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Research: TMT
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.
EQS Group |
German whistleblowing law set for end Q3 |
H121 results |
Software and comp services |
15 August 2022 |
Share price performance
Business description
Next events
Analyst
EQS Group is a research client of Edison Investment Research Limited |
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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 |
EBITDA |
PBT* |
EPS* |
EV/EBITDA |
P/E |
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
|
|
Research: Healthcare
Context Therapeutics’ Q222 results provided an update on the company’s operating performance and pipeline. Operating losses of $4.0m, increased from $3.4m in Q122, largely due to the $500k milestone payment to Integral Molecular for its Claudin 6 program. R&D expenses were in line with the previous quarters ($1.5m) but we expect them to increase in H222 as the company progresses its clinical pipeline. Operating cash burn rate of $2.8m resulted in Q222 net cash of $42.9m, which we estimate to fund operations through Q423 (based on our projected FY22e and FY23e burn rates of $17.6m and $33.2m, respectively). The fourth quarter is anticipated to be catalyst rich, with three of the four ongoing clinical readouts in Q422 (earlier mid-2022) and the commencement of the combination trial with elacestrant (in Q4). Factoring in the current net cash position, our valuation reduces to $148.2m ($9.28/share) from $151m previously.