Esker — Signalling a return to double-digit growth

Esker (PAR: ALESK)

Last close As at 26/04/2024

EUR181.50

3.70 (2.08%)

Market capitalisation

EUR1,098m

More on this equity

Research: TMT

Esker — Signalling a return to double-digit growth

Esker reported constant currency revenue growth and operating profit growth of 9%, despite COVID-19 restrictions reducing volumes processed during the year and making it more difficult to sign new business in Q220. Order intake rebounded in Q3 and hit record levels in Q4, setting the company up for accelerating revenue growth in FY21. We have revised our forecasts to reflect lower ongoing tax rates and upgrade our FY21 EPS forecast by 10.5%; with our expectation that growth will return to pre-COVID levels in FY22 we forecast FY22 EPS growth of 42%.

Katherine Thompson

Written by

Katherine Thompson

Director

TMT

Esker

Signalling a return to double-digit growth

FY20 results

Software & comp services

29 March 2021

Price

€195.4

Market cap

€1,114m

US$1.19:€1

Net cash (€m) at end FY20

30.2

Shares in issue

5.7m

Free float

78%

Code

ALESK

Primary exchange

Euronext Growth Paris

Secondary exchange

OTCQX

Share price performance

%

1m

3m

12m

Abs

(9.6)

12.3

119.8

Rel (local)

(9.8)

4.1

66.0

52-week high/low

€240.0

€90.9

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

Q121 revenues

13 April

Analyst

Katherine Thompson

+44 (0)20 3077 5730

Esker is a research client of Edison Investment Research Limited

Esker reported constant currency revenue growth and operating profit growth of 9%, despite COVID-19 restrictions reducing volumes processed during the year and making it more difficult to sign new business in Q220. Order intake rebounded in Q3 and hit record levels in Q4, setting the company up for accelerating revenue growth in FY21. We have revised our forecasts to reflect lower ongoing tax rates and upgrade our FY21 EPS forecast by 10.5%; with our expectation that growth will return to pre-COVID levels in FY22 we forecast FY22 EPS growth of 42%.

Year end

Revenue (€m)

PBT*
(€m)

Diluted EPS*
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/19

104.2

13.6

1.79

0.33

109.3

0.2

12/20

112.3

14.5

1.95

0.35

100.3

0.2

12/21e

128.6

17.7

2.32

0.40

84.3

0.2

12/22e

151.8

25.5

3.29

0.45

59.4

0.2

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

FY20 results demonstrate robust business model

Supported by a high level of recurring revenues (81% in FY20), Esker survived the disruption from COVID-19 remarkably well, still managing to generate revenue growth of 9% (constant currency) and even increased reported operating margins by 0.2pp to 12.1%. The company continued to hire staff during the year, with average headcount up 13% y-o-y and a particular focus on R&D, consulting and customer experience. Despite this, lower than expected operating costs (helped by reduced marketing and travel costs) combined with a lower tax rate resulted in normalised EPS 19% ahead of our forecast. Net cash grew by 44% over the year to €30.2m. The pandemic has accelerated the need for cloud-based solutions which has benefited Esker as a SaaS-based technology provider for digital transformation of the back-office.

Growth accelerating in FY21, back to normal in FY22

Based on bookings growth of 17% for FY20, the company expects to be able to generate constant currency revenue growth of c 15% in FY21 with similar profitability to FY20. In FY19, the company generated constant currency revenue growth of 18%, and we believe it should be able to return to similar growth rates in FY22. Factoring in the lower tax rates due to the patent box, we upgrade our FY21 EPS by 10.5% (19% growth y-o-y) and forecast EPS growth of 42% for FY22.

Valuation: Reflects high level of recurring revenues

The stock trades at a premium to document processing automation (DPA) software and French software peers but at a discount to US SaaS peers. Esker has re-rated over the last year (the stock is up 112% over the last 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.

Review of FY20 results

Exhibit 1: FY20 results highlights

€m

FY19

FY20e

FY20a

% change

% y-o-y

Revenues

104.2

112.3

112.3

(0.1%)

7.8%

EBITDA

20.1

21.3

21.9

3.2%

9.3%

EBITDA margin

19.2%

18.9%

19.5%

0.6%

0.3%

Normalised EBIT

12.8

13.0

14.0

8.2%

9.3%

Normalised EBIT margin

12.3%

11.6%

12.5%

0.9%

0.2%

Reported EBIT

12.4

12.6

13.6

8.4%

10.2%

Reported EBIT margin

11.9%

11.2%

12.1%

0.9%

0.3%

Normalised PBT

13.6

13.1

14.5

10.2%

6.1%

Normalised net income

10.1

9.6

11.5

20.1%

13.9%

Reported net income

9.7

9.9

11.6

16.9%

18.6%

Normalised dil. EPS (€)

1.79

1.63

1.95

19.2%

8.9%

Reported basic EPS (€)

1.80

1.75

2.04

16.9%

13.7%

Reported diluted EPS (€)

1.72

1.69

1.96

15.9%

13.8%

Net cash

21.0

27.0

30.2

11.8%

43.6%

DPS (€)

0.33

0.35

0.35

0.0%

6.1%

Source: Esker, Edison Investment Research

Esker reported FY20 revenues in January. FY20 EBITDA came in 3% ahead of our forecast – while staff costs were in line with our expectations, the company reduced spending on marketing and travel resulting in lower-than-expected other operating expenses. Amortisation was also slightly lower than expected, driving normalised EBIT €1m higher than our forecast. The normalised EBIT margin increased by 0.2pp y-o-y to 12.5%. The company reported an exceptional credit of €0.5m before PBT, reflecting the benefit to FY19 results of applying the patent box regime for the first time in FY20 (software development in France entitled to tax credits for the first time). This also reduced the tax rate in FY20 to a reported rate of 22%, and on our normalised forecasts, to 20%. The joint venture with Quadient contributed €0.5m, ahead of our €0.3m estimate, as volume recovered in H220. Overall, this drove normalised net income 20% higher than forecast and normalised diluted EPS 19% higher. Net cash increased to €30m by year-end, 12% ahead of our forecast. The company has not yet declared a dividend for the year.

COVID-19 had biggest impact on Q2 revenues

The charts below show the bookings and SaaS revenue trends through the year.

Exhibit 2: Bookings by quarter (€m)

Exhibit 3: SaaS revenues by quarter (€m)

Source: Esker

Source: Esker

Exhibit 2: Bookings by quarter (€m)

Source: Esker

Exhibit 3: SaaS revenues by quarter (€m)

Source: Esker

Esker’s SaaS contracts are constructed so that customers pay a monthly fixed subscription fee plus variable fees dependent on the volume of transactions going through Esker’s platform. In Q2, the volume of transactions dropped significantly as COVID-19 restrictions hit, with April and May levels dropping c 25% from the expected level. Volumes improved steadily from June, although even now, the company estimates that volumes are c 5% below the level anticipated pre-COVID. Overall, SaaS revenues grew 12% in FY20, despite the drop in Q2.

Bookings also dropped in Q2 as signing new business was more difficult during this period. Bookings recovered from Q3 and grew 30% y-o-y in Q4 (to record levels); however, this delay meant that fewer implementations took place in H2, reducing consulting revenues. Management expects a fuller rebound in consulting revenues from Q221.

Maintenance, licence and hardware revenues continued to decline as expected, with the company not actively marketing any products in the licence-based DPA or legacy product categories.

Exhibit 4: Revenues by type and product

Revenues by type

growth y-o-y

% of total

Revenues by product

€m

Constant currency growth y-o-y

Growth y-o-y

SaaS

12%

76%

SaaS-based DPA

104.1

12%

11%

Consulting

4%

18%

Licence-based DPA

5.6

(14%)

(15%)

Maintenance

(10%)

5%

Legacy products

2.6

(31%)

(33%)

Licenses

(46%)

1%

Total revenue

112.3

9%

8%

Hardware

(44%)

0%

Source: Esker

Recurring revenues (SaaS plus maintenance revenues) made up 81% of the total, compared to 79% in FY19.

The majority of bookings in FY20 (c 80%) were from new customers. The company has not aggressively tried to cross-sell but is putting more focus on this now. Product demand is split roughly 50/50 between procure-to-pay (P2P) and order-to-cash (O2C), with a trend towards P2P.

Business update

Partner programme making steady progress

Esker has signed up a variety of partners over the last two years. They are still making only a small contribution to new business wins, but this is steadily increasing. Management noted that the Fuji Xerox deal in Asia Pacific had resulted in more than 12 wins in Japan during FY20 (from zero in FY19). The company had invested in making the product ready for the Japanese market and this appears to have paid off. The KPMG Netherlands partnership generated three sizeable contract wins in FY20 which have yet to be implemented. More recent partner signings such as Sword in France are still going through the process of training staff and devising joint marketing plans. Management noted that it takes at least 18 months from the date of signing a partner to generate new business, taking into account the work needed to train the teams and develop marketing plans, as well as the typical sales cycle.

Slowly gaining recognition with market analysts

Esker has recently started to be recognised by market research analysts. This recognition should raise Esker’s visibility with potential customers.

In the IDC MarketScape 2021 reports, the company was categorised as:

A leader in worldwide SaaS and cloud-enabled accounts receivable automation applications for mid-market vendors; and

A major player in worldwide SaaS and cloud-enabled accounts payable automation applications for enterprise vendors.

The company was included in the Gartner Magic Quadrant 2020 for P2P solutions as a niche player.

M&A back on the agenda

Management noted that from Q420, it had started to consider M&A again. Targets would be relatively small (€5–10m) and would most likely bring additional functionality on the periphery of current solutions such as payments, supply chain finance or contract management. It had previously stopped looking for acquisitions in 2017 as most companies with interesting technology were too highly valued. The company had cash of €45.3m at the year-end (including €4.9m included in fixed assets) and debt of €15.1m, which includes €11.5m of loans from the French government for COVID-19 support. The company plans to repay the €11.5m in loans, leaving c €34m in cash available to invest in growth.

Outlook and changes to forecasts

Management noted that business year-to-date has been strong and it currently believes it should be able to beat the 16% growth in bookings achieved in FY20. For FY21 revenues, the company expects to be able to generate constant currency revenue growth of c 15% with profitability at similar levels to FY20. Revenue growth is likely to accelerate in FY22 as business returns to normal and Esker’s partner programme has a more material impact. We have revised our forecasts to reflect FY20 results and a lower tax rate due to the patent box regime. We introduce FY22 forecasts.

Exhibit 5: Changes to forecasts

€m

FY21e old

FY21e new

change

y-o-y

FY22e new

y-o-y

Revenues

128.7

128.6

(0.1%)

14.5%

151.8

18.1%

EBITDA

25.3

25.8

2.1%

17.8%

34.2

32.3%

EBITDA margin

19.6%

20.1%

0.4%

0.6%

22.5%

2.4%

Normalised EBIT

16.4

17.0

3.3%

20.8%

24.7

45.6%

Normalised EBIT margin

12.8%

13.2%

0.4%

0.7%

16.3%

3.1%

Reported EBIT

16.0

16.5

3.4%

21.5%

24.3

46.8%

Reported EBIT margin

12.4%

12.9%

0.4%

0.7%

16.0%

3.1%

Normalised PBT

17.1

17.7

3.2%

22.1%

25.5

44.4%

Normalised net income

12.5

13.8

10.2%

19.7%

19.9

44.4%

Reported net income

12.2

13.4

10.3%

16.3%

19.6

45.5%

Normalised dil. EPS (€)

2.10

2.32

10.5%

18.9%

3.29

42.0%

Reported basic EPS (€)

2.12

2.34

10.6%

14.5%

3.35

43.0%

Reported diluted EPS (€)

2.04

2.26

10.6%

15.6%

3.23

43.1%

Net cash

32.0

37.2

16.5%

23.4%

48.9

31.2%

DPS (€)

0.40

0.40

0.0%

14.3%

0.45

12.5%

Source: Edison Investment Research

Valuation

The stock has gained 112% over the last year, is 72% ahead of its pre COVID-19 peak and is up 10% year-to-date. We have compared Esker’s valuation to a group of listed global DPA software companies and to French-listed small-cap software companies (Exhibit 6). We have also included aggregate data for a group of more than 40 US SaaS software companies. We note that most companies in the first two peer groups are not predominantly SaaS companies, whereas Esker has been operating a SaaS business model for more than a decade.

US SaaS companies on average are growing faster than Esker, although they are generating operating margins below the level of Esker. The typical growth path for US SaaS companies involves investing heavily in sales and marketing to gain market share as fast as possible, with little focus on achieving profitability in the short term. Esker’s model sits somewhere between low-growth, high-profitability on-premise software businesses and US SaaS companies’ high-growth operating model, aiming for a happy medium of double-digit revenue growth while achieving mid-teen operating margins.

Esker has re-rated over the last year, with its P/E multiple moving more towards the US SaaS peer group. We believe that 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 that does not require additional funding to support growth.

Exhibit 6: Peer group financial and valuation metrics

Company

Share

Market

Rev growth

EBIT margin

EBITDA margin

EV/Sales

P/E

Price

Cap m

CY

NY

CY

NY

CY

NY

CY

NY

CY

NY

Esker

€ 195.40

€ 1,111

14.5%

18.1%

13.2%

16.3%

20.1%

22.5%

8.5

7.2

84.3

59.4

Software companies with DPA software offerings

Basware

€ 37.10

€ 538

2.9%

12.1%

3.8%

8.1%

13.6%

17.2%

3.7

3.3

N/A

257.6

Bottomline

$43.62

$1,964

7.0%

11.9%

14.5%

16.1%

21.2%

22.2%

4.1

3.7

37.5

30.3

Coupa

$253.00

$18,432

25.4%

24.6%

-1.7%

5.5%

5.2%

7.8%

28.5

22.8

N/A

420.3

ITESoft

€ 3.64

€ 22

9.2%

3.1%

3.1%

5.2%

8.4%

10.3%

0.8

0.8

14.6

7.1

OpenText

$59.90

$16,340

6.1%

2.4%

35.2%

31.6%

38.2%

38.6%

4.6

4.5

14.6

14.0

Proactis

£0.43

£41

2.9%

2.9%

9.0%

10.3%

25.1%

26.7%

1.8

1.7

13.9

10.8

Tungsten Corp

£0.31

£39

-0.6%

8.1%

-42.1%

2.1%

9.2%

14.4%

1.2

1.1

N/A

46.9

Average

7.6%

9.3%

3.1%

11.3%

17.3%

19.6%

6.4

5.4

20.1

112.4

Median

6.1%

8.1%

3.8%

8.1%

13.6%

17.2%

3.7

3.3

13.9

30.3

French small-cap software companies

Axway Software

€ 27.30

€ 585

5.8%

6.8%

9.4%

10.7%

12.6%

13.6%

2.1

1.9

24.7

20.8

Claranova

€ 6.68

€ 266

20.1%

14.6%

4.6%

6.6%

6.0%

7.3%

0.6

0.5

25.0

15.8

ESI Group

€ 49.40

€ 295

38.3%

6.8%

5.7%

7.0%

11.1%

12.2%

2.4

2.2

59.0

44.0

Lectra

€ 27.85

€ 908

20.5%

33.3%

15.5%

14.3%

21.4%

19.3%

2.8

2.1

38.2

25.7

Linedata Service

€ 34.60

€ 226

2.5%

2.5%

17.6%

18.1%

27.5%

28.0%

1.8

1.8

12.1

11.4

Sidetrade

€ 126.00

€ 180

19.5%

19.9%

3.0%

7.3%

6.2%

10.5%

4.8

4.0

203.2

64.3

Average

17.8%

14.0%

9.3%

10.7%

14.1%

15.1%

2.4

2.1

60.3

30.3

Median

19.8%

10.7%

7.6%

9.0%

11.9%

12.9%

2.2

2.0

31.6

23.3

US SaaS software companies

Average

24.3%

21.4%

8.0%

11.0%

13.7%

15.8%

14.9

12.0

302.3

95.6

Median

21.1%

23.1%

8.5%

10.1%

12.4%

14.2%

14.6

11.4

101.7

105.5

Source: Edison Investment Research, Refinitiv (as at 25 March)


Exhibit 7: 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

128,608

151,847

EBITDA

 

 

14,871

16,399

18,279

20,054

21,927

25,835

34,171

Operating Profit (before amort and except)

 

 

9,934

10,547

11,955

12,843

14,037

16,960

24,696

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

16,535

24,271

Net Interest

(108)

(110)

(57)

268

(67)

100

100

Profit Before Tax (norm)

 

 

9,949

10,669

12,215

13,634

14,462

17,660

25,496

Profit Before Tax (FRS 3)

 

 

9,275

9,913

11,783

13,147

14,528

17,235

25,071

Tax

(2,950)

(3,148)

(2,940)

(3,402)

(2,966)

(3,792)

(5,516)

Profit After Tax (norm)

6,785

7,281

9,168

10,106

11,510

13,775

19,887

Profit After Tax (FRS 3)

6,325

6,765

8,843

9,745

11,562

13,443

19,555

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

240

340

EPS - normalised fully diluted (c)

 

 

122

132

165

179

195

232

329

EPS - (GAAP) (c)

 

 

120

128

164

180

204

234

335

Dividend per share (c)

30

32

41

33

35

40

45

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

22.5

Operating Margin (before GW and except) (%)

15.1

13.9

13.8

12.3

12.5

13.2

16.3

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

69,206

86,189

Stocks

101

176

147

185

257

257

257

Debtors

19,523

21,253

25,551

30,015

31,440

35,940

42,434

Cash

21,338

20,632

22,794

21,357

40,421

32,209

42,698

Other

1,062

762

524

465

800

800

800

Current Liabilities

 

 

(28,299)

(26,206)

(30,072)

(34,300)

(50,150)

(41,465)

(45,471)

Creditors

(28,299)

(26,206)

(30,072)

(34,300)

(38,650)

(41,465)

(45,471)

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

75,485

92,607

CASH FLOW

Operating Cash Flow

 

 

15,944

17,311

18,366

20,290

24,389

24,150

31,682

Net Interest

(127)

(75)

63

352

(30)

100

100

Tax

(1,456)

(2,053)

(2,795)

(3,329)

(884)

(3,792)

(5,516)

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)

(2,093)

(2,433)

Net Cash Flow

5,322

(3,650)

6,649

5,044

10,912

7,065

11,633

Opening net debt/(cash)

 

 

(8,978)

(13,681)

(10,016)

(16,576)

(21,018)

(30,177)

(37,242)

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)

(37,242)

(48,875)

Source: Esker, Edison Investment Research


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United States of America

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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

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 £49,500 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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

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

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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Newron Pharmaceuticals — Dyskinesia deal delivered

Newron and Zambon will now progress the crucial Xadago Phase III study in Parkinson’s dyskinesia. This indication, if successful, should give an important boost to US sales. FY20 results showed Xadago royalties of €5.2m. Newron expects evenamide Phase II results in late March. This data on the novel schizophrenia drug could enable two Phase III studies to start from mid-2021. Newron hopes to partner evenamide for ‘inadequate response to current atypical antipsychotic agents’, a large indication. We estimate a deal might be signed from late Q321. Newron estimates it has about €61m available to fund development until late 2022. After an evenamide deal, it hopes to acquire further projects. Our current indicative value of CHF121m will be updated after evenamide Phase II data.

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