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Research: TMT
EQS’s Q118 report shows performance in line with expectations, with 13% top-line growth and higher investment pushing the group into an EBITDA loss. All is on track for a Q418 launch of the new COCKPIT web-based product platform and our forecasts for FY18e, FY19e and FY20e are unchanged. New KPIs and segmental reporting highlight a strong recurring revenue base and will clarify the growth dynamics of customer numbers and associated revenues. EQS’s markets remain attractive, with corporate obligations become more numerous and complex, underpinning the rating.
EQS Group |
Investment on plan |
Q1 update |
Software & comp services |
24 May 2018 |
Share price performance
Business description
Next events
Analysts
EQS Group is a research client of Edison Investment Research Limited |
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EQS’s Q118 report shows performance in line with expectations, with 13% top-line growth and higher investment pushing the group into an EBITDA loss. All is on track for a Q418 launch of the new COCKPIT web-based product platform and our forecasts for FY18e, FY19e and FY20e are unchanged. New KPIs and segmental reporting highlight a strong recurring revenue base and will clarify the growth dynamics of customer numbers and associated revenues. EQS’s markets remain attractive, with corporate obligations become more numerous and complex, underpinning the rating.
Year end |
Revenue (€m) |
PBT* |
EPS* |
DPS |
P/E |
EV/EBITDA (x) |
Yield |
12/16 |
26.1 |
2.4 |
0.96 |
0.75 |
80.7 |
35.5 |
1.0 |
12/17 |
30.4 |
0.8 |
0.16 |
0.00 |
N/A |
49.6 |
0.0 |
12/18e |
36.5 |
(0.2) |
(0.07) |
0.00 |
N/A |
75.1 |
0.0 |
12/19e |
43.5 |
2.4 |
0.93 |
0.20 |
83.2 |
35.4 |
0.3 |
12/20e |
50.8 |
5.8 |
2.26 |
0.40 |
34.3 |
17.4 |
0.5 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Improved KPIs and reporting segments
Previous reporting by product category was failing to represent the development of the business model clearly. The new categorisations highlight the revenue split across EQS and ARIVA, separating out revenues from XML and from sales of LEIs (see Outlook), plus the number of clients by activity. It also identifies the proportions of business in Investor Relations and Compliance, with the latter having the greater growth potential. Compliance revenues were up 34% on Q117, with IR marginally behind (-1%) despite higher client numbers. EQS has also introduced new KPIs that draw attention to its recurring SaaS revenues, at 79% of group revenues in Q118 (Q117: 74%). It is also disclosing customer numbers (1,081, +12), quarterly revenue per customer (€3,300), acquisition costs (€4,200) and churn (<5%).
Additional spend
EQS is employing over 60 specialists to build up the new COCKPIT, ramping the Q1 personnel costs to €5.3m (Q117: €3.9m), with additional costs in buying in contractors. EBITDA for the period consequently showed a loss of €0.3m (Q117: €0.7m profit). Guidance for the full-year remains €1.5-2.1m and at €1.6m our forecast is unchanged at the low end of this range. Net debt at end March had increased to €10.5m from €3.6m at the year-end, reflecting the acquisition of cloud-based whistle-blowing systems company, Integrity Line.
Valuation: Back at development stage
The curtailment of earnings by the current investment phase inevitably makes the shares look expensive against peers (which trade on FY18e 20.6x EV/EBITDA and 31.8x P/E). A DCF approach suggests a valuation per share of €102, which we then discount by 15% to reflect execution risk, indicating a valuation of €87/share.
Exhibit 1: Financial summary
€'000s |
2016 |
2017 |
2018e |
2019e |
2020e |
||
31-December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
PROFIT & LOSS |
|||||||
Revenue |
|
|
26,061 |
30,355 |
36,500 |
43,500 |
50,750 |
Cost of Sales |
0 |
0 |
0 |
0 |
0 |
||
Gross Profit |
26,061 |
30,355 |
36,500 |
43,500 |
50,750 |
||
EBITDA |
|
|
4,175 |
2,349 |
1,600 |
4,150 |
7,500 |
Operating Profit (before amort. and except.) |
3,282 |
1,077 |
175 |
2,675 |
6,025 |
||
Intangible Amortisation |
(619) |
(732) |
(750) |
(775) |
(775) |
||
Exceptionals |
0 |
0 |
0 |
0 |
0 |
||
Other |
(874) |
(146) |
(150) |
(150) |
(150) |
||
Operating Profit |
1,788 |
199 |
(725) |
1,750 |
5,100 |
||
Net Interest |
(14) |
(139) |
(190) |
(150) |
(110) |
||
Profit Before Tax (norm) |
|
|
2,393 |
792 |
(165) |
2,375 |
5,765 |
Profit Before Tax (FRS 3) |
|
|
1,774 |
60 |
(915) |
1,600 |
4,990 |
Tax |
(960) |
(634) |
62 |
(891) |
(2,162) |
||
Profit After Tax (norm) |
1,144 |
215 |
(93) |
1,336 |
3,243 |
||
Profit After Tax (FRS 3) |
814 |
(574) |
(853) |
710 |
2,828 |
||
Average Number of Shares Outstanding (m) |
1.19 |
1.31 |
1.43 |
1.43 |
1.43 |
||
EPS - normalised (c) |
|
|
96.1 |
16.4 |
(6.5) |
93.1 |
226.0 |
EPS - (IFRS) (c) |
|
|
43.2 |
(39.3) |
(58.8) |
39.1 |
172.0 |
Dividend per share (c) |
75.0 |
0.0 |
0.0 |
20.0 |
40.0 |
||
EBITDA Margin (%) |
16.0 |
7.7 |
4.4 |
9.5 |
14.8 |
||
Operating Margin (before GW and except.) (%) |
12.6 |
3.5 |
0.5 |
6.2 |
11.9 |
||
BALANCE SHEET |
|||||||
Fixed Assets |
|
|
30,389 |
34,914 |
42,195 |
46,945 |
48,945 |
Intangible Assets |
26,314 |
26,662 |
30,368 |
34,593 |
35,818 |
||
Tangible Assets |
4,075 |
8,251 |
11,826 |
12,351 |
13,126 |
||
Investments |
0 |
0 |
0 |
0 |
0 |
||
Current Assets |
|
|
12,014 |
12,536 |
10,613 |
11,704 |
13,137 |
Stocks |
0 |
0 |
0 |
0 |
0 |
||
Debtors |
4,562 |
5,053 |
5,954 |
7,096 |
8,113 |
||
Cash |
6,610 |
6,374 |
3,550 |
3,500 |
3,915 |
||
Other |
842 |
1,108 |
1,108 |
1,108 |
1,108 |
||
Current Liabilities |
|
|
(9,942) |
(11,559) |
(10,679) |
(11,739) |
(12,326) |
Creditors |
(5,853) |
(5,574) |
(6,829) |
(8,139) |
(9,676) |
||
Short term borrowings |
(4,089) |
(5,986) |
(3,850) |
(3,600) |
(2,650) |
||
Long Term Liabilities |
|
|
(7,237) |
(6,526) |
(9,881) |
(8,731) |
(6,581) |
Long term borrowings |
(4,761) |
(3,946) |
(7,300) |
(6,150) |
(4,000) |
||
Other long term liabilities |
(2,476) |
(2,581) |
(2,581) |
(2,581) |
(2,581) |
||
Net Assets |
|
|
25,224 |
29,363 |
32,247 |
38,179 |
43,175 |
CASH FLOW |
|||||||
Operating Cash Flow |
|
|
3,827 |
1,850 |
1,745 |
4,100 |
7,800 |
Net Interest |
(13) |
35 |
(190) |
(150) |
(110) |
||
Tax |
(341) |
(238) |
(460) |
(176) |
(1,209) |
||
Capex |
891 |
(4,456) |
(5,000) |
(2,000) |
(2,250) |
||
Acquisitions/disposals |
(3,731) |
(3,148) |
0 |
0 |
0 |
||
Equity Financing |
2,601 |
6,965 |
(138) |
(137) |
(142) |
||
Dividends |
(877) |
(1,939) |
0 |
(287) |
(574) |
||
Net Cash Flow |
2,357 |
(931) |
(4,043) |
1,350 |
3,515 |
||
Opening net debt/(cash) |
|
|
4,716 |
2,240 |
3,557 |
7,600 |
6,250 |
HP finance leases initiated |
104 |
0 |
0 |
0 |
0 |
||
Other |
15 |
(386) |
0 |
0 |
0 |
||
Closing net debt/(cash) |
|
|
2,240 |
3,557 |
7,600 |
6,250 |
2,735 |
Source: Company accounts, Edison Investment Research
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In a short trading update, StatPro has said that trading is in line with expectations. The group recently signed a major cloud conversion contract with a top 10 global fund administrator. Such deals require significant commitment from the client and, once live, have the potential to be scaled up if the client takes additional licences to extend to its own client base. Given the ongoing busy M&A backdrop in financial software and the significant valuation disparity between StatPro and its US-listed financial software peers, we continue to see strong upside potential in the shares.