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Research: TMT
Esker continued to make good progress in Q223, with constant currency (cc) year-on-year revenue growth of 15% (the same as in Q123). Order intake on an annual recurring revenue (ARR) basis was 14% higher cc for Q223 and 18% higher for H123. The company narrowed its organic cc revenue growth guidance for FY23 to the upper end of the previous range (now 14–15%) and maintained its operating margin expectations. We maintain our revenue and EPS forecasts and raise our dividend forecasts.
Esker |
Growth momentum maintained in Q223 |
Q223 revenue update |
Software and comp services |
20 July 2023 |
Share price performance
Business description
Next events
Analyst
Esker is a research client of Edison Investment Research Limited |
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Esker continued to make good progress in Q223, with constant currency (cc) year-on-year revenue growth of 15% (the same as in Q123). Order intake on an annual recurring revenue (ARR) basis was 14% higher cc for Q223 and 18% higher for H123. The company narrowed its organic cc revenue growth guidance for FY23 to the upper end of the previous range (now 14–15%) and maintained its operating margin expectations. We maintain our revenue and EPS forecasts and raise our dividend forecasts.
Year end |
Revenue |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/21 |
133.6 |
18.0 |
2.37 |
0.60 |
62.7 |
0.4 |
12/22 |
159.0 |
23.4 |
3.03 |
0.75 |
49.0 |
0.5 |
12/23e |
180.1 |
24.2 |
3.01 |
0.80 |
49.3 |
0.5 |
12/24e |
205.4 |
28.7 |
3.52 |
0.85 |
42.2 |
0.6 |
Note: *PBT and EPS are normalised and fully diluted, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Another record revenue quarter
Esker reported Q223 revenue of €45.1m, up by 13% y-o-y or 15% cc. H123 revenue of €87.9m was up by 16% y-o-y cc. SaaS was the main driver of growth, making up 82% of revenue and growing by 20% y-o-y cc in Q223 and H123. Transaction volumes remained resilient during H123 after a weaker period in H222. Implementation revenue growth was lower (Q2 +12% cc, H1 +10% cc) due to the increasing proportion of projects being implemented by partners. Order intake was strong during the quarter (ARR +14% cc y-o-y); the company signed several contracts via OEM relationships and widened the payment options available in the US to include virtual cards (vCards). Esker has positioned itself to support customers adopting the new e-invoicing requirements in France and we believe this could lead to stronger order intake in France from H223.
Tightening the guidance range for FY23
After strong underlying revenue and bookings growth in H123, management has tightened its cc revenue growth guidance for FY23 to the upper end of the previous range (from 13–15% to 14–15%) and maintained its operating margin guidance. We maintain our revenue and EPS forecasts for FY23 and FY24 (a small increase in cc revenue is offset by the effect of the stronger euro versus the US dollar) and have increased our dividend forecasts after a higher-than-expected dividend for FY22 was announced in June.
Valuation: Reflects profitable growth strategy
Based on EV/sales and P/E ratios, the stock continues to trade at a premium to French software peers (CY P/E c 36x), we believe due to its high level of recurring revenue, history of and potential for double-digit profitable growth and strong balance sheet, and at a discount to US SaaS peers (CY P/E c 77x). With net cash of €32.5m at the end of H123, the company is well-funded to take advantage of opportunities to make bolt-on acquisitions, which in the current environment may become more affordable.
Q2 revenue update
In Exhibit 1, we summarise the revenue performance for Q223 and H123. SaaS revenue continued to grow strongly, at 20% on an organic cc basis for both Q223 and H123. Esker noted that transaction volumes have been resilient so far this year after a weaker period in H222. Implementation services revenue was 12% higher y-o-y (cc) for Q223 and 10% higher for H123; as we have written before, growth lags SaaS revenue due to the increasing percentage of projects implemented by partners (the company estimates a two-thirds/one-third split for Esker/partners). Legacy products declined by more than half in Q223 and now make up less than 2% of group revenue.
Exhibit 1: Quarterly and half-yearly revenue and bookings
€m |
Q223 |
Q222 |
y-o-y reported |
y-o-y organic cc |
H123 |
H122 |
y-o-y reported |
y-o-y organic cc |
Revenue |
||||||||
SaaS |
37.2 |
31.5 |
18% |
20% |
72.5 |
60.8 |
19% |
20% |
Implementation services |
7.0 |
6.4 |
11% |
12% |
13.4 |
12.2 |
10% |
10% |
Legacy products |
0.9 |
1.9 |
-53% |
-53% |
2.0 |
3.3 |
-39% |
-39% |
Total revenue |
45.1 |
39.8 |
13% |
15% |
87.9 |
76.3 |
15% |
16% |
Bookings |
||||||||
ARR |
4.6 |
4.0 |
15% |
14% |
9.0 |
7.8 |
15% |
18% |
Source: Esker
Revenue growth was 15% for Europe and 16% for the US in Q223. Esker noted that revenue growth in Asia-Pacific was lower at 8% y-o-y cc (Q2 and H223) but that demand improved in May and June and should be stronger for the remainder of the year.
Bookings on an ARR basis were 14% higher y-o-y cc in Q223 and 18% higher for H123. Orders for source-to-pay solutions made up more than half of the intake followed by accounts receivable. At the end of H123, the company had a potential sales pipeline of €184m, up by 25% y-o-y, with roughly half for source-to-pay solutions and the remainder split equally between customer service and accounts receivable solutions.
While bookings intake in France remained weak compared to other geographies, it improved compared to Q123, up by 6% q-o-q. Customers in France continue to consider the best way to implement the upcoming e-invoicing requirements, which will come into force on 1 July 2024. Esker has applied for a plateforme de dématérialisation partenaire (PDP) and pilot programme registration with the General Directorate of Public Finances in France (DGFiP); the DGFiP will decide this by the end of 2023. A PDP will be responsible for receiving and transmitting invoices, checking them, extracting data and ensuring e-reporting of VAT data. Esker has also set up a group of volunteer companies to take part in a pilot programme organised by the DGFiP, which will start at the beginning of 2024 and will carry out the first exchanges with the government’s public invoicing platform.
At the end of H123, the company had net cash of €32.5m (gross cash €45.2m, debt €12.7m).
Business update
During H123, the company continued to be recognised by market analysts and was named a Leader in the 2023 Gartner Magic Quadrant for Integrated Invoice-to-Cash Applications, a Market Leader in Ardent Partners’ 2023 ePayables Technology Advisor and as a Technology Leader in the SPARK Matrix: Accounts Receivable Applications 2023.
From a technology perspective, the company has enhanced its customer service solution suite with ChatGPT and was awarded a US patent for machine learning data extraction.
Notable contracts signed during the quarter include:
■
Two deals signed through a US OEM, Commerce Bank.
■
An OEM deal signed with Forterro, a French enterprise resource planning software supplier focused on industrial companies. Esker will supply the e-invoicing component of the software.
■
Five deals signed that use the Microsoft Dynamics 365 Finance & Operations connector.
■
First accounts receivable deal signed supporting vCard payment (virtual credit cards) via Boost, a B2B payments solution provider.
In May, the company announced changes to its corporate governance. It expanded the executive committee with two new members, Nicolas Mougin, director of international support and Consulting Services, and Ari Widlansky, director of global strategic alliances. It promoted Claire Valencony to deputy director of global operations in collaboration with Emmanuel Olivier, current COO. The company has also created an associate executive committee to develop future management.
Outlook and changes to forecasts
The company narrowed its organic growth revenue forecast, from 13–15% to 14–15% (mid-point raised by 0.5pp), and maintained its operating margin guidance of 12–14% for FY23. We have revised up our underlying revenue forecasts slightly (from 14% to 15%), although, on a reported basis, this has been offset by a slight strengthening of the euro versus the US dollar. Overall, we maintain our revenue and EPS forecasts. At the end of June, the company announced a €0.75 dividend for FY22, significantly higher than our €0.65 estimate. It also continues to pay a 10% higher dividend to shareholders who have held the shares for at least two years. We have raised our dividend forecasts for FY23 and FY24.
Exhibit 2: Changes to forecasts
€m |
FY23e old |
FY23e new |
change |
y-o-y |
FY24e old |
FY24e new |
change |
y-o-y |
Revenues |
180.1 |
180.1 |
0.0% |
13.3% |
205.4 |
205.4 |
0.0% |
14.0% |
EBITDA |
33.9 |
33.9 |
0.0% |
6.7% |
39.7 |
39.7 |
(0.0%) |
17.0% |
EBITDA margin |
18.8% |
18.8% |
(0.0%) |
(1.2%) |
19.3% |
19.3% |
(0.0%) |
0.5% |
Normalised EBIT |
22.5 |
22.5 |
0.0% |
3.8% |
27.0 |
27.0 |
(0.0%) |
19.9% |
Normalised EBIT margin |
12.5% |
12.5% |
(0.0%) |
(1.1%) |
13.1% |
13.1% |
(0.0%) |
0.6% |
Reported EBIT |
22.2 |
22.2 |
0.0% |
3.8% |
26.7 |
26.7 |
(0.0%) |
20.1% |
Reported EBIT margin |
12.3% |
12.3% |
(0.0%) |
(1.1%) |
13.0% |
13.0% |
(0.0%) |
0.7% |
Normalised PBT |
24.2 |
24.2 |
0.0% |
3.1% |
28.7 |
28.7 |
(0.0%) |
18.7% |
Normalised net income |
18.4 |
18.4 |
0.0% |
0.4% |
21.8 |
21.8 |
(0.0%) |
18.7% |
Reported net income |
18.2 |
18.2 |
0.0% |
1.7% |
21.6 |
21.6 |
(0.0%) |
18.9% |
Normalised diluted EPS (€) |
3.01 |
3.01 |
0.0% |
(0.6%) |
3.52 |
3.52 |
(0.0%) |
16.8% |
Reported basic EPS (€) |
3.08 |
3.08 |
0.0% |
1.7% |
3.60 |
3.60 |
(0.0%) |
16.9% |
Reported diluted EPS (€) |
2.98 |
2.98 |
0.0% |
0.7% |
3.49 |
3.49 |
(0.0%) |
17.0% |
Net cash |
41.6 |
40.9 |
(1.5%) |
25.4% |
51.5 |
50.3 |
(2.4%) |
22.8% |
DPS (€) |
0.70 |
0.80 |
14.3% |
6.7% |
0.75 |
0.85 |
13.3% |
6.3% |
Source: Edison Investment Research
Exhibit 3: Financial summary
€'000s |
2018 |
2019 |
2020 |
2021 |
2022 |
2023e |
2024e |
||||
Year end 31 December |
French GAAP |
French GAAP |
French GAAP |
French GAAP |
French GAAP |
French GAAP |
French GAAP |
||||
PROFIT & LOSS |
|||||||||||
Revenue |
|
|
86,871 |
104,188 |
112,274 |
133,580 |
158,987 |
180,145 |
205,429 |
||
EBITDA |
|
|
18,279 |
20,054 |
21,927 |
25,653 |
31,802 |
33,933 |
39,700 |
||
Operating Profit (before amort and except) |
|
|
11,955 |
12,843 |
14,037 |
16,844 |
21,672 |
22,496 |
26,963 |
||
Amortisation of acquired intangibles |
(344) |
(425) |
(425) |
(263) |
(263) |
(263) |
(263) |
||||
Exceptionals and other income |
(88) |
(62) |
0 |
0 |
0 |
0 |
0 |
||||
Other income |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||||
Operating Profit |
11,523 |
12,356 |
13,612 |
16,581 |
21,409 |
22,233 |
26,700 |
||||
Net Interest |
(57) |
268 |
(67) |
202 |
272 |
125 |
125 |
||||
Profit Before Tax (norm) |
|
|
12,215 |
13,634 |
14,462 |
18,048 |
23,441 |
24,171 |
28,688 |
||
Profit Before Tax (FRS 3) |
|
|
11,783 |
13,147 |
14,528 |
18,188 |
22,879 |
23,908 |
28,425 |
||
Tax |
(2,940) |
(3,402) |
(2,966) |
(3,907) |
(5,015) |
(5,738) |
(6,822) |
||||
Profit After Tax (norm) |
9,168 |
10,106 |
11,509 |
14,171 |
18,303 |
18,370 |
21,803 |
||||
Profit After Tax (FRS 3) |
8,843 |
9,745 |
11,562 |
14,281 |
17,864 |
18,170 |
21,603 |
||||
Ave. Number of Shares Outstanding (m) |
5.4 |
5.4 |
5.7 |
5.8 |
5.9 |
5.9 |
6.0 |
||||
EPS - normalised (c) |
|
|
170 |
186 |
203 |
242 |
310 |
312 |
364 |
||
EPS - normalised fully diluted (c) |
|
|
165 |
179 |
199 |
237 |
303 |
301 |
352 |
||
EPS - (GAAP) (c) |
|
|
164 |
180 |
204 |
244 |
303 |
308 |
360 |
||
Dividend per share (c) |
41 |
33 |
50 |
60 |
75 |
80 |
85 |
||||
Gross margin (%) |
N/A |
N/A |
N/A |
N/A |
N/A |
N/A |
N/A |
||||
EBITDA Margin (%) |
21.0 |
19.2 |
19.5 |
19.2 |
20.0 |
18.8 |
19.3 |
||||
Operating Margin (before GW and except) (%) |
13.8 |
12.3 |
12.5 |
12.6 |
13.6 |
12.5 |
13.1 |
||||
BALANCE SHEET |
|||||||||||
Fixed Assets |
|
|
39,635 |
47,201 |
48,987 |
57,229 |
71,650 |
75,600 |
79,200 |
||
Intangible Assets |
28,096 |
29,323 |
30,787 |
33,644 |
47,651 |
50,151 |
52,151 |
||||
Tangible Assets |
7,050 |
10,434 |
10,036 |
9,896 |
8,986 |
8,886 |
8,886 |
||||
Other |
4,489 |
7,444 |
8,164 |
13,689 |
15,013 |
16,563 |
18,163 |
||||
Current Assets |
|
|
49,016 |
52,022 |
72,918 |
71,534 |
90,671 |
103,138 |
119,555 |
||
Stocks |
147 |
185 |
257 |
341 |
512 |
512 |
512 |
||||
Debtors |
25,551 |
30,015 |
31,440 |
35,548 |
46,158 |
50,342 |
57,408 |
||||
Cash |
22,794 |
21,357 |
40,421 |
34,978 |
42,887 |
51,170 |
60,522 |
||||
Other |
524 |
465 |
800 |
667 |
1,114 |
1,114 |
1,114 |
||||
Current Liabilities |
|
|
(30,072) |
(34,300) |
(50,150) |
(45,872) |
(45,533) |
(48,382) |
(51,787) |
||
Creditors |
(30,072) |
(34,300) |
(38,650) |
(44,703) |
(45,533) |
(48,382) |
(51,787) |
||||
Short term borrowings |
0 |
0 |
(11,500) |
(1,169) |
0 |
0 |
0 |
||||
Long Term Liabilities |
|
|
(10,810) |
(8,276) |
(6,342) |
(2,497) |
(18,148) |
(18,148) |
(18,148) |
||
Long term borrowings |
(9,318) |
(6,516) |
(3,644) |
0 |
(15,034) |
(15,034) |
(15,034) |
||||
Other long term liabilities |
(1,492) |
(1,760) |
(2,698) |
(2,497) |
(3,114) |
(3,114) |
(3,114) |
||||
Net Assets |
|
|
47,769 |
56,647 |
65,413 |
80,394 |
98,640 |
112,208 |
128,820 |
||
CASH FLOW |
|||||||||||
Operating Cash Flow |
|
|
18,366 |
20,290 |
24,389 |
28,844 |
22,410 |
32,598 |
36,039 |
||
Net Interest |
63 |
352 |
(30) |
253 |
866 |
125 |
125 |
||||
Tax |
(2,795) |
(3,329) |
(884) |
(3,420) |
(5,074) |
(5,738) |
(6,822) |
||||
Capex |
(7,789) |
(10,995) |
(10,167) |
(11,140) |
(12,492) |
(14,100) |
(15,000) |
||||
Acquisitions/disposals |
(225) |
(486) |
(492) |
(5,491) |
(8,902) |
0 |
0 |
||||
Financing |
785 |
1,449 |
48 |
2,769 |
792 |
0 |
0 |
||||
Dividends |
(1,756) |
(2,237) |
(1,896) |
(2,897) |
(3,555) |
(4,602) |
(4,990) |
||||
Net Cash Flow |
6,649 |
5,044 |
10,968 |
8,918 |
(5,955) |
8,284 |
9,352 |
||||
Opening net debt/(cash) |
|
|
(10,016) |
(16,576) |
(21,018) |
(30,285) |
(38,609) |
(32,653) |
(40,936) |
||
HP finance leases initiated |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||||
Other |
(90) |
(602) |
(1,701) |
(594) |
(1) |
0 |
0 |
||||
Closing net debt/(cash) |
|
|
(16,576) |
(21,018) |
(30,285) |
(38,609) |
(32,653) |
(40,936) |
(50,288) |
||
Source: Esker, Edison Investment Research
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Research: TMT
Nano Dimension has raised its tender offer for Stratasys again, increasing its cash offer from $24 to $25 per share and extending the closing date to 31 July. If successful, it plans to explore options for further consolidation of the industry. If unsuccessful, it will review its Stratasys investment and may sell its stake on the open market.