Esker — Positive outlook

Esker (PAR: ALESK)

Last close As at 27/03/2024

EUR184.00

2.50 (1.38%)

Market capitalisation

EUR1,097m

More on this equity

Research: TMT

Esker — Positive outlook

Esker reported a strong close to the year, with Q421 revenue up 16% y-o-y despite a resurgence of the pandemic in December and FY21 revenue ahead of our estimate. Growth in both the annual recurring value and average length of contracts signed in FY21 provides support for management’s expectations of 16% revenue growth in FY22. Esker also recently agreed to acquire Market Dojo, an e-procurement software provider, to enhance its Procure-to-Pay offering. We have revised our forecasts to reflect better FY21 revenues, currency and the acquisition. Our normalised diluted EPS forecast increases by 3.2% in FY21 and reflecting investment in Market Dojo, reduces by 3.2% in FY22.

Katherine Thompson

Written by

Katherine Thompson

Director

TMT

Esker

Positive outlook

Q4 revenue update

Software & comp services

18 January 2022

Price

€261

Market cap

€1,514m

$1.13:€1

Net cash (€m) at end FY21

38.6

Shares in issue

5.8m

Free float

78%

Code

ALESK

Primary exchange

Euronext Growth Paris

Secondary exchange

OTCQX

Share price performance

%

1m

3m

12m

Abs

(19.4)

(8.6)

27.6

Rel (local)

(22.5)

(13.8)

1.9

52-week high/low

€362

€184

Business description

Esker provides end-to-end SaaS-based document automation solutions supporting order-to-cash and procure-to-pay processes. In FY20, the business generated 56% of revenues from Europe, 38% from the US and the remainder from Asia and Australia.

Next events

FY21 results

24 March 2022

Analyst

Katherine Thompson

+44 (0)20 3077 5730

Esker is a research client of Edison Investment Research Limited

Esker reported a strong close to the year, with Q421 revenue up 16% y-o-y despite a resurgence of the pandemic in December and FY21 revenue ahead of our estimate. Growth in both the annual recurring value and average length of contracts signed in FY21 provides support for management’s expectations of 16% revenue growth in FY22. Esker also recently agreed to acquire Market Dojo, an e-procurement software provider, to enhance its Procure-to-Pay offering. We have revised our forecasts to reflect better FY21 revenues, currency and the acquisition. Our normalised diluted EPS forecast increases by 3.2% in FY21 and reflecting investment in Market Dojo, reduces by 3.2% in FY22.

Year end

Revenue (€m)

PBT*
(€m)

Diluted EPS*
(€)

DPS
(€)

P/E
(x)

Yield

(%)

12/19

104.2

13.6

1.79

0.33

145.8

0.1

12/20

112.3

14.5

1.99

0.50

131.2

0.2

12/21e

133.7

19.7

2.59

0.55

100.8

0.2

12/22e

157.1

23.7

3.07

0.60

85.0

0.2

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

FY21 revenue ahead of expectations

Esker reported Q421 revenue of €35.9m (+16% y-o-y) and FY21 revenue of €133.7m (+19% y-o-y, 1.6% ahead of our forecast). The annual recurring revenue (ARR) of orders received in the year increased 25% to €13.2m and the average contract length increased from 3.2 years in FY20 to 3.6 years in FY21. The company expects to generate revenue of c €155m in FY22 (+16%) and maintained its operating margin target range of 12–15%.

Acquiring e-procurement business, Market Dojo

Esker has agreed to acquire Market Dojo, a provider of SaaS-based e-procurement software, with the deal structured in two stages: 50.1% to be acquired upfront and the remaining 49.9% after four years, funded 80/20 cash/equity. We have factored in an initial cost of €10.2m in Q122 and assume the business is operating at break-even. Market Dojo provides software for the earlier part of the procurement process (eg e-sourcing, reverse auctions), rounding out Esker’s Procure-to-Pay offering. We have revised our forecasts to reflect currency, stronger than expected performance in Q421, guidance for FY22 and the Market Dojo deal.

Valuation: Reflects growth in recurring revenues

After doubling in 2021, the stock has declined 27% year to date, and continues to trade at a premium to document processing automation software and French software peers but at a discount to US SaaS peers. Esker’s valuation metrics have moved much closer to the US SaaS software peer group over the last two years. 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, and the potential for multi-year, profitable, double-digit growth. Esker has the added advantage of a strong balance sheet to fund growth.

Acquisition of Market Dojo

Esker has announced the planned acquisition of e-procurement software business Market Dojo. Market Dojo (MD) was established in 2010 in the UK and has 20 employees and more than 160 customers (60% outside of the UK, including France, the US and the Middle East). MD provides SaaS-based software for the procurement market, with solutions for e-sourcing and supplier engagement. MD generated trailing 12-month revenue of £1.3m, representing growth of 30%.

Terms of the deal

Esker will initially buy 50.1% of the company and will buy the remaining 49.9% after four years. In both cases, the company will be valued at 13x annual recurring revenue (Esker currently trades at c 16.4x FY21e recurring revenue). The price will be settled in a mixture of cash and equity in the ratio 80/20, with shares locked up for two years. MD will continue to operate as a standalone business over the next four years, although we would expect Esker and MD to work closely together to grow the MD business and introduce MD customers to Esker.

The company has not disclosed the ARR to be used for the first payment. We have made the following assumptions:

Initial payment: using an ARR of £1.3m (trailing 12-month revenue), we estimate a payment of £8.5m/€10.2m (using €1.2/£).

Final payment: using a 30% growth rate per year, this would imply ARR of £3.7m after four years and a payment of £24.1m/€28.9m.

Deal rationale

Esker’s Procure-to-Pay suite has evolved from its Accounts Payable automation software, with functionality added over time to address the earlier parts of the procurement cycle such as supplier, contract and catalogue management. A major area of product development for the company has been and continues to be deepening this functionality. The acquisition of MD brings additional functionality for the procurement process, including e-sourcing, reverse auction and category spend analysis, as well as supplier management, supplier onboarding and contract management. In addition, MD typically serves customers for both direct and indirect spend, whereas Esker has historically served more of the indirect spend market.

Q421 revenue update

Esker reported Q421 revenue of €35.9m, up 16% y-o-y or 14% at constant currency (cc). This resulted in FY21 revenue of €133.7m, up 19% or 20% cc, and 1.6% ahead of our €131.6m forecast. The company noted that December saw a slowing in transaction volumes due to the resurgence of the pandemic but, despite this, saw Q421 SaaS revenue increase 20% y-o-y/18% cc and FY21 SaaS revenue increase 22%/23% cc. Revenue from implementation services increased 18% year-on-year/19% cc in FY21, growing from €5.5m in Q121 to €6.2m in Q421. Revenue from legacy products declined 12% y-o-y/10% cc.

The company received bookings worth €3.65m in ARR in Q421, slightly down from the €3.78m in Q420, which was a record quarter for Esker and reflected a catch-up in orders after pandemic-related delays earlier in FY20. The company noted that the resurgence of the pandemic delayed the signing of some contracts in Q421. The ARR of orders received in FY21 was €13.2m, 25% higher y-o-y.

The lifetime value of orders received in FY21 was €48.0m, 38% higher than in FY20 (note that this includes the value of SaaS subscriptions only, with volume-related fees excluded from this measure as they are variable). This implies an average contract length of 3.6 years for contracts signed in FY21 compared to 3.2 years in FY20.

Esker expects to report operating income at a similar level to H121 (14.3% margin) and closed the year with a net cash position of €38.6m.

For FY22, the company expects to achieve double-digit organic growth with sales around €155m (our forecast was €153.6m) and operating profitability of 12–15%.

Changes to forecasts

We have factored in the MD acquisition, assuming it completes in Q122. We assume that the company invests in Market Dojo in FY22 and FY23, reducing our operating margin forecast. We have also raised our revenue forecasts for the original Esker business in FY21 and FY22, mainly due to currency. We have revised our €/$ exchange rate assumptions for FY22 from 1.20 to 1.15 and this also results in increased operating expenses. Overall, our normalised diluted EPS increases by 3.2% in FY21e and falls by 3.2% in FY22e. We also introduce forecasts for FY23.

Exhibit 1: Changes to forecasts

€m

FY21e old

FY21e new

change

y-o-y

FY22e old

FY22e new

change

y-o-y

FY23e new

y-o-y

Revenues

131.6

133.7

1.6%

19.1%

153.6

157.1

2.3%

17.5%

183.2

16.6%

EBITDA

27.4

28.0

2.2%

27.5%

32.7

31.9

(2.4%)

14.1%

36.8

15.2%

EBITDA margin

20.8%

20.9%

0.1%

1.4%

21.3%

20.3%

(1.0%)

(0.6%)

20.1%

(0.3%)

Normalised EBIT

18.2

18.8

3.3%

33.9%

23.1

22.3

(3.4%)

18.9%

26.6

19.0%

Normalised EBIT margin

13.8%

14.1%

0.2%

1.6%

15.1%

14.2%

(0.8%)

0.2%

14.5%

0.3%

Reported EBIT

17.8

18.4

3.4%

35.4%

22.7

21.9

(3.5%)

19.0%

26.2

19.4%

Reported EBIT margin

13.5%

13.8%

0.2%

1.7%

14.8%

14.0%

(0.8%)

0.2%

14.3%

0.3%

Normalised PBT

19.1

19.7

3.2%

36.2%

24.5

23.7

(3.2%)

20.6%

28.0

17.9%

Normalised net income

14.9

15.4

3.2%

33.5%

19.1

18.5

(3.2%)

20.6%

21.8

17.9%

Reported net income

14.6

15.1

3.2%

30.4%

18.8

18.2

(3.3%)

20.7%

21.5

18.2%

Normalised dil. EPS (€)

2.51

2.59

3.2%

30.1%

3.17

3.07

(3.2%)

18.6%

3.56

16.0%

Reported basic EPS (€)

2.54

2.63

3.2%

28.8%

3.22

3.11

(3.3%)

18.6%

3.62

16.2%

Reported diluted EPS (€)

2.46

2.54

3.2%

27.1%

3.11

3.01

(3.3%)

18.7%

3.50

16.3%

Net cash

38.2

38.5

0.7%

27.0%

47.9

38.4

(19.9%)

(0.1%)

49.8

29.7%

DPS (€)

0.55

0.55

0.0%

10.0%

0.60

0.60

0.0%

9.1%

0.65

8.3%

Source: Edison Investment Research


Exhibit 2: Financial summary

€'000s

2016

2017

2018

2019

2020

2021e

2022e

2023e

Year end 31 December

French GAAP

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

133,700

157,055

183,203

EBITDA

 

 

14,871

16,399

18,279

20,054

21,927

27,968

31,922

36,771

Operating Profit (before amort and except)

 

 

9,934

10,547

11,955

12,843

14,037

18,793

22,347

26,596

Amortisation of acquired intangibles

(200)

(300)

(344)

(425)

(425)

(425)

(425)

(425)

Exceptionals and other income

(474)

(456)

(88)

(62)

0

57

0

0

Other income

0

0

0

0

0

0

0

0

Operating Profit

9,260

9,791

11,523

12,356

13,612

18,425

21,922

26,171

Net Interest

(108)

(110)

(57)

268

(67)

100

200

200

Profit Before Tax (norm)

 

 

9,949

10,669

12,215

13,634

14,462

19,693

23,747

27,996

Profit Before Tax (FRS 3)

 

 

9,275

9,913

11,783

13,147

14,528

19,325

23,322

27,571

Tax

(2,950)

(3,148)

(2,940)

(3,402)

(2,966)

(4,251)

(5,131)

(6,066)

Profit After Tax (norm)

6,785

7,281

9,168

10,106

11,509

15,360

18,522

21,837

Profit After Tax (FRS 3)

6,325

6,765

8,843

9,745

11,562

15,073

18,191

21,505

Ave. Number of Shares Outstanding (m)

5.3

5.3

5.4

5.4

5.7

5.7

5.8

5.9

EPS - normalised (c)

 

 

128

138

170

186

203

268

317

368

EPS - normalised fully diluted (c)

 

 

122

132

165

179

199

259

307

356

EPS - (GAAP) (c)

 

 

120

128

164

180

204

263

311

362

Dividend per share (c)

30

32

41

33

50

55

60

65

Gross margin (%)

N/A

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

20.9

20.3

20.1

Operating Margin (before GW and except) (%)

15.1

13.9

13.8

12.3

12.5

14.1

14.2

14.5

BALANCE SHEET

Fixed Assets

 

 

28,324

37,912

39,635

47,201

48,987

51,687

65,247

68,847

Intangible Assets

22,381

26,673

28,096

29,323

30,787

33,187

45,747

48,147

Tangible Assets

5,158

7,115

7,050

10,434

10,036

9,536

9,336

9,336

Other

785

4,124

4,489

7,444

8,164

8,964

10,164

11,364

Current Assets

 

 

42,024

42,823

49,016

52,022

72,918

71,861

77,190

95,893

Stocks

101

176

147

185

257

257

257

257

Debtors

19,523

21,253

25,551

30,015

31,440

37,363

43,889

51,196

Cash

21,338

20,632

22,794

21,357

40,421

33,441

32,243

43,640

Other

1,062

762

524

465

800

800

800

800

Current Liabilities

 

 

(28,299)

(26,206)

(30,072)

(34,300)

(50,150)

(42,343)

(46,368)

(50,875)

Creditors

(28,299)

(26,206)

(30,072)

(34,300)

(38,650)

(42,343)

(46,368)

(50,875)

Short term borrowings

0

0

0

0

(11,500)

0

0

0

Long Term Liabilities

 

 

(7,657)

(14,909)

(10,810)

(8,276)

(6,342)

(3,842)

(2,698)

(2,698)

Long term borrowings

(7,657)

(13,716)

(9,318)

(6,516)

(3,644)

(1,144)

0

0

Other long term liabilities

0

(1,193)

(1,492)

(1,760)

(2,698)

(2,698)

(2,698)

(2,698)

Net Assets

 

 

34,392

39,620

47,769

56,647

65,413

77,363

93,371

111,168

CASH FLOW

Operating Cash Flow

 

 

15,944

17,311

18,366

20,290

24,389

25,738

29,420

33,971

Net Interest

(127)

(75)

63

352

(30)

100

200

200

Tax

(1,456)

(2,053)

(2,795)

(3,329)

(884)

(4,251)

(5,131)

(6,066)

Capex

(7,021)

(9,304)

(7,789)

(10,995)

(10,167)

(11,500)

(12,200)

(13,000)

Acquisitions/disposals

(935)

(7,551)

(225)

(486)

(492)

0

(9,000)

0

Financing

467

(345)

785

1,449

48

1,000

0

0

Dividends

(1,550)

(1,633)

(1,756)

(2,237)

(1,896)

(2,897)

(3,343)

(3,709)

Net Cash Flow

5,322

(3,650)

6,649

5,044

10,968

8,189

(54)

11,396

Opening net debt/(cash)

 

 

(8,978)

(13,681)

(10,016)

(16,576)

(21,018)

(30,285)

(38,474)

(38,420)

HP finance leases initiated

(645)

0

0

0

0

0

0

0

Other

26

(15)

(90)

(602)

(1,701)

0

(0)

0

Closing net debt/(cash)

 

 

(13,681)

(10,016)

(16,576)

(21,018)

(30,285)

(38,474)

(38,420)

(49,817)

Source: Esker, Edison Investment Research


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General disclaimer and copyright

This report has been commissioned by Esker and prepared and issued by Edison, in consideration of a fee payable by Esker. 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.

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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Carr’s Group — Engineering recovery sustained

Carr’s trading update for the first 20 weeks of FY22 notes that the group has made a positive start to the year with overall performance during the period broadly in line with Board expectations. Importantly, the announcement notes that while the Board sees potential for growth in each of the three divisions, there are limited opportunities to exploit inter-divisional synergies, so it has decided to conduct a strategic review. We leave our estimates unchanged and reiterate our indicative valuation of 170p/share.

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