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Research: TMT
A recent fund-raise generated gross proceeds of €3m for Expert System and added two new investors to the shareholder register. The company intends to use the proceeds to support its international expansion plans, primarily in the US. It recently announced a partnership with SDL to increase multilingual support.
Expert System |
More funding for international expansion |
Fund-raise |
Software & comp services |
13 May 2020 |
Share price performance
Business description
Next events
Analyst
Expert System is a research client of Edison Investment Research Limited |
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A recent fund-raise generated gross proceeds of €3m for Expert System and added two new investors to the shareholder register. The company intends to use the proceeds to support its international expansion plans, primarily in the US. It recently announced a partnership with SDL to increase multilingual support.
Year end |
Revenue (€m) |
EBITDA* |
EPS* |
DPS |
P/E |
EV/EBITDA |
12/18 |
30.5 |
4.6 |
(1.4) |
0.0 |
N/A |
26.0 |
12/19 |
33.7 |
5.5 |
(1.3) |
0.0 |
N/A |
22.1 |
12/20e |
35.5 |
5.1 |
(4.4) |
0.0 |
N/A |
23.8 |
12/21e |
39.7 |
6.9 |
(0.5) |
0.0 |
N/A |
17.4 |
Note: *EBITDA and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Fund-raise attracts new investors
The company has gained two new investors through the issue of 1.11m shares at €2.7 per share. Indaco Venture Partners SGR has acquired 740,740 shares (a 1.8% stake) and Investec has acquired 370,371 shares (a 0.9% stake), resulting in gross proceeds of €3m for Expert System. We have revised our forecasts to reflect the fund-raise. FY20 EPS moves from -€0.045 to -€0.044 and FY21 is unchanged at -€0.005. Our net debt forecast reduces from €7.2m to €4.2m at the end of FY20 and from €9.9m to €6.9m at the end of FY21.
Partnership with SDL for multilingual support
Expert System recently announced that it had entered into a partnership with SDL to expand knowledge discovery and intelligent process automation to additional languages. SDL develops and provides language translation technology; more specifically, the plan is to link SDL’s Machine Translation Edge software with Expert System’s Cogito platform. SDL is able to translate text for more than 140 language pairs, while Cogito is available in 12 languages. The partnership means that Cogito customers would be able to analyse a much wider range of content as they will not be restricted to the 12 languages for which Expert System has created knowledge graphs. We understand that the main way the two software solutions could be used together would be to use SDL’s software to translate all documents into a central language, eg English, before feeding the output into Cogito for semantic analysis.
Valuation: Reflects growth potential
Compared to a diverse set of peers, Expert System is forecast to grow faster but is less profitable. Based on EV/Sales, it is trading at a premium to Italian peers and at a discount to all other peer groups. On an EV/EBITDA basis, it is trading at a premium to Italian and enterprise search and information management peers, and at a discount to data analytics peers. Evidence that recent investment is accelerating revenue growth would be a key driver of share price upside once a more normal business environment resumes. Progress towards operating profitability and cash generation should also provide support.
Exhibit 1: Financial summary
€'000s |
2015 |
2016 |
2017 |
2018 |
2019 |
2020e |
2021e |
||
31-December |
IT GAAP |
IT GAAP |
IT GAAP |
IT GAAP |
IT GAAP |
IT GAAP |
IT GAAP |
||
PROFIT & LOSS |
|||||||||
Revenue |
|
|
19,368 |
25,057 |
27,783 |
30,457 |
33,712 |
35,465 |
39,702 |
EBITDA |
|
|
1,463 |
(2,245) |
1,711 |
4,638 |
5,459 |
5,069 |
6,933 |
Operating Profit (before amort. and except.) |
(1,226) |
(5,941) |
(3,189) |
(662) |
(312) |
(1,199) |
563 |
||
Intangible Amortisation |
(2,549) |
(2,608) |
(2,608) |
(2,567) |
(2,567) |
(855) |
0 |
||
Exceptionals |
0 |
0 |
(700) |
0 |
0 |
0 |
0 |
||
Other |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||
Operating Profit |
(3,775) |
(8,549) |
(6,496) |
(3,229) |
(2,878) |
(2,054) |
563 |
||
Net Interest |
213 |
(156) |
(2,191) |
97 |
(102) |
(782) |
(782) |
||
Profit Before Tax (norm) |
|
|
(1,013) |
(6,097) |
(5,380) |
(565) |
(413) |
(1,981) |
(219) |
Profit Before Tax (reported) |
|
|
(3,562) |
(8,705) |
(8,687) |
(3,131) |
(780) |
(2,836) |
(219) |
Tax |
277 |
579 |
348 |
(650) |
(203) |
284 |
22 |
||
Profit After Tax (norm) |
(934) |
(5,692) |
(5,164) |
(508) |
(521) |
(1,783) |
(197) |
||
Profit After Tax (reported) |
(3,284) |
(8,126) |
(8,339) |
(3,781) |
(983) |
(2,553) |
(197) |
||
Average Number of Shares Outstanding (m) |
22.8 |
25.8 |
28.1 |
35.8 |
38.6 |
40.8 |
41.1 |
||
EPS - normalised (c) |
|
|
(4.1) |
(22.0) |
(18.3) |
(1.4) |
(1.3) |
(4.4) |
(0.5) |
EPS - normalised and fully diluted (c) |
|
(4.1) |
(22.0) |
(18.3) |
(1.4) |
(1.3) |
(4.4) |
(0.5) |
|
EPS - (IFRS) (c) |
|
|
(14.4) |
(31.5) |
(29.6) |
(10.6) |
(2.5) |
(6.3) |
(0.5) |
Dividend per share (c) |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
EBITDA Margin (%) |
7.6 |
-9.0 |
6.2 |
15.2 |
16.2 |
14.3 |
17.5 |
||
Adj Operating Margin (%) |
-6.3 |
-23.7 |
-11.5 |
-2.2 |
-0.9 |
-3.4 |
1.4 |
||
BALANCE SHEET |
|||||||||
Fixed Assets |
|
|
20,301 |
20,379 |
18,864 |
16,655 |
14,708 |
14,185 |
14,415 |
Intangible Assets |
18,539 |
18,372 |
16,944 |
14,734 |
13,092 |
12,582 |
12,839 |
||
Tangible Assets |
916 |
915 |
792 |
715 |
702 |
689 |
661 |
||
Investments |
846 |
1,092 |
1,128 |
1,206 |
915 |
915 |
915 |
||
Current Assets |
|
|
42,588 |
37,012 |
37,634 |
38,004 |
51,495 |
52,890 |
52,930 |
Stocks |
1,797 |
627 |
99 |
109 |
59 |
59 |
59 |
||
Debtors |
10,228 |
10,233 |
12,384 |
15,792 |
20,447 |
22,901 |
25,649 |
||
Cash |
11,249 |
9,063 |
11,235 |
7,883 |
21,647 |
20,305 |
17,575 |
||
Other |
19,314 |
17,088 |
13,916 |
14,220 |
9,342 |
9,626 |
9,648 |
||
Current Liabilities |
|
|
(20,517) |
(22,679) |
(19,480) |
(21,170) |
(22,839) |
(23,264) |
(23,731) |
Creditors |
(15,082) |
(16,459) |
(14,104) |
(15,511) |
(16,945) |
(17,370) |
(17,837) |
||
Short term borrowings |
(5,435) |
(6,219) |
(5,376) |
(5,659) |
(5,893) |
(5,893) |
(5,893) |
||
Long Term Liabilities |
|
|
(22,227) |
(18,275) |
(17,742) |
(18,411) |
(22,464) |
(22,464) |
(22,464) |
Long term borrowings |
(18,240) |
(15,252) |
(14,683) |
(14,811) |
(18,588) |
(18,588) |
(18,588) |
||
Other long-term liabilities |
(3,987) |
(3,023) |
(3,060) |
(3,600) |
(3,876) |
(3,876) |
(3,876) |
||
Net Assets |
|
|
20,145 |
16,437 |
19,276 |
15,077 |
20,901 |
21,348 |
21,151 |
CASH FLOW |
|||||||||
Operating Cash Flow |
|
|
2,738 |
2,088 |
(1,921) |
2,583 |
3,144 |
3,016 |
4,628 |
Net Interest |
(324) |
(155) |
(626) |
(441) |
(694) |
(758) |
(758) |
||
Tax |
(1,576) |
0 |
0 |
0 |
0 |
0 |
0 |
||
Capex |
(20,045) |
(6,378) |
(6,321) |
(5,830) |
(6,401) |
(6,600) |
(6,600) |
||
Acquisitions/disposals |
3,045 |
46 |
1,275 |
(76) |
7,189 |
0 |
0 |
||
Financing |
6,573 |
4,418 |
11,178 |
0 |
7,000 |
3,000 |
0 |
||
Dividends |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||
Net Cash Flow |
(9,588) |
18 |
3,585 |
(3,764) |
10,237 |
(1,342) |
(2,730) |
||
Opening net debt/(cash) |
|
|
2,839 |
12,426 |
12,408 |
8,824 |
12,587 |
2,834 |
4,176 |
HP finance leases initiated |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||
Other |
0 |
0 |
0 |
0 |
(484) |
0 |
(0) |
||
Closing net debt/(cash) |
|
|
12,426 |
12,408 |
8,824 |
12,587 |
2,834 |
4,176 |
6,906 |
Source: Expert System, Edison Investment Research
|
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