

110.0

27.0

17.4

1.13

12.3

26.4

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Waiting for pipeline to convert to sales

H122 revenues were €29.9m (+33% on H121), reflecting strong demand in the Compliance segment (up 60% and at 67% of H122 group revenues) as sales of whistleblowing software built across countries where the legislation is already in force. Business Keeper, consolidated from H221, contributed €5.2m of revenue. Annual recurring revenue was ahead by 13.5% and is now 88% of group revenue, up from 83% in H121. Investor Relations revenues were affected by the dearth of IPOs in the period, slipping 2% over the prior year. With personnel costs up to cope with expected demand, group EBITDA was 14% lower, in line with guidance. Higher amortisation post FY21’s acquisitions meant a larger fall in EBIT year-on-year. As the time for companies to comply with the law approaches, this short-term imbalance should correct as the group scales.

On track for FY25e targets

The whistleblowing opportunity is substantial and was described in detail in our June Outlook report. Management’s medium-term guidance is for FY25e revenues of €125–135m, delivering an EBITDA margin of around 30%. Despite the current delays, this looks demanding but achievable, based on a CAGR of 22% for Compliance and 12% for Investor Relations.

Valuation: DCF indicates meaningful upside

EQS’s share price has fallen 33% since the start of the year, while financial B2B company valuations have dropped 20% (excluding Euromoney, subject to a bid) and those of application software companies by 23%. EQS’s profitability remains subdued, so traditional valuation multiples are unhelpful. For our DCF, on a WACC of 9% and terminal growth of 2% (unchanged), we derive a value of €47.73/share (June 2022: €47.66), which is well above the current market price.

Exhibit 1: Financial summary

€'000s

2020

2021

2022e

2023e

2024e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

37,636

50,223

66,000

90,000

110,000

Cost of Sales

0

0

0

0

0

Gross Profit

37,636

50,223

66,000

90,000

110,000

EBITDA

 

 

4,760

1,742

6,000

18,000

27,000

Operating Profit (before amort. and excepts.)

 

 

819

(4,417)

(2,065)

9,935

18,935

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)

(3,415)

8,585

17,585

Net Interest

(396)

(1,461)

(2,914)

(1,703)

(1,490)

Joint ventures & associates (post tax)

0

0

0

0

0

Exceptionals

0

0

0

0

0

Profit Before Tax (norm)

 

 

423

(5,878)

(4,979)

8,232

17,445

Profit Before Tax (reported)

 

 

(233)

(6,858)

(6,329)

6,882

16,095

Reported tax

(599)

229

2,215

(2,409)

(5,633)

Profit After Tax (norm)

296

(5,682)

(3,237)

5,351

11,339

Profit After Tax (reported)

(832)

(6,629)

(4,114)

4,473

10,462

Minority interests

(34)

0

0

0

0

Discontinued operations

0

0

0

0

0

Net income (normalised)

296

(5,682)

(3,237)

5,351

11,339

Net income (reported)

(866)

(6,629)

(4,114)

4,473

10,462

Average Number of Shares Outstanding (m)

7.2

8.1

9.6

10.0

10.0

EPS - normalised (€)

 

 

0.04

(0.70)

(0.34)

0.53

1.13

EPS - normalised fully diluted (€)

 

 

0.04

(0.70)

(0.34)

0.53

1.13

EPS - basic reported (€)

 

 

(0.12)

(0.81)

(0.43)

0.45

1.04

Dividend per share (c)

0.00

0.00

0.00

0.00

0.00

Revenue growth (%)

6.4

33.4

31.4

36.4

22.2

EBITDA Margin (%)

12.6

3.5

9.1

20.0

24.5

Normalised Operating Margin (%)

2.2

(8.8)

(3.1)

11.0

17.2

BALANCE SHEET

Fixed Assets

 

 

39,007

168,468

166,503

175,445

183,160

Intangible Assets

31,016

160,386

159,479

171,821

182,585

Tangible Assets

7,216

7,351

5,644

2,637

(370)

Investments & other

775

731

1,380

987

945

Current Assets

 

 

17,086

18,369

16,560

20,608

25,984

Stocks

0

0

0

0

0

Debtors

3,923

7,018

9,041

12,082

14,767

Cash & cash equivalents

12,074

8,653

4,772

5,779

8,470

Other

1,089

2,697

2,747

2,747

2,747

Current Liabilities

 

 

(12,381)

(89,171)

(47,666)

(38,468)

(39,102)

Creditors

(2,747)

(3,197)

(3,380)

(4,270)

(4,903)

Tax and social security

(56)

(214)

(552)

(552)

(552)

Short term borrowings (includes lease debt)

(3,278)

(73,095)

(28,198)

(28,198)

(28,198)

Other

(6,300)

(12,665)

(15,536)

(5,448)

(5,449)

Long Term Liabilities

 

 

(10,768)

(27,426)

(22,438)

(21,438)

(13,939)

Long term borrowings (includes lease debt)

(7,641)

(9,927)

(7,423)

(6,423)

1,077

Other long term liabilities

(3,127)

(17,499)

(15,015)

(15,015)

(15,016)

Net Assets

 

 

32,943

70,240

112,959

136,147

156,103

Minority interests

0

0

0

0

0

Shareholders' equity

 

 

32,943

70,240

112,959

136,147

156,103

CASH FLOW

Operating Cash Flow

3,765

(1,306)

3,301

11,888

17,877

Working capital

1,294

(1,149)

(1,840)

(2,150)

(2,052)

Exceptional & other

1,037

4,721

751

4,165

7,177

Tax

(154)

(229)

2,215

(2,409)

(5,633)

Operating Cash Flow

 

 

5,942

2,037

4,427

11,494

17,369

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

45,374

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)

41,016

2,007

10,192

Opening net debt/(cash)

 

 

13,472

(1,153)

74,372

30,852

28,846

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

30,852

28,846

18,655

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 2022 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 2022 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

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