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Research: TMT
EQS had a clear benefit in FY20 from the demand for virtual corporate communications but the key to future growth is in the corporate compliance segment. Its cloud-based products are set to be the core growth driver over the medium term. With the imminent implementation of European whistleblowing regulation, there is a short-term opportunity to gain new clients, with the potential to expand accounts after. To make the most of this, the group is investing an additional €5.6m in sales and marketing in FY21, reflected in our revised forecasts.
EQS Group |
Ramping up whistleblowing sales |
Final results |
Software & comp services |
12 April 2021 |
Share price performance
Business description
Next events
Analyst
EQS Group is a research client of Edison Investment Research Limited |
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EQS had a clear benefit in FY20 from the demand for virtual corporate communications but the key to future growth is in the corporate compliance segment. Its cloud-based products are set to be the core growth driver over the medium term. With the imminent implementation of European whistleblowing regulation, there is a short-term opportunity to gain new clients, with the potential to expand accounts after. To make the most of this, the group is investing an additional €5.6m in sales and marketing in FY21, reflected in our revised forecasts.
Year end |
Revenue (€m) |
EBITDA |
PBT* |
EPS* |
EV/EBITDA |
P/E |
12/19 |
35.4 |
2.6 |
(0.3) |
(7.4) |
100.1 |
N/A |
12/20 |
37.6 |
4.8 |
0.4 |
4.1 |
53.7 |
791.3 |
12/21e |
45.5 |
1.1 |
(3.1) |
(26.7) |
232.5 |
N/A |
12/22e |
53.2 |
4.3 |
0.1 |
(0.3) |
59.5 |
N/A |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Additional investment in FY21
There were no real surprises with the publication of the accounts, with the preliminary figures having been published in February. The Investor Relations segment grew 26% (pro-forma, adjusted for sale of ARIVA in FY20), to 47% of group revenue, while Compliance segment revenues were up 12% pro-forma. Reporting has been simplified, with revenues split between Investor Relations and Compliance, with each split between Cloud Products (SaaS) and Cloud Services. It is the SaaS revenues that are set to drive the stronger growth over the planned period through to FY25. For FY21, our EBITDA forecast is reduced from €6.1m to €1.1m to reflect the flagged additional investment in sales and marketing, which implies a slightly better underlying margin than we had built into our earlier forecast. Management guidance is for FY21 EBITDA to be in the €1.0–2.0m range, with the ambition to build group revenue to €100m, with an EBITDA margin of over 30%, by FY25e unchanged. On our modelling this looks challenging but achievable.
Funding in place
The group raised €9.1m gross in Q420 (placing at €26/share), with which it bought a 23% stake in C2S2 (in January 2021), a SaaS policy management provider with intelligence search functionality and 100% of Got Ethics (see December update) for €10m, again settled in January 2021. Got Ethics is an established provider of digital whistleblowing in Northern Europe. EQS raised a further €13.6m with a placing at €38/share in February. Having ended FY20 with net cash of €1.2m (€7.1m if leases are excluded), the group has the liquidity to support this further investment phase.
Valuation: Looking to the potential
With two recent placings, the share price has come off recent highs (€39.4 in February). On EV/sales, averaged across FY20–22e, the valuation is still at a discount of around 52% to larger peers, while earnings multiples are distorted by the additional investment.
New segmentation clarifies the narrative
With these results, management has moved on from the previous segmentation, which was becoming much less helpful in clarifying how the business was developing. The two key elements of Investor Relations and Corporate Compliance are maintained, but the smaller revenue streams, such as LEI customers, are now merged in with others. It is the Cloud Products that are set to be the main revenue drivers, based on the group’s COCKPIT platform. The revenue splits are shown below, along with our revised revenue forecast for FY21 and our new forecast for FY22. We have assumed that the main impetus for growth in FY21 is in Compliance Cloud Products, in line with the step up in the sales and marketing efforts behind the promotion of the whistleblowing solutions.
While this EU whistleblowing regulation is now active, the deadline for implementation in national laws is two years, which will be in December 2021. We would therefore expect the benefit to be heavily skewed to H221 and into H122, while the additional sales cost will be in place for most of H121. While we do not publish quarterly or half-yearly forecasts, it is clear that our forecast FY21 EBITDA will accrue in the second half. Management’s ambition is to gain 5k whistleblowing clients by FY25, of whom about 1k will choose to operate on EQS’s Compliance COCKPIT. There is obviously then considerable scope for cross-and up-selling.
Got Ethics, which will sell under the Integrity Line brand (and therefore report within Compliance Cloud-Products), should add €2.7–3.0m of annualised revenues.
Exhibit 1: New revenue segmentation
€000s |
FY19 |
FY20 |
FY21e |
FY22e |
Investor Relations |
||||
Cloud-products |
5,286 |
7,849 |
9,811 |
11,774 |
growth (%) |
0% |
48% |
25% |
20% |
Service-products |
8,717 |
9,818 |
10,309 |
10,721 |
growth (%) |
0% |
13% |
5% |
4% |
Discontinued operation (ARIVA.DE AG) |
2,072 |
0 |
0 |
0 |
Total Investor Relations |
16,075 |
17,667 |
20,120 |
22,495 |
growth (%) |
10% |
14% |
12% |
|
Like-for-like growth (%) |
26% |
|||
Compliance |
||||
Cloud-products |
9,332 |
10,696 |
15,458 |
20,089 |
growth (%) |
0% |
15% |
45% |
30% |
Service-products |
8,535 |
9,273 |
9,922 |
10,617 |
growth (%) |
0% |
9% |
7% |
7% |
Discontinued operation (ARIVA.DE AG) |
1,425 |
0 |
0 |
0 |
Total Compliance |
19,292 |
19,969 |
25,380 |
30,706 |
growth (%) |
4% |
27% |
21% |
|
Like-for-like growth (%) |
12% |
|||
Group |
35,367 |
37,636 |
45,500 |
53,200 |
growth |
6% |
21% |
17% |
|
Like-for-like growth (%) |
18% |
Source: Company accounts, Edison Investment Research
EQS continues to report other key metrics such as new annualised recurring revenues (ARR) (€5.32m), new SaaS customers (301) and SaaS contracts signed for the IR COCKPIT (631). Management’s goal is to win 1,500–2,000 new customers in FY21, with a target of €6m new ARR.
Our revised forecasts are shown in summary below. The main change is clearly the €5.6m of EBITDA identified by management as sacrificed to the sales effort. Our new FY22e figures reflect the benefit of that push on revenues. Guidance is for FY21 total revenue growth of 20–30% (including Got Ethics). We have come in at the low end of that range (with our FY21 Compliance revenue growth forecast of 27% below management’s indication of 30–40%) until we see evidence that the additional sales push will convert into active revenue.
Our EBITDA forecast is similarly at the low end of guided range of €1.0–2.0m.
Exhibit 2: Revisions to FY21 forecasts and new FY22 forecasts
EPS (c) |
PBT (€m) |
EBITDA (€m) |
|||||||||
Old |
New |
% chg. |
Old |
New |
% chg. |
Old |
New |
% chg. |
|||
2020 |
13.7 |
4.1 |
-70 |
1.4 |
0.4 |
-71 |
4.9 |
4.8 |
-2 |
||
2021e |
20.3 |
(26.7) |
N/A |
2.2 |
(3.1) |
N/A |
6.1 |
1.1 |
-82 |
||
2022e |
- |
(0.3) |
N/A |
- |
0.1 |
N/A |
- |
4.3 |
N/A |
||
Source: Company accounts, Edison Investment Research. Note: FY20 ‘new’ is actual
Management’s business plan is unchanged: FY25e revenues of €100m, split 68% Compliance, 32% Investor Relations, achieving an EBITDA margin of over 30%.
The recent fund-raises have put the group in a good financial position to weather the planned temporary reduction in EBITDA, as well as facilitating the bolt-on acquisitions of Got Ethics and the stake in C2S2. Having closed FY20 with net cash of €1.2m, our model indicates a build to €3.9m by end FY21e, with cash flow accelerating the following year. The underlying cash characteristics of the business model should be strong, with subscription income and a scalable product that should not demand further extensive capital investment.
Valuation: Off recent highs
Exhibit 3: Peer valuations
Price (reporting currency) |
Market cap (m) |
YTD % |
EV/sales (x) |
EV/EBITDA (x) |
P/E (x) |
|||||||
FY0 |
FY1 |
FY2 |
FY0 |
FY1 |
FY2 |
FY0 |
FY1 |
FY2 |
||||
Euromoney (£) |
950 |
1,038 |
-11 |
3.2 |
3.2 |
2.9 |
16.1 |
15.3 |
11.9 |
22.3 |
23.5 |
16.7 |
Thomson Reuters (US$) |
90 |
56,229 |
9 |
7.8 |
7.5 |
7.2 |
23.6 |
24.7 |
21.2 |
48.8 |
51.3 |
39.4 |
Envestnet (US$) |
74 |
4,025 |
-10 |
4.4 |
3.9 |
3.5 |
18.1 |
18.2 |
16.3 |
28.9 |
34.6 |
31.5 |
Swissquote Group (€) |
130 |
1,999 |
52 |
20.6 |
13.1 |
12.1 |
29.3 |
26.8 |
21.5 |
17.9 |
15.9 |
|
GlobalData (£) |
1,370 |
1,621 |
0 |
9.6 |
9.0 |
8.9 |
30.3 |
27.9 |
26.4 |
44.8 |
42.5 |
37.3 |
MSCI (US$) |
441 |
36,461 |
-1 |
22.7 |
19.9 |
18.1 |
39.7 |
33.7 |
30.3 |
56.3 |
47.3 |
41.8 |
S&P Global (US$) |
367 |
88,446 |
12 |
12.3 |
11.7 |
11.0 |
21.9 |
21.1 |
19.7 |
31.4 |
29.6 |
26.9 |
MarketAxess Holding (US$) |
520 |
19,758 |
-9 |
28.0 |
24.6 |
22.1 |
42.6 |
37.9 |
66.2 |
62.2 |
55.8 |
|
Average |
5 |
13.6 |
11.6 |
10.7 |
25.0 |
26.6 |
23.8 |
40.0 |
38.6 |
33.2 |
||
Median |
0 |
11.0 |
10.4 |
10.0 |
22.8 |
26.3 |
23.8 |
38.1 |
38.6 |
34.4 |
||
EQS (€) |
34.6 |
260.0 |
27 |
6.8 |
5.6 |
4.8 |
53.7 |
232.5 |
59.5 |
791.4 |
N/A |
N/A |
(Discount)/Premium |
-50% |
-52% |
-55% |
115% |
774% |
150% |
1877% |
N/A |
N/A |
|||
Source: Refinitiv. Note: Prices at 6 April 2021.
EQS’s share price climbed from €14.8 to €26.8 over the course of FY20, continuing to rise to a high of €39.6 in early February 2021 shortly before the second fund-raise.
On EV/sales, EQS remains valued at a substantial discount to larger global peers of 52%, averaged across FY20–22 to smooth out any COVID-19 impacts. This discount has narrowed from 65% at the time of our December update. Earnings-based multiples are obviously affected by the temporary reduction in profitability.
Exhibit 4: Financial summary
€'000 |
2018 |
2019 |
2020 |
2021e |
2022e |
||
31-December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
INCOME STATEMENT |
|||||||
Revenue |
|
|
36,210 |
35,367 |
37,636 |
45,500 |
53,200 |
Cost of Sales |
0 |
0 |
0 |
0 |
0 |
||
Gross Profit |
36,210 |
35,367 |
37,636 |
45,500 |
53,200 |
||
EBITDA |
|
|
239 |
2,554 |
4,760 |
1,100 |
4,300 |
Operating Profit (before amort. and except.) |
|
|
(1,299) |
(2,433) |
819 |
(2,841) |
359 |
Amortisation of acquired intangibles |
(821) |
(743) |
(656) |
(656) |
(656) |
||
Exceptionals |
0 |
0 |
0 |
0 |
0 |
||
Share-based payments |
0 |
0 |
0 |
0 |
0 |
||
Reported operating profit |
(2,120) |
(3,176) |
163 |
(3,497) |
(297) |
||
Net Interest |
1,954 |
2,093 |
(396) |
(239) |
(221) |
||
Joint ventures & associates (post tax) |
0 |
0 |
0 |
0 |
0 |
||
Exceptionals |
0 |
0 |
0 |
0 |
0 |
||
Profit Before Tax (norm) |
|
|
655 |
(340) |
423 |
(3,080) |
138 |
Profit Before Tax (reported) |
|
|
(166) |
(1,083) |
(233) |
(3,736) |
(518) |
Reported tax |
913 |
(610) |
(599) |
1,271 |
83 |
||
Profit After Tax (norm) |
439 |
(532) |
296 |
(2,055) |
(25) |
||
Profit After Tax (reported) |
747 |
(1,693) |
(832) |
(2,465) |
(435) |
||
Minority interests |
20 |
121 |
(34) |
(44) |
(51) |
||
Discontinued operations |
0 |
0 |
0 |
0 |
0 |
||
Net income (normalised) |
439 |
(532) |
296 |
(2,055) |
(25) |
||
Net income (reported) |
767 |
(1,572) |
(866) |
(2,509) |
(486) |
||
Average Number of Shares Outstanding (m) |
7,175 |
7,175 |
7,195 |
7,704 |
7,882 |
||
EPS - normalised (c) |
|
|
6.12 |
(7.41) |
4.12 |
(26.68) |
(0.32) |
EPS - normalised fully diluted (c) |
|
|
6.12 |
(7.41) |
4.12 |
(26.68) |
(0.32) |
EPS - basic reported (€) |
|
|
0.11 |
(0.22) |
(0.12) |
(0.33) |
(0.06) |
Dividend per share (c) |
0.00 |
0.00 |
0.00 |
0.00 |
0.00 |
||
Revenue growth (%) |
19.3 |
(2.3) |
6.4 |
20.9 |
16.9 |
||
EBITDA Margin (%) |
0.7 |
7.2 |
12.6 |
2.4 |
8.1 |
||
Normalised Operating Margin (%) |
(3.6) |
(6.9) |
2.2 |
(6.2) |
0.7 |
||
BALANCE SHEET |
|||||||
Fixed Assets |
|
|
41,219 |
43,841 |
39,447 |
49,018 |
50,042 |
Intangible Assets |
37,293 |
32,008 |
31,016 |
40,552 |
41,541 |
||
Tangible Assets |
2,241 |
8,838 |
7,216 |
7,251 |
7,286 |
||
Investments & other |
1,685 |
2,995 |
1,215 |
1,215 |
1,215 |
||
Current Assets |
|
|
7,250 |
6,094 |
17,086 |
20,862 |
21,170 |
Stocks |
0 |
0 |
0 |
0 |
0 |
||
Debtors |
5,030 |
3,841 |
3,923 |
4,941 |
5,778 |
||
Cash & cash equivalents |
1,308 |
1,184 |
12,074 |
14,832 |
14,303 |
||
Other |
912 |
1,069 |
1,089 |
1,089 |
1,089 |
||
Current Liabilities |
|
|
(14,326) |
(14,563) |
(12,381) |
(12,725) |
(13,063) |
Creditors |
(1,472) |
(1,848) |
(1,651) |
(1,996) |
(2,333) |
||
Tax and social security |
(129) |
(46) |
(56) |
(56) |
(56) |
||
Short term borrowings (includes lease debt) |
(6,961) |
(7,173) |
(3,276) |
(3,276) |
(3,276) |
||
Other |
(5,764) |
(5,496) |
(7,398) |
(7,398) |
(7,398) |
||
Long Term Liabilities |
|
|
(6,660) |
(10,195) |
(11,208) |
(11,208) |
(11,208) |
Long term borrowings (includes lease debt) |
(3,475) |
(7,481) |
(7,641) |
(7,641) |
(7,641) |
||
Other long term liabilities |
(3,185) |
(2,714) |
(3,567) |
(3,567) |
(3,567) |
||
Net Assets |
|
|
27,483 |
25,177 |
32,944 |
45,946 |
46,940 |
Minority interests |
420 |
(34) |
0 |
0 |
0 |
||
Shareholders' equity |
|
|
27,902 |
25,143 |
32,944 |
45,946 |
46,940 |
CASH FLOW |
|||||||
Op Cash Flow before WC and tax |
3,106 |
4,037 |
3,765 |
2,132 |
4,162 |
||
Working capital |
1,270 |
1,061 |
(1,037) |
(273) |
(499) |
||
Exceptional & other |
(1,646) |
(2,516) |
3,212 |
(685) |
435 |
||
Tax |
(135) |
(188) |
(154) |
1,271 |
83 |
||
Net operating cash flow |
|
|
2,595 |
2,394 |
5,786 |
2,445 |
4,181 |
Capex |
(5,441) |
(3,120) |
(2,007) |
(1,500) |
(1,500) |
||
Acquisitions/disposals |
(5,115) |
4,888 |
63 |
(11,500) |
(3,000) |
||
Net interest |
0 |
0 |
0 |
0 |
0 |
||
Equity financing |
0 |
0 |
9,124 |
13,523 |
0 |
||
Dividends |
0 |
0 |
0 |
0 |
0 |
||
Other |
1,792 |
(4,408) |
350 |
(210) |
(210) |
||
Net Cash Flow |
(6,169) |
(246) |
13,316 |
2,758 |
(529) |
||
Opening net debt/(cash) |
|
|
3,556 |
9,127 |
13,472 |
(1,155) |
(3,911) |
FX |
75 |
53 |
(199) |
0 |
0 |
||
Other non-cash movements |
522 |
(4,153) |
1,511 |
0 |
0 |
||
Closing net debt/(cash) |
|
|
9,127 |
13,472 |
(1,155) |
(3,911) |
(3,383) |
Source: Company accounts, Edison Investment Research
|
|
Research: Consumer
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