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Research: TMT
Esker reported 18% y-o-y revenue growth for Q122 and continues to expect organic growth of 15–16% for the full year with operating margins in its target range of 12–15%. This is in line with our forecasts, which are unchanged. The lifetime value of new contracts signed in Q122 increased by 23% y-o-y to €13.3m, underpinning our growth expectations.
Esker |
Q1 revenue in line, outlook maintained |
Q1 revenue update |
Software & comp services |
21 April 2022 |
Share price performance
Business description
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Analyst
Esker is a research client of Edison Investment Research Limited |
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Esker reported 18% y-o-y revenue growth for Q122 and continues to expect organic growth of 15–16% for the full year with operating margins in its target range of 12–15%. This is in line with our forecasts, which are unchanged. The lifetime value of new contracts signed in Q122 increased by 23% y-o-y to €13.3m, underpinning our growth expectations.
Year end |
Revenue (€m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/20 |
112.3 |
14.5 |
1.99 |
0.50 |
84.8 |
0.3 |
12/21 |
133.6 |
18.2 |
2.39 |
0.55 |
70.6 |
0.3 |
12/22e |
156.8 |
21.3 |
2.75 |
0.60 |
61.2 |
0.4 |
12/23e |
182.9 |
26.7 |
3.39 |
0.65 |
49.7 |
0.4 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Q122 revenue growth of 18% y-o-y
Esker reported Q122 revenue of €36.5m, up 18% y-o-y or 14% on a constant currency (cc) basis. SaaS revenue grew 23% y-o-y (20% cc) to make up 80% of revenue. Implementation services revenue grew 8% y-o-y (4% cc) making up 16% of revenue, affected by high COVID-19 case rates at the beginning of the year. Legacy product revenue declined 22% y-o-y (23% cc) to make up only 4% of revenue. The annual recurring revenue (ARR) of new contracts signed in Q122 increased 11% y-o-y to €3.64m, with the total value of new contracts increasing by 23% to €13.3m. This implies an average contract length of 3.7 years, compared to 3.3 years in Q121. Net cash at the end of Q1 totalled €41.2m, leaving ample funds for bolt-on acquisitions.
Outlook unchanged
The company continues to expect organic revenue growth of 15–16% for FY22. Assuming it completes early in Q222, we estimate that the acquisition of the majority stake in Market Dojo will contribute c €1.5m to revenue in FY22, resulting in total growth of 17% for the year. The company continues to target an operating margin of 12–15% for FY22 – we are at the lower end of this range. Our estimates are unchanged.
Valuation: Reflects high level of recurring revenue
The share price has been relatively flat since it rebased after Esker reported FY21 results. Based on P/E ratios for FY22 and FY23, the stock continues to trade at a premium to French software peers and at a discount to US SaaS peers, we believe due to its high level of recurring revenue, history of and potential for double-digit profitable growth and strong balance sheet. We see potential for upside if the company achieves profitability at the upper end of its target range.
Exhibit 1: Financial summary
€'000s |
2016 |
2017 |
2018 |
2019 |
2020 |
2021 |
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 |
133,580 |
156,814 |
182,923 |
EBITDA |
|
|
14,871 |
16,399 |
18,279 |
20,054 |
21,927 |
25,653 |
29,572 |
35,662 |
Operating Profit (before amort and except) |
|
|
9,934 |
10,547 |
11,955 |
12,843 |
14,037 |
17,006 |
19,997 |
25,287 |
Amortisation of acquired intangibles |
(200) |
(300) |
(344) |
(425) |
(425) |
(425) |
(425) |
(425) |
||
Exceptionals and other income |
(474) |
(456) |
(88) |
(62) |
0 |
0 |
0 |
0 |
||
Other income |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||
Operating Profit |
9,260 |
9,791 |
11,523 |
12,356 |
13,612 |
16,581 |
19,572 |
24,862 |
||
Net Interest |
(108) |
(110) |
(57) |
268 |
(67) |
202 |
200 |
200 |
||
Profit Before Tax (norm) |
|
|
9,949 |
10,669 |
12,215 |
13,634 |
14,462 |
18,210 |
21,297 |
26,687 |
Profit Before Tax (FRS 3) |
|
|
9,275 |
9,913 |
11,783 |
13,147 |
14,528 |
18,188 |
20,872 |
26,262 |
Tax |
(2,950) |
(3,148) |
(2,940) |
(3,402) |
(2,966) |
(3,907) |
(4,592) |
(5,778) |
||
Profit After Tax (norm) |
6,785 |
7,281 |
9,168 |
10,106 |
11,509 |
14,298 |
16,612 |
20,816 |
||
Profit After Tax (FRS 3) |
6,325 |
6,765 |
8,843 |
9,745 |
11,562 |
14,281 |
16,280 |
20,485 |
||
Ave. Number of Shares Outstanding (m) |
5.3 |
5.3 |
5.4 |
5.4 |
5.7 |
5.8 |
5.8 |
5.9 |
||
EPS - normalised (c) |
|
|
128 |
138 |
170 |
186 |
203 |
245 |
285 |
351 |
EPS - normalised fully diluted (c) |
|
|
122 |
132 |
165 |
179 |
199 |
239 |
275 |
339 |
EPS - (GAAP) (c) |
|
|
120 |
128 |
164 |
180 |
204 |
244 |
279 |
345 |
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 |
19.2 |
18.9 |
19.5 |
||
Operating Margin (before GW and except) (%) |
15.1 |
13.9 |
13.8 |
12.3 |
12.5 |
12.7 |
12.8 |
13.8 |
||
BALANCE SHEET |
||||||||||
Fixed Assets |
|
|
28,324 |
37,912 |
39,635 |
47,201 |
48,987 |
57,229 |
70,689 |
74,089 |
Intangible Assets |
22,381 |
26,673 |
28,096 |
29,323 |
30,787 |
33,644 |
45,804 |
47,604 |
||
Tangible Assets |
5,158 |
7,115 |
7,050 |
10,434 |
10,036 |
9,896 |
10,096 |
10,496 |
||
Other |
785 |
4,124 |
4,489 |
7,444 |
8,164 |
13,689 |
14,789 |
15,989 |
||
Current Assets |
|
|
42,024 |
42,823 |
49,016 |
52,022 |
72,918 |
71,534 |
74,554 |
91,923 |
Stocks |
101 |
176 |
147 |
185 |
257 |
341 |
341 |
341 |
||
Debtors |
19,523 |
21,253 |
25,551 |
30,015 |
31,440 |
35,548 |
43,822 |
51,118 |
||
Cash |
21,338 |
20,632 |
22,794 |
21,357 |
40,421 |
34,978 |
29,724 |
39,796 |
||
Other |
1,062 |
762 |
524 |
465 |
800 |
667 |
667 |
667 |
||
Current Liabilities |
|
|
(28,299) |
(26,206) |
(30,072) |
(34,300) |
(50,150) |
(45,872) |
(48,253) |
(52,242) |
Creditors |
(28,299) |
(26,206) |
(30,072) |
(34,300) |
(38,650) |
(44,703) |
(48,253) |
(52,242) |
||
Short term borrowings |
0 |
0 |
0 |
0 |
(11,500) |
(1,169) |
0 |
0 |
||
Long Term Liabilities |
|
|
(7,657) |
(14,909) |
(10,810) |
(8,276) |
(6,342) |
(2,497) |
(2,497) |
(2,497) |
Long term borrowings |
(7,657) |
(13,716) |
(9,318) |
(6,516) |
(3,644) |
0 |
0 |
0 |
||
Other long term liabilities |
0 |
(1,193) |
(1,492) |
(1,760) |
(2,698) |
(2,497) |
(2,497) |
(2,497) |
||
Net Assets |
|
|
34,392 |
39,620 |
47,769 |
56,647 |
65,413 |
80,394 |
94,494 |
111,273 |
CASH FLOW |
||||||||||
Operating Cash Flow |
|
|
15,944 |
17,311 |
18,366 |
20,290 |
24,389 |
28,844 |
24,847 |
32,355 |
Net Interest |
(127) |
(75) |
63 |
352 |
(30) |
253 |
200 |
200 |
||
Tax |
(1,456) |
(2,053) |
(2,795) |
(3,329) |
(884) |
(3,420) |
(4,592) |
(5,778) |
||
Capex |
(7,021) |
(9,304) |
(7,789) |
(10,995) |
(10,167) |
(11,140) |
(12,200) |
(13,000) |
||
Acquisitions/disposals |
(935) |
(7,551) |
(225) |
(486) |
(492) |
(4,502) |
(9,000) |
0 |
||
Financing |
467 |
(345) |
785 |
1,449 |
48 |
2,769 |
0 |
0 |
||
Dividends |
(1,550) |
(1,633) |
(1,756) |
(2,237) |
(1,896) |
(2,897) |
(3,340) |
(3,705) |
||
Net Cash Flow |
5,322 |
(3,650) |
6,649 |
5,044 |
10,968 |
9,907 |
(4,084) |
10,072 |
||
Opening net debt/(cash) |
|
|
(8,978) |
(13,681) |
(10,016) |
(16,576) |
(21,018) |
(30,285) |
(38,609) |
(34,524) |
HP finance leases initiated |
(645) |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||
Other |
26 |
(15) |
(90) |
(602) |
(1,701) |
(1,583) |
0 |
0 |
||
Closing net debt/(cash) |
|
|
(13,681) |
(10,016) |
(16,576) |
(21,018) |
(30,285) |
(38,609) |
(34,524) |
(44,596) |
Source: Esker, Edison Investment Research
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Research: TMT
GB Group (GBG) expects to report revenue and adjusted operating profit for FY22 well ahead of our and consensus forecasts having seen a strong performance across all three divisions in H222. We have raised our forecasts to reflect this strength, with EPS upgrades of 5.4% for FY22, 1.9% for FY23 and 1.6% for FY24. In our view, there is a widening discrepancy between the company’s growth potential and its valuation.