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Research: TMT
EQS is acquiring Danish-based Got Ethics, a (profitable) SaaS provider of whistle-blowing solutions, to add to its own offering in the segment, for €10m. This should enable the group to build market share across Europe more rapidly ahead of the implementation of the EU whistle-blower directive in 2021. The vendors are staying with the enlarged group, with completion expected in Q121. Our FY21 estimates are lifted, with revenue up 5.6% and EBITDA rising from €5.3m to €6.1m. The share price is up 125% year-to-date, yet the valuation remains around 35% of larger peers based on FY19–21e average EV/sales. P/E and EV/EBITDA multiples are currently inflated by the extra marketing spend.
EQS Group |
More whistle-blowing |
Acquisition |
Software & comp services |
1 December 2020 |
Share price performance
Business description
Next events
Analyst
EQS Group is a research client of Edison Investment Research Limited |
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EQS is acquiring Danish-based Got Ethics, a (profitable) SaaS provider of whistle-blowing solutions, to add to its own offering in the segment, for €10m. This should enable the group to build market share across Europe more rapidly ahead of the implementation of the EU whistle-blower directive in 2021. The vendors are staying with the enlarged group, with completion expected in Q121. Our FY21 estimates are lifted, with revenue up 5.6% and EBITDA rising from €5.3m to €6.1m. The share price is up 125% year-to-date, yet the valuation remains around 35% of larger peers based on FY19–21e average EV/sales. P/E and EV/EBITDA multiples are currently inflated by the extra marketing spend.
Year end |
Revenue (€m) |
EBITDA |
PBT* |
EPS* |
EV/EBITDA |
P/E |
12/18 |
36.2 |
0.2 |
0.7 |
6.1 |
N/A |
N/A |
12/19 |
35.4 |
2.5 |
(0.3) |
(6.3) |
69.0 |
N/A |
12/20e |
38.0 |
4.9 |
1.4 |
13.7 |
35.8 |
N/A |
12/21e |
47.0 |
6.1 |
2.2 |
21.3 |
29.0 |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Accelerating the growth of the client base
Got Ethics has been established for 10 years and has a client base of over 500 customers. These are mostly SMEs but do include some larger companies that ought to prove fertile territory for cross- and up-selling the EQS COCKPIT platform. In terms of the scale of the opportunity in whistle-blowing, management estimates that of the 50k or so companies whose activities fall within the remit of the regulation, around half will implement some sort of whistle-blowing solution during FY21. Achieving a 20% market share, the level targeted, would therefore equate to c 5k customers. At the end of Q320, EQS had 1,326 SaaS Compliance customers.
Lift to revenue and EBITDA forecasts
The initial consideration is €10m, funded by an acquisition loan from Commerzbank Munich. The terms of the earn-out are not yet disclosed, but we understand that they will involve revenue growth targets. Got Ethics has been growing its customer numbers at 30% and has annually recurring revenues (ARR) of €2m (for context, EQS Group’s aggregated ARR was €4.51m at end October). Our FY21e revenue uplift of €2.5m builds in a small contingency, giving €47.0m, up 24% on prior year. Our EBITDA estimate is raised by €0.8m to €6.05m, having recently been lowered from €8.3m (see November update) to adjust for additional investment in sales and marketing to take best advantage of the whistle-blower opportunity. Projected net debt for end FY21 rises from €4.1m to €14.6m. Management retains its revenue target of €100m by FY25.
Valuation: Strong FY20 performance continues
The share price has carried on increasing from €23.8 at the time of the Q3 figures on 13 November. With good recent performance also among the large, global peers, the discount, on EV/sales averaged across 2019–21e remains around 65%. As explained in our recent note, earnings multiples are currently inflated by the short-term step up in marketing investment.
Exhibit 1: Financial summary
€'k |
2018 |
2019 |
2020e |
2021e |
||
Year end 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
||
INCOME STATEMENT |
||||||
Revenue |
|
|
36,210 |
35,367 |
38,000 |
47,000 |
Cost of Sales |
0 |
0 |
0 |
0 |
||
Gross Profit |
36,210 |
35,367 |
38,000 |
47,000 |
||
EBITDA |
|
|
239 |
2,546 |
4,900 |
6,050 |
Operating Profit (before amort. and except.) |
|
|
(1,299) |
(2,441) |
1,400 |
2,550 |
Amortisation of acquired intangibles |
(821) |
(743) |
(600) |
(600) |
||
Exceptionals |
0 |
0 |
0 |
0 |
||
Share-based payments |
0 |
0 |
0 |
0 |
||
Reported operating profit |
(2,120) |
(3,184) |
800 |
1,950 |
||
Net Interest |
1,954 |
2,094 |
5 |
(345) |
||
Joint ventures & associates (post tax) |
0 |
0 |
0 |
0 |
||
Exceptionals |
0 |
0 |
0 |
0 |
||
Profit Before Tax (norm) |
|
|
655 |
(347) |
1,405 |
2,205 |
Profit Before Tax (reported) |
|
|
(166) |
(1,090) |
805 |
1,605 |
Reported tax |
913 |
(322) |
(242) |
(452) |
||
Profit After Tax (norm) |
439 |
(449) |
984 |
1,528 |
||
Profit After Tax (reported) |
747 |
(1,412) |
564 |
1,153 |
||
Minority interests |
20 |
121 |
35 |
45 |
||
Discontinued operations |
0 |
0 |
0 |
0 |
||
Net income (normalised) |
439 |
(449) |
984 |
1,528 |
||
Net income (reported) |
767 |
(1,291) |
599 |
1,198 |
||
Average Number of Shares Outstanding (m) |
7,175 |
7,175 |
7,175 |
7,175 |
||
EPS - normalised (c) |
|
|
6.12 |
(6.26) |
13.71 |
21.30 |
EPS - normalised fully diluted (c) |
|
|
6.12 |
(6.26) |
13.71 |
21.30 |
EPS - basic reported (€) |
|
|
0.11 |
(0.18) |
0.08 |
0.17 |
Dividend per share (c) |
0.00 |
0.00 |
0.00 |
0.00 |
||
Revenue growth (%) |
19.3 |
(2.3) |
7.4 |
23.7 |
||
Gross Margin (%) |
100.0 |
100.0 |
100.0 |
100.0 |
||
EBITDA Margin (%) |
0.7 |
7.2 |
12.9 |
12.9 |
||
Normalised Operating Margin (%) |
(3.6) |
(6.9) |
3.7 |
5.4 |
||
BALANCE SHEET |
||||||
Fixed Assets |
|
|
41,219 |
43,827 |
42,516 |
40,471 |
Intangible Assets |
37,293 |
32,008 |
32,459 |
30,414 |
||
Tangible Assets |
2,241 |
8,824 |
8,824 |
8,824 |
||
Investments & other |
1,685 |
2,995 |
1,233 |
1,233 |
||
Current Assets |
|
|
7,250 |
6,004 |
7,055 |
11,624 |
Stocks |
0 |
0 |
0 |
0 |
||
Debtors |
5,030 |
3,751 |
4,030 |
4,985 |
||
Cash & cash equivalents |
1,308 |
1,184 |
1,956 |
5,570 |
||
Other |
912 |
1,069 |
1,069 |
1,069 |
||
Current Liabilities |
|
|
(14,330) |
(14,590) |
(13,727) |
(14,197) |
Creditors |
(1,472) |
(1,848) |
(1,985) |
(2,456) |
||
Tax and social security |
(129) |
(46) |
(46) |
(46) |
||
Short term borrowings |
(6,961) |
(7,173) |
(4,018) |
(4,018) |
||
Other |
(5,768) |
(5,524) |
(7,678) |
(7,678) |
||
Long Term Liabilities |
|
|
(6,013) |
(9,238) |
(9,148) |
(19,148) |
Long term borrowings |
(3,475) |
(7,481) |
(6,125) |
(16,125) |
||
Other long term liabilities |
(2,538) |
(1,757) |
(3,023) |
(3,023) |
||
Net Assets |
|
|
28,125 |
26,003 |
26,697 |
18,750 |
Minority interests |
420 |
(34) |
(50) |
(95) |
||
Shareholders' equity |
|
|
28,545 |
25,969 |
26,647 |
18,654 |
CASH FLOW |
||||||
Op Cash Flow before WC and tax |
3,106 |
4,318 |
4,664 |
5,253 |
||
Working capital |
1,270 |
1,061 |
558 |
(84) |
||
Exceptional & other |
(1,646) |
(2,794) |
447 |
397 |
||
Tax |
(135) |
(188) |
(242) |
(452) |
||
Net operating cash flow |
|
|
2,595 |
2,397 |
5,427 |
5,114 |
Capex |
(5,441) |
(3,120) |
(1,500) |
(1,500) |
||
Acquisitions/disposals |
(5,115) |
4,888 |
2,246 |
(10,000) |
||
Net interest |
0 |
0 |
0 |
0 |
||
Equity financing |
0 |
0 |
0 |
0 |
||
Dividends |
0 |
0 |
0 |
0 |
||
Other |
1,792 |
(4,408) |
0 |
0 |
||
Net Cash Flow |
(6,169) |
(243) |
6,173 |
(6,386) |
||
Opening net debt/(cash) |
|
|
3,556 |
9,127 |
13,469 |
8,185 |
FX |
75 |
53 |
0 |
0 |
||
Other non-cash movements |
522 |
(4,153) |
(890) |
0 |
||
Closing net debt/(cash) |
|
|
9,127 |
13,469 |
8,185 |
14,573 |
Source: Company accounts, Edison Investment Research
|
|
Research: Consumer
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