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Research: TMT
Esker reported Q224 year-on-year constant currency (cc) revenue growth of 14% and bookings annual recurring revenue (ARR) cc growth of 65%. Bookings more than doubled in the Americas, helped by a large upsell to an existing customer, and had double-digit growth in every other region. On the back of the strong order intake year-to-date, management confirmed that its expectations for FY24 were unchanged. We have made small upgrades to our forecasts to reflect the strong Q2 performance.
Esker |
Record Q2 orders; FY24 outlook maintained |
H124 revenue update |
Software and comp services |
18 July 2024 |
Share price performance
Business description
Next events
Analyst
Esker is a research client of Edison Investment Research Limited |
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Esker reported Q224 year-on-year constant currency (cc) revenue growth of 14% and bookings annual recurring revenue (ARR) cc growth of 65%. Bookings more than doubled in the Americas, helped by a large upsell to an existing customer, and had double-digit growth in every other region. On the back of the strong order intake year-to-date, management confirmed that its expectations for FY24 were unchanged. We have made small upgrades to our forecasts to reflect the strong Q2 performance.
Year end |
Revenue (€m) |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/22 |
159.0 |
23.4 |
3.04 |
0.75 |
61.0 |
0.4 |
12/23 |
178.6 |
19.8 |
2.48 |
0.65 |
74.9 |
0.4 |
12/24e |
201.5 |
26.7 |
3.29 |
0.83 |
56.3 |
0.4 |
12/25e |
228.8 |
32.2 |
3.91 |
1.00 |
47.4 |
0.5 |
Note: *PBT and EPS (fully diluted) are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
H124 revenue +13% y-o-y, orders +50% y-o-y
Revenue and bookings growth accelerated in Q224, at 14% and 65% respectively in cc, resulting in H124 revenue growth of 13% and bookings growth of 50%. SaaS revenue increased 13% in Q224 and H124; SaaS subscription fees grew 30% in H124 offset by a 1% decline in SaaS transaction fees, reflecting the increased weighting of subscription fees in more recent contracts as well as the weaker economic environment. Implementation services revenue grew 28% in Q224 and 25% in H124 as the teams were fully utilised implementing recently won contracts, and there is a backlog of contracts that will support continued growth in H2.
FY24 outlook maintained; forecasts upgraded
Management confirmed that it continues to expect cc organic revenue growth of 12–14% and a 12–13% operating margin in FY24. We have slightly increased our revenue and operating profit forecasts, expecting 12.9% revenue growth and a 12.3% operating margin, driving EPS upgrades of 3.0% in FY24 and 0.8% in FY25.
Valuation: Reflects successful SaaS business model
Based on EV/sales and P/E ratios, the stock continues to trade at a premium to French software peers (CY P/E c 22x). We believe this is due to Esker’s high level of recurring revenue, history of and potential for double-digit profitable growth and its strong balance sheet. Esker trades broadly in line with the average of its US SaaS peer group (CY P/E c 54x), which has similar growth and margin prospects. Potential triggers for upgrades include improving traffic volumes, successful implementation of recent contract wins, evidence of margin growth and continued strength in new business wins. With net cash of €46.9m at the end of H124, the company is wellfunded to make bolt-on acquisitions or buy back shares.
Q224 revenue update
Exhibit 1 summarises Esker’s revenue and bookings performance in Q224 and H124. We note that management has disclosed the split of SaaS revenue between subscription and transaction fees for the first time.
Exhibit 1: Q224 and H124 revenue and bookings
€m |
Q224 |
Q223 |
y-o-y reported |
y-o-y constant currency |
H124 |
H123 |
y-o-y reported |
y-o-y constant currency |
Revenue |
||||||||
SaaS subscriptions |
22.1 |
16.7 |
32% |
32% |
42.1 |
32.4 |
30% |
30% |
SaaS transactions |
19.9 |
20.4 |
-3% |
-3% |
39.6 |
40.1 |
-1% |
-1% |
Total SaaS |
42.0 |
37.2 |
13% |
13% |
81.7 |
72.5 |
13% |
13% |
Implementation services |
9.0 |
7.0 |
29% |
28% |
16.7 |
13.4 |
25% |
25% |
Legacy products |
0.5 |
0.9 |
-44% |
-47% |
0.9 |
2.0 |
-55% |
-55% |
Total revenue |
51.5 |
45.1 |
14% |
14% |
99.3 |
87.9 |
13% |
13% |
ARR bookings |
7.3 |
4.6 |
59% |
65% |
13.1 |
8.7 |
50% |
50% |
Source: Esker
Esker reported 14% y-o-y growth in revenue in Q224 (also 14% in cc) with 13% growth for H124 (reported and cc). SaaS revenue growth was 13% for Q224 and H124, with subscription revenue showing substantial growth partially offset by declines in SaaS transaction-based revenue. Older SaaS contracts were constructed to include a monthly subscription fee and fees for transactions processed on the Esker platform, with each contributing roughly equal revenue over the life of the contract (typically three to five years). In recent years, the company has been shifting the structure of contracts in favour of subscription revenue, which provides more certainty and is not subject to variation in customer volumes. The decline in transaction-based revenue was therefore due to a combination of economic weakness reducing volumes processed and the effect of the lower weighting of transaction fees in more recently implemented contracts. See Exhibit 2 for the trend in both types of SaaS revenue.
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Exhibit 2: SaaS revenue by type |
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Source: Esker. Note: orange = subscription revenue, blue = transaction-based revenue. |
Implementation services revenue grew 28% cc in Q224 and 25% in H124. Management noted that the professional services team is operating at full capacity with a backlog of projects for implementation, providing confidence that both implementation services revenue and SaaS subscription revenue should continue to show strong growth in H224. Compared to internal resources, Esker has access to double the resources through the use of implementation partners, which should help it to deliver new contracts on a timely basis. As expected, legacy products revenue declined and now makes up only 1% of group revenue.
Another record quarter for bookings
In Q224, Esker signed new business worth €7.6m in ARR, 65% higher y-o-y cc and its highest ever bookings intake. For H124, ARR bookings of €13.1m were 50% higher cc. As the bookings ARR only takes into account contracted subscription revenue, some of the increase will be due to the higher weighting of subscription revenue in new contracts, but we assume that the majority of the growth is due to higher customer demand. Exhibit 3 summarises the order intake by product. In Q224, on a geographic basis, the Americas saw bookings growth of 116%, Europe 52%, Asia-Pacific 37% and France 18%. Management noted that it had signed a large contract in the US worth €0.9m – this was with an existing customer that already used Accounts Payable automation and had decided to automate the Accounts Receivable process too. In France, the recent political turmoil has resulted in longer sales cycles, delaying some orders. The SaaS deal pipeline stood at €198m at the end of H124, 9% higher than a year ago and roughly flat year-to-date, reflecting new deals entering the pipeline being offset by deals won in H1.
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Exhibit 3: Bookings trends |
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Source: Esker |
New Source-to-Pay functionality supports ESG data collection
We had previously written that Esker was developing new functionality to help customers meet their ESG requirements. In July, the company announced that this functionality was now available in its Source-to-Pay suite. This includes:
■
Ethical sourcing: Esker Sourcing by Market Dojo helps companies to identify suppliers aligned with their sustainability objectives via calls for tenders, requests for information or pre-qualification questionnaires that incorporate weighted bid scoring, which considers sustainability criteria alongside pricing factors.
■
Supplier evaluation and selection: Esker Supplier Management supports the creation of supplier ESG questionnaires, the monitoring of third-party indicators for ESG scores and reporting on diversity criteria.
■
Green purchasing: Esker Procurement catalogues include the CO2 impact of products.
■
Greenhouse gas emissions dashboards: Esker Accounts Payable extracts Scope 2 carbon emission metrics from utility bills and calculates Scope 1 and 3 emissions from various data sources.
■
Late payment prediction and early payment plan: Esker Accounts Payable helps companies to anticipate and identify invoices at risk of late payment, to safeguard financial stability and support ethical business practices.
Outlook and changes to forecasts
Management maintained its FY24 guidance for cc revenue growth of 12–14% with an operating margin in the range of 12–13%, and confirmed that it would keep headcount growth to 5% for the year, with wage increases at the rate of inflation at the start of the year (c 3–4%). We have revised up our forecasts to reflect the stronger-than-expected performance of both revenue and bookings in Q224, driving small EPS upgrades.
Exhibit 4: Changes to forecasts
€m |
FY24e old |
FY24e new |
change |
y-o-y |
FY25e old |
FY25e new |
change |
y-o-y |
Revenues |
200.0 |
201.5 |
0.7% |
12.9% |
227.7 |
228.8 |
0.5% |
13.6% |
EBITDA |
38.0 |
38.7 |
2.0% |
30.9% |
45.2 |
45.5 |
0.5% |
17.3% |
EBITDA margin |
19.0% |
19.2% |
0.2% |
2.6% |
19.9% |
19.9% |
0.0% |
0.6% |
Normalised EBIT |
24.2 |
25.0 |
3.2% |
37.5% |
30.5 |
30.7 |
0.8% |
22.9% |
Normalised EBIT margin |
12.1% |
12.4% |
0.3% |
2.2% |
13.4% |
13.4% |
0.0% |
1.0% |
Reported EBIT |
24.0 |
24.7 |
3.2% |
38.1% |
30.2 |
30.5 |
0.8% |
23.1% |
Reported EBIT margin |
12.0% |
12.3% |
0.3% |
2.2% |
13.3% |
13.3% |
0.0% |
1.0% |
Normalised PBT |
25.9 |
26.7 |
3.0% |
34.6% |
31.9 |
32.2 |
0.8% |
20.8% |
Normalised net income |
19.7 |
20.3 |
3.0% |
35.0% |
24.3 |
24.5 |
0.8% |
20.8% |
Reported net income |
19.5 |
20.1 |
3.0% |
35.0% |
24.1 |
24.3 |
0.8% |
21.0% |
Normalised diluted EPS (€) |
3.20 |
3.29 |
3.0% |
33.0% |
3.89 |
3.91 |
0.8% |
18.8% |
Reported basic EPS (€) |
3.27 |
3.37 |
3.0% |
33.5% |
3.98 |
4.01 |
0.8% |
19.0% |
Reported diluted EPS (€) |
3.17 |
3.26 |
3.0% |
33.0% |
3.85 |
3.88 |
0.8% |
19.0% |
Net cash |
51.7 |
52.0 |
0.5% |
21.8% |
63.4 |
63.9 |
0.8% |
23.0% |
DPS (€) |
0.83 |
0.83 |
0.0% |
27.7% |
1.00 |
1.00 |
0.0% |
20.5% |
Source: Edison Investment Research
Exhibit 5: Financial summary
€'m |
2019 |
2020 |
2021 |
2022 |
2023 |
2024e |
2025e |
||
Year end 31 December |
French GAAP |
French GAAP |
French GAAP |
French GAAP |
French GAAP |
French GAAP |
French GAAP |
||
PROFIT & LOSS |
|||||||||
Revenue |
|
|
104.2 |
112.3 |
133.6 |
159.0 |
178.6 |
201.5 |
228.8 |
EBITDA |
|
|
20.1 |
21.9 |
25.7 |
31.8 |
29.6 |
38.7 |
45.5 |
Normalised Operating Profit |
|
|
12.8 |
14.0 |
16.8 |
21.7 |
18.2 |
25.0 |
30.7 |
Amortisation of acquired intangibles |
(0.4) |
(0.4) |
(0.3) |
(0.3) |
(0.3) |
(0.3) |
(0.3) |
||
Exceptionals and other income |
(0.1) |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Operating Profit |
12.4 |
13.6 |
16.6 |
21.4 |
17.9 |
24.7 |
30.5 |
||
Net Interest |
0.3 |
(0.1) |
0.2 |
0.3 |
0.6 |
0.7 |
0.5 |
||
Associates & joint ventures |
0.5 |
0.5 |
1.0 |
1.5 |
1.1 |
1.0 |
1.0 |
||
Exceptionals |
0.0 |
0.5 |
0.4 |
(0.3) |
0.1 |
0.0 |
0.0 |
||
Profit Before Tax (norm) |
|
|
13.6 |
14.5 |
18.0 |
23.4 |
19.8 |
26.7 |
32.2 |
Profit Before Tax (FRS 3) |
|
|
13.1 |
14.5 |
18.2 |
22.9 |
19.6 |
26.4 |
31.9 |
Tax |
(3.4) |
(3.0) |
(3.9) |
(5.0) |
(4.8) |
(6.3) |
(7.7) |
||
Profit After Tax (norm) |
10.1 |
11.5 |
14.2 |
18.3 |
15.0 |
20.3 |
24.5 |
||
Profit After Tax (FRS 3) |
9.7 |
11.6 |
14.3 |
17.9 |
14.9 |
20.1 |
24.3 |
||
Ave. No. of Shares Outstanding (m) |
5.4 |
5.7 |
5.8 |
5.9 |
5.9 |
5.9 |
6.0 |
||
EPS - normalised (€) |
|
|
1.86 |
2.03 |
2.42 |
3.11 |
2.55 |
3.41 |
4.04 |
EPS - normalised fully diluted (€) |
|
|
1.79 |
1.99 |
2.37 |
3.04 |
2.48 |
3.29 |
3.91 |
EPS - (GAAP) (€) |
|
|
1.80 |
2.04 |
2.44 |
3.04 |
2.53 |
3.37 |
4.01 |
Dividend per share (€) |
0.33 |
0.50 |
0.60 |
0.75 |
0.65 |
0.83 |
1.00 |
||
Gross margin (%) |
N/A |
N/A |
N/A |
N/A |
N/A |
N/A |
N/A |
||
EBITDA Margin (%) |
19.2 |
19.5 |
19.2 |
20.0 |
16.6 |
19.2 |
19.9 |
||
Normalised Operating Margin (%) |
12.3 |
12.5 |
12.6 |
13.6 |
10.2 |
12.4 |
13.4 |
||
BALANCE SHEET |
|||||||||
Fixed Assets |
|
|
47.2 |
49.0 |
57.2 |
71.7 |
75.9 |
80.4 |
84.9 |
Intangible Assets |
29.3 |
30.8 |
33.6 |
47.7 |
51.4 |
54.9 |
58.4 |
||
Tangible Assets |
10.4 |
10.0 |
9.9 |
9.0 |
8.7 |
8.7 |
8.7 |
||
Other |
7.4 |
8.2 |
13.7 |
15.0 |
15.9 |
16.9 |
17.9 |
||
Current Assets |
|
|
52.0 |
72.9 |
71.5 |
90.7 |
96.4 |
109.8 |
126.9 |
Stocks |
0.2 |
0.3 |
0.3 |
0.5 |
0.3 |
0.3 |
0.3 |
||
Debtors |
30.0 |
31.4 |
35.5 |
46.2 |
46.2 |
52.4 |
59.6 |
||
Cash |
21.4 |
40.4 |
35.0 |
42.9 |
48.8 |
56.0 |
65.9 |
||
Other |
0.5 |
0.8 |
0.7 |
1.1 |
1.1 |
1.1 |
1.1 |
||
Current Liabilities |
|
|
(34.3) |
(50.2) |
(45.9) |
(45.6) |
(49.8) |
(52.7) |
(56.3) |
Creditors |
(34.3) |
(38.7) |
(44.7) |
(45.6) |
(49.8) |
(52.7) |
(56.3) |
||
Short-term borrowings |
0.0 |
(11.5) |
(1.2) |
0.0 |
0.0 |
0.0 |
0.0 |
||
Long-term Liabilities |
|
|
(8.3) |
(6.3) |
(2.5) |
(18.1) |
(14.2) |
(12.2) |
(10.2) |
Long-term borrowings |
(6.5) |
(3.6) |
0.0 |
(15.0) |
(10.9) |
(8.9) |
(6.9) |
||
Other long-term liabilities |
(1.8) |
(2.7) |
(2.5) |
(3.1) |
(3.2) |
(3.2) |
(3.2) |
||
Net Assets |
|
|
56.6 |
65.4 |
80.4 |
98.6 |
108.4 |
125.3 |
145.4 |
CASH FLOW |
|||||||||
Operating Cash Flow |
|
|
20.3 |
24.4 |
28.8 |
22.9 |
36.4 |
36.5 |
42.9 |
Net Interest |
0.4 |
(0.0) |
0.3 |
0.2 |
0.4 |
0.7 |
0.5 |
||
Tax |
(3.3) |
(0.9) |
(3.4) |
(4.5) |
(5.3) |
(6.3) |
(7.7) |
||
Capex |
(11.0) |
(10.2) |
(11.1) |
(14.7) |
(16.0) |
(17.5) |
(18.5) |
||
Acquisitions/disposals |
(0.5) |
(0.5) |
(5.9) |
(7.5) |
(1.1) |
0.0 |
0.0 |
||
Financing |
1.4 |
0.0 |
2.8 |
1.1 |
0.3 |
0.0 |
0.0 |
||
Dividends |
(2.2) |
(1.9) |
(2.9) |
(3.6) |
(4.5) |
(4.0) |
(5.2) |
||
Net Cash Flow |
5.0 |
11.0 |
8.5 |
(6.0) |
10.2 |
9.3 |
11.9 |
||
Opening net debt/(cash) |
|
|
(16.6) |
(21.0) |
(30.3) |
(38.6) |
(32.6) |
(42.7) |
(52.0) |
HP finance leases initiated |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other |
(0.6) |
(1.7) |
(0.2) |
(0.1) |
(0.1) |
0.0 |
0.0 |
||
Closing net debt/(cash) |
|
|
(21.0) |
(30.3) |
(38.6) |
(32.6) |
(42.7) |
(52.0) |
(63.9) |
Source: Esker, Edison Investment Research
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Research: TMT
Substrate AI buys, builds and scales ventures with proprietary artificial intelligence (AI) to transform companies across a range of sectors into AI driven businesses. Its core technology, Serenity Star, is a platform that gives clients an enterprise framework for rapidly deploying and managing generative AI solutions across their businesses. This platform is used as the basis of the AI transformation programmes of Substrate’s companies and is sold as a model-as-a-service (MaaS) software solution via Subgen AI, the group’s core technology business. Management has proposed separating the company, with Substrate retaining a significant c 15% shareholding and an exclusive licence to sell Subgen products in Spain, Africa and the Middle East.