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Esker’s Q2 revenue update confirmed that trading accelerated over the quarter, with revenue 28% higher against a weak comparative, but also 8% higher sequentially. Order intake has been strong so far this year, providing the basis for continued growth, and management has raised revenue guidance for FY21. We have upgraded our FY21 EPS forecast by 3.6%.
Esker |
Order intake drives upgrades |
Q221 revenue update |
Software & comp services |
16 July 2021 |
Share price performance
Business description
Next events
Analyst
Esker is a research client of Edison Investment Research Limited |
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Esker’s Q2 revenue update confirmed that trading accelerated over the quarter, with revenue 28% higher against a weak comparative, but also 8% higher sequentially. Order intake has been strong so far this year, providing the basis for continued growth, and management has raised revenue guidance for FY21. We have upgraded our FY21 EPS forecast by 3.6%.
Year end |
Revenue (€m) |
PBT* |
Diluted EPS* |
DPS |
P/E |
Yield |
|
12/19 |
104.2 |
13.6 |
1.79 |
0.33 |
149.0 |
0.1 |
|
12/20 |
112.3 |
14.5 |
1.95 |
0.50 |
136.8 |
0.2 |
|
12/21e |
131.6 |
18.3 |
2.40 |
0.55 |
111.0 |
0.2 |
|
12/22e |
154.5 |
25.5 |
3.29 |
0.60 |
81.0 |
0.2 |
|
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Strong growth in Q2, both y-o-y and q-o-q
Esker reported Q221 revenue of €33.4m, up 28% y-o-y (32% constant currency (cc)) and 8% q-o-q. H121 revenue was 19% higher y-o-y (22% cc). As a reminder, Q220 was Esker’s weakest quarter last year as transaction-based revenue was hit by the pandemic. Cloud solutions grew 37% y-o-y in Q221 compared to 16% growth in Q121, making up 93% of group revenue. Implementation services increased 13% y-o-y, reflecting bookings received earlier this year. The annual recurring revenue (ARR) of contracts signed in Q2 was €.3.3m, +92% y-o-y and flat q-o-q. The lifetime value of the subscription element of these bookings was €10.6m.
Guidance raised again
The strength of SaaS revenue and bookings in Q2 has prompted management to raise revenue growth guidance for FY21 from 16% to 17%; if €/$ rates remain at current levels, this equates to revenue of c €131m. Operating margin guidance is unchanged at 12–15%. We have revised our forecasts to reflect the stronger revenue guidance partially offset by higher sales commission, resulting in a normalised EPS upgrade of 3.6% in FY21. Net cash of €33.6m at the end of H121 provides the resources for investment in organic and inorganic growth.
Valuation: Reflects growth in recurring revenues
The stock trades at a premium to document processing automation software and French software peers but at a discount to US SaaS peers. Esker has re-rated over the past year (the stock is up 97% over the past 12 months), with its P/E multiple moving more towards the US SaaS software peer group. We believe this is due to the value placed on businesses with high levels of recurring revenue, providing visibility through a period of economic uncertainty. Esker has the added advantage of a strong balance sheet to fund growth. Successful execution of Esker’s partner strategy could be a trigger for earnings and share price upside.
Changes to forecasts
We have updated our forecasts to reflect Q221 revenues. The company noted that legacy revenues (€2.3m in Q221) benefited from an unexpected licence sale in the US, resulting in legacy revenue constant currency growth of 21% y-o-y when we would have expected a decline. In June, the company announced that it would pay a dividend of €0.50 for FY20, ahead of our €0.33 forecast. As has been the case for several years, Esker pays an additional 10% to shareholders who have held the stock for more than two years. We have raised our dividend forecasts for FY21 and FY22.
Exhibit 1: Changes to estimates
€m |
FY21e old |
FY21e new |
change |
y-o-y |
FY22e old |
FY22e new |
change |
y-o-y |
Revenues |
128.6 |
131.6 |
2.3% |
17.2% |
151.8 |
154.5 |
1.7% |
17.4% |
EBITDA |
25.8 |
26.5 |
2.5% |
20.7% |
34.2 |
34.2 |
0.0% |
29.1% |
EBITDA margin |
20.1% |
20.1% |
0.0% |
0.6% |
22.5% |
22.1% |
(0.4%) |
2.0% |
Normalised EBIT |
17.0 |
17.6 |
3.8% |
25.4% |
24.7 |
24.7 |
0.0% |
40.3% |
Normalised EBIT margin |
13.2% |
13.4% |
0.2% |
0.9% |
16.3% |
16.0% |
(0.3%) |
2.6% |
Reported EBIT |
16.5 |
17.2 |
3.9% |
26.2% |
24.3 |
24.3 |
0.0% |
41.3% |
Reported EBIT margin |
12.9% |
13.1% |
0.2% |
0.9% |
16.0% |
15.7% |
(0.3%) |
2.7% |
Normalised PBT |
17.7 |
18.3 |
3.6% |
26.6% |
25.5 |
25.5 |
0.0% |
39.4% |
Normalised net income |
13.8 |
14.3 |
3.6% |
24.0% |
19.9 |
19.9 |
0.0% |
39.4% |
Reported net income |
13.4 |
13.9 |
3.7% |
20.6% |
19.6 |
19.6 |
0.0% |
40.3% |
Normalised dil. EPS (€) |
2.32 |
2.40 |
3.6% |
23.3% |
3.29 |
3.29 |
0.0% |
37.0% |
Reported basic EPS (€) |
2.34 |
2.43 |
3.7% |
18.8% |
3.35 |
3.35 |
0.0% |
37.9% |
Reported diluted EPS (€) |
2.26 |
2.35 |
3.7% |
19.9% |
3.23 |
3.24 |
0.0% |
38.0% |
Net cash |
37.2 |
36.5 |
(1.9%) |
21.0% |
48.9 |
47.3 |
(3.2%) |
29.5% |
DPS (€) |
0.40 |
0.55 |
37.5% |
10.0% |
0.45 |
0.60 |
33.3% |
9.1% |
Source: <Insert Source or Notes>
Source: Edison Investment Research
Exhibit 2: Financial summary
€'000s |
2016 |
2017 |
2018 |
2019 |
2020 |
2021e |
2022e |
||
Year end 31 December |
French GAAP |
French GAAP |
French GAAP |
French GAAP |
French GAAP |
French GAAP |
French GAAP |
||
PROFIT & LOSS |
|||||||||
Revenue |
|
|
65,990 |
76,064 |
86,871 |
104,188 |
112,274 |
131,614 |
154,498 |
EBITDA |
|
|
14,871 |
16,399 |
18,279 |
20,054 |
21,927 |
26,477 |
34,179 |
Operating Profit (before amort and except) |
|
|
9,934 |
10,547 |
11,955 |
12,843 |
14,037 |
17,602 |
24,704 |
Amortisation of acquired intangibles |
(200) |
(300) |
(344) |
(425) |
(425) |
(425) |
(425) |
||
Exceptionals and other income |
(474) |
(456) |
(88) |
(62) |
0 |
0 |
0 |
||
Other income |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||
Operating Profit |
9,260 |
9,791 |
11,523 |
12,356 |
13,612 |
17,177 |
24,279 |
||
Net Interest |
(108) |
(110) |
(57) |
268 |
(67) |
100 |
100 |
||
Profit Before Tax (norm) |
|
|
9,949 |
10,669 |
12,215 |
13,634 |
14,462 |
18,302 |
25,504 |
Profit Before Tax (FRS 3) |
|
|
9,275 |
9,913 |
11,783 |
13,147 |
14,528 |
17,877 |
25,079 |
Tax |
(2,950) |
(3,148) |
(2,940) |
(3,402) |
(2,966) |
(3,933) |
(5,517) |
||
Profit After Tax (norm) |
6,785 |
7,281 |
9,168 |
10,106 |
11,509 |
14,275 |
19,893 |
||
Profit After Tax (FRS 3) |
6,325 |
6,765 |
8,843 |
9,745 |
11,562 |
13,944 |
19,562 |
||
Ave. Number of Shares Outstanding (m) |
5.3 |
5.3 |
5.4 |
5.4 |
5.7 |
5.7 |
5.8 |
||
EPS - normalised (c) |
|
|
128 |
138 |
170 |
186 |
203 |
248 |
340 |
EPS - normalised fully diluted (c) |
|
|
122 |
132 |
165 |
179 |
195 |
240 |
329 |
EPS - (GAAP) (c) |
|
|
120 |
128 |
164 |
180 |
204 |
243 |
335 |
Dividend per share (c) |
30 |
32 |
41 |
33 |
50 |
55 |
60 |
||
Gross margin (%) |
N/A |
N/A |
N/A |
N/A |
N/A |
N/A |
N/A |
||
EBITDA Margin (%) |
22.5 |
21.6 |
21.0 |
19.2 |
19.5 |
20.1 |
22.1 |
||
Operating Margin (before GW and except) (%) |
15.1 |
13.9 |
13.8 |
12.3 |
12.5 |
13.4 |
16.0 |
||
BALANCE SHEET |
|||||||||
Fixed Assets |
|
|
28,324 |
37,912 |
39,635 |
47,201 |
48,987 |
51,587 |
54,587 |
Intangible Assets |
22,381 |
26,673 |
28,096 |
29,323 |
30,787 |
33,287 |
35,787 |
||
Tangible Assets |
5,158 |
7,115 |
7,050 |
10,434 |
10,036 |
9,536 |
9,336 |
||
Other |
785 |
4,124 |
4,489 |
7,444 |
8,164 |
8,764 |
9,464 |
||
Current Assets |
|
|
42,024 |
42,823 |
49,016 |
52,022 |
72,918 |
69,327 |
85,343 |
Stocks |
101 |
176 |
147 |
185 |
257 |
257 |
257 |
||
Debtors |
19,523 |
21,253 |
25,551 |
30,015 |
31,440 |
36,780 |
43,175 |
||
Cash |
21,338 |
20,632 |
22,794 |
21,357 |
40,421 |
31,491 |
41,111 |
||
Other |
1,062 |
762 |
524 |
465 |
800 |
800 |
800 |
||
Current Liabilities |
|
|
(28,299) |
(26,206) |
(30,072) |
(34,300) |
(50,150) |
(41,983) |
(45,928) |
Creditors |
(28,299) |
(26,206) |
(30,072) |
(34,300) |
(38,650) |
(41,983) |
(45,928) |
||
Short term borrowings |
0 |
0 |
0 |
0 |
(11,500) |
0 |
0 |
||
Long Term Liabilities |
|
|
(7,657) |
(14,909) |
(10,810) |
(8,276) |
(6,342) |
(3,842) |
(2,698) |
Long term borrowings |
(7,657) |
(13,716) |
(9,318) |
(6,516) |
(3,644) |
(1,144) |
0 |
||
Other long term liabilities |
0 |
(1,193) |
(1,492) |
(1,760) |
(2,698) |
(2,698) |
(2,698) |
||
Net Assets |
|
|
34,392 |
39,620 |
47,769 |
56,647 |
65,413 |
75,089 |
91,305 |
CASH FLOW |
|||||||||
Operating Cash Flow |
|
|
15,944 |
17,311 |
18,366 |
20,290 |
24,389 |
24,470 |
31,728 |
Net Interest |
(127) |
(75) |
63 |
352 |
(30) |
100 |
100 |
||
Tax |
(1,456) |
(2,053) |
(2,795) |
(3,329) |
(884) |
(3,933) |
(5,517) |
||
Capex |
(7,021) |
(9,304) |
(7,789) |
(10,995) |
(10,223) |
(11,300) |
(12,200) |
||
Acquisitions/disposals |
(935) |
(7,551) |
(225) |
(486) |
(492) |
0 |
0 |
||
Financing |
467 |
(345) |
785 |
1,449 |
48 |
0 |
0 |
||
Dividends |
(1,550) |
(1,633) |
(1,756) |
(2,237) |
(1,896) |
(2,990) |
(3,346) |
||
Net Cash Flow |
5,322 |
(3,650) |
6,649 |
5,044 |
10,912 |
6,347 |
10,765 |
||
Opening net debt/(cash) |
|
|
(8,978) |
(13,681) |
(10,016) |
(16,576) |
(21,018) |
(30,177) |
(36,524) |
HP finance leases initiated |
(645) |
0 |
0 |
0 |
0 |
0 |
0 |
||
Other |
26 |
(15) |
(90) |
(602) |
(1,753) |
0 |
0 |
||
Closing net debt/(cash) |
|
|
(13,681) |
(10,016) |
(16,576) |
(21,018) |
(30,177) |
(36,524) |
(47,288) |
Source: Esker, Edison Investment Research
|
|
Research: Healthcare
The key news in the FY21 results statement was the restart of the Phase IIa (2m cell dose) extension study after a June safety halt due to a presumed intraocular eye infection (endophthalmitis). If some trial data is available by Q4 of CY21, this could open the way to a crucial partnering deal from probably mid-2022. The 12-month data from the first (1m dose) Phase IIa cohort showed stable responses with the two best patients seeing a doubling of their visual acuity. Preclinical projects in exosomes (drug targeting and delivery) and candidate cell lines (like a diabetes therapy) are progressing well but with no major partnerships as yet. FY21 (year ending 31 March) closed with £22.2m cash. Our valuation remains at £190m.