EQS Group — New customer numbers ramp up

EQS Group (SCALE: EQS)

Last close As at 17/05/2024

40.80

−0.40 (−0.97%)

Market capitalisation

409m

More on this equity

Research: TMT

EQS Group — New customer numbers ramp up

As anticipated, now that the German whistleblower protection laws are in place, EQS is recruiting substantial numbers of new customers and is set for a strong fourth quarter, with good momentum into FY24. Once these new customers convert, they become a pipeline of warm leads for other EQS products and services, including more recent additions such as those for ESG monitoring and reporting. Q323 revenues were up 14% on the prior year and newly won annual recurring revenue (ARR), which precedes reported revenue, was up 50%. The rating remains well below that of peers and the value indicated by a discounted cash flow (DCF).

Fiona Orford-Williams

Written by

Fiona Orford-Williams

Director, TMT

TMT

EQS Group

New customer numbers ramp up

Q3 trading update

Software

13 November 2023

Price

€22.6

Market cap

€227m

Net debt (€m) at 30 Sept 2023

24.3

Shares in issue

10.0m

Free float

78.4%

Code

EQS

Primary exchange

XETRA

Secondary exchange

FRA

Share price performance

%

1m

3m

12m

Abs

(17.7)

(22.0)

(7.9)

Rel (local)

(16.7)

(18.1)

(14.4)

52-week high/low

€30.2

€20.8

Business description

EQS Group is a leading international provider of regulatory technology in the fields of corporate compliance and investor relations. Its products enable corporate clients to fulfil complex national and international disclosure obligations, minimise risks and communicate transparently with stakeholders.

Next events

FY23 results

February 2024

Analyst

Fiona Orford-Williams

+44 (0)20 3077 5700

EQS Group Group is a research client of Edison Investment Research Limited

As anticipated, now that the German whistleblower protection laws are in place, EQS is recruiting substantial numbers of new customers and is set for a strong fourth quarter, with good momentum into FY24. Once these new customers convert, they become a pipeline of warm leads for other EQS products and services, including more recent additions such as those for ESG monitoring and reporting. Q323 revenues were up 14% on the prior year and newly won annual recurring revenue (ARR), which precedes reported revenue, was up 50%. The rating remains well below that of peers and the value indicated by a discounted cash flow (DCF).

Year end

Revenue
(€m)

EBITDA
(€m)

PBT*
(€m)

EPS*
(€)

EV/EBITDA
(x)

P/E
(x)

12/21

50.2

1.7

(5.4)

(0.65)

144.5

N/A

12/22

61.4

4.6

(3.1)

(0.20)

55.1

N/A

12/23e

72.5

10.0

1.5

0.10

25.2

223.8

12/24e

90.0

17.3

9.4

0.63

14.6

35.9

12/25e

106.5

22.1

14.4

0.97

11.4

23.4

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Building momentum

EQS increased the number of its SaaS customers by 170% to 665 over Q3 as some of the pent-up demand for digital whistleblowing software systems flowed through following the transposition into law of the regulations in Germany on 1 July. Of the 1,331 new SaaS whistleblowing customers recruited over 9M23, 665 came on board in Q3. There is still a long way to go in building the understanding of the requirements to implement across organisations (not just corporate, but also public sector, charities, etc), so we anticipate demand continuing to be strong through FY24 and into FY25, for which we now publish our estimates for the first time. Our FY23 and FY24 figures are broadly unchanged, bar a better free cash flow performance, which reduces our year-end net debt forecast to €22.4m, from €27.3m, with management reporting a figure of €24.3m at end-September.

Margins expanding on market-leading position

With the increasing volumes, overhead recovery is improving. The Q323 EBITDA margin was 13.8%; 11.4% for 9M23. Our modelling suggests a Q424 EBITDA margin of 19.2% – a level that we regard as sustainable while the whistleblowing momentum continues, not just in Germany but across other EU jurisdictions. While figures are hard to come by, management asserts market leadership in Germany.

Valuation: Discount to peers and DCF

EQS is edging closer to an earnings-based valuation and parity with peers on FY24e EV/revenue would imply a share price of €31.69, down from €34.45 in August, as peers’ ratings have retrenched. This is a little below the €36.36 (August 2023: €36.18) indicated by our DCF at a WACC of 9% and terminal growth of 2%, with both valuations clearly well ahead of the current share price.

Key growth indicators show extent of progress

The quarterly figures show the start of the flow through from digital whistleblowing, boosting the revenues within the Compliance segment and starting to be reflected in the new ARR figure, up 37% on 9M22. With the increase in operating expenses limited to 7%, much of this additional revenue is flowing through to EBITDA, lifting the EBITDA margin in Q323 to 13.4%.

Booked ARRs are a lead indicator for the actual revenues, so support the top-line momentum into FY24. New customers are either recruited directly or via a partner network, with EQS concentrating its in-house efforts on targeting organisations with over 500 employees, as these will represent the most promising leads for further up- and cross-selling once the initial wave of recruitment has passed.

Exhibit 1: Growth in key figures

€000s

Q123

Q223

Q323

9M23 y-o-y change (%)

Total revenue

15,972

17,875

16,762

+15

Compliance

Cloud-products

8,291

8,929

9,260

+19

Cloud-services

2,785

3,905

2,810

+17

Investor Relations

Cloud-products

2,664

2,706

2,710

+8

Cloud-services

2,231

2,339

2,140

-5

New annual recurring revenue

1,860

2,730

2,990

+37

Operating expenses

(15,200)

(16,453)

(15,370)

+7

EBITDA

1,302

1,912

2,242

+115

Margin

8.2%

10.7%

13.4%

EBIT

(702)

(77)

302

Group earnings

(1,231)

(304)

(210)

Operating cash flow

3,697

1,757

2,498

+85

Equity ratio (%)

59

59

60

SaaS customers

5,257

5,688

6,305

+32

Source: EQS Group accounts, Edison Investment Research   

Cash flow benefiting

The larger revision to our numbers is on free cash flow, where conversion has been better than we expected. We previously anticipated that the group would finish the current year with net debt of €27.3m. At the end of September, EQS had net debt of €24.3m (or €21.4m excluding lease liabilities), so we were clearly being over cautious. Our revised estimate is for end-FY23 net debt of €22.4m, coming back to €13.9m by end-FY24.

Medium-term targets of €130m, EBITDA margin of 30%

Management’s target of revenues of €130m, split 78% Compliance, 22% IR, is unchanged, with some flex as to whether this is achieved in FY26 or FY27. This was discussed in more detail in our August Outlook note.

Our new FY25 figures show good progress towards these goals, with revenues of €106.5m and an EBITDA margin of 20.8%, which may be less ambitious than management’s internal targets. There is plenty still to go for with the digital whistleblowing opportunity as it rolls out across Europe, and beyond that, there are substantial opportunities in the ESG monitoring, recording and reporting fields, which can be delivered through the existing COCKPIT platform.

Exhibit 2: Financial summary

€'000s

2020

2021

2022

2023e

2024e

2025e

31-December

IFRS

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

37,636

50,223

61,430

72,500

90,000

106,500

Cost of Sales

0

0

0

0

0

0

Gross Profit

37,636

50,223

61,430

72,500

90,000

106,500

EBITDA

 

 

4,760

1,742

4,567

10,000

17,300

22,100

Operating profit (before amort. and excepts.)

 

 

819

(3,975)

(1,327)

4,031

11,281

16,031

Amortisation of acquired intangibles

(656)

(1,532)

(2,257)

(2,257)

(2,257)

(2,257)

Exceptionals

0

110

0

0

0

0

Share-based payments

0

0

0

0

0

0

Reported operating profit

163

(5,397)

(3,584)

1,774

9,024

13,774

Net Interest

(396)

(1,461)

(1,761)

(2,520)

(1,869)

(1,583)

Joint ventures & associates (post tax)

0

0

0

0

0

0

Exceptionals

0

0

1

0

0

0

Profit Before Tax (norm)

 

 

423

(5,436)

(3,087)

1,511

9,412

14,448

Profit Before Tax (reported)

 

 

(233)

(6,858)

(5,344)

(746)

7,155

12,191

Reported tax

(599)

229

2,013

246

(2,361)

(4,023)

Profit After Tax (norm)

296

(5,254)

(1,924)

1,012

6,306

9,680

Profit After Tax (reported)

(832)

(6,629)

(3,332)

(500)

4,794

8,168

Minority interests

(34)

0

0

0

0

0

Discontinued operations

0

0

0

0

0

0

Net income (normalised)

296

(5,254)

(1,924)

1,012

6,306

9,680

Net income (reported)

(866)

(6,629)

(3,332)

(500)

4,794

8,168

Average Number of Shares Outstanding (m)

7.2

8.1

9.7

10.0

10.0

10.0

EPS - normalised (€)

 

 

0.04

(0.65)

(0.20)

0.10

0.63

0.97

EPS - normalised fully diluted (c)

 

 

4.12

(64.53)

(19.76)

10.10

62.91

96.57

EPS - basic reported (€)

 

 

(0.12)

(0.81)

(0.34)

(0.05)

0.48

0.81

Dividend per share (c)

0.00

0.00

0.00

0.00

0.00

0.00

Revenue growth (%)

6.4

33.4

22.3

18.0

24.1

18.3

EBITDA Margin (%)

12.6

3.5

7.4

13.8

19.2

20.8

Normalised Operating Margin (%)

2.2

(7.9)

(2.2)

5.6

12.5

15.1

BALANCE SHEET

Fixed Assets

 

 

39,007

168,468

170,440

168,630

167,959

162,614

Intangible Assets

31,016

160,386

158,081

154,403

153,982

149,759

Tangible Assets

7,216

7,351

5,011

6,878

6,628

6,503

Investments & other

775

731

7,349

7,349

7,349

6,352

Current Assets

 

 

17,086

18,369

18,932

21,029

26,006

34,375

Stocks

0

0

0

0

0

0

Debtors

3,923

7,018

6,075

6,793

7,989

10,723

Cash & cash equivalents

12,074

8,653

10,654

12,033

15,814

21,449

Other

1,089

2,697

2,203

2,203

2,203

2,203

Current Liabilities

 

 

(12,381)

(89,171)

(27,066)

(30,628)

(30,820)

(26,787)

Creditors

(2,747)

(3,197)

(2,709)

(3,487)

(3,490)

(4,272)

Tax and social security

(56)

(214)

(1,350)

(1,593)

(1,978)

(2,340)

Short term borrowings (includes lease debt)

(3,278)

(73,095)

(8,198)

(8,198)

(8,198)

(8,198)

Other

(6,300)

(12,665)

(14,809)

(17,350)

(17,155)

(11,977)

Long Term Liabilities

 

 

(10,768)

(27,426)

(50,096)

(45,441)

(40,691)

(35,941)

Long term borrowings (includes lease debt)

(7,641)

(9,927)

(30,890)

(26,235)

(21,485)

(16,735)

Other long term liabilities

(3,127)

(17,499)

(19,206)

(19,206)

(19,206)

(19,206)

Net Assets

 

 

32,943

70,240

112,210

113,590

122,454

134,261

Minority interests

0

0

1

1

1

1

Shareholders' equity

 

 

32,943

70,240

112,210

113,590

122,454

134,261

CASH FLOW

Operating Cash Flow

3,765

(2,296)

2,786

5,707

11,051

14,475

Working capital

1,294

(1,149)

3,952

60

(1,193)

(1,952)

Exceptional & other

1,037

5,711

699

4,900

6,208

7,301

Tax

(154)

(229)

(2,013)

246

(2,361)

(4,023)

Net Operating Cash Flow

 

 

5,942

2,037

5,425

10,913

13,704

15,801

Capex

(2,008)

(3,149)

(2,813)

(2,300)

(3,250)

(3,775)

Acquisitions/disposals

0

(96,428)

(14)

21

0

0

Net interest

(157)

(1,636)

(1,666)

(2,520)

(1,869)

(1,583)

Equity financing

9,124

43,929

44,833

(28)

0

0

Dividends

0

0

0

0

0

0

Other

414

(2,772)

(2,327)

0

0

0

Net Cash Flow

13,315

(58,019)

43,438

6,086

8,585

10,442

Opening net debt/(cash)

 

 

13,472

(1,153)

74,372

28,434

22,400

13,869

FX

(199)

126

50

0

0

0

Other non-cash movements

1,509

(17,631)

2,450

(52)

(54)

(58)

Closing net debt/(cash)

 

 

(1,153)

74,372

28,434

22,400

13,869

3,484


General disclaimer and copyright

This report has been commissioned by EQS Group and prepared and issued by Edison, in consideration of a fee payable by EQS Group. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2023 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

General disclaimer and copyright

This report has been commissioned by EQS Group and prepared and issued by Edison, in consideration of a fee payable by EQS Group. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2023 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

More on EQS Group

View All

Latest from the TMT sector

View All TMT content

Research: Financials

Molten Ventures — NAV down c 6% in the first half of FY24

Molten Ventures released its H124 trading update (to end-September 2023), with management expecting its NAV per share at c 735p, a c 5.7% decline from the end-March 2023 level as a result of a 3.6% negative fair value movement (excluding fx) across its portfolio. That said, management highlighted that the valuation environment is stabilising and that Molten’s portfolio performance remains resilient, with a good balance between growth (even if at a slower pace) and capital efficiency (with very limited exceptions). Molten’s shares currently trade at a 66% discount to NAV.

Continue Reading
molten05

Subscribe to Edison

Get access to the very latest content matched to your personal investment style.

Sign up for free