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Currency in EUR
Last close As at 08/06/2023
EUR152.10
▲ 0.30 (0.20%)
Market capitalisation
EUR916m
Research: TMT
Esker reported FY22 revenue growth of 19% (13% constant currency (cc)), operating profit growth of 29% and normalised diluted EPS growth of 29%. SaaS revenue grew 23% (17% cc) and now makes up 80% of group revenue. Bookings intake increased 19% cc y-o-y on an annual recurring revenue basis, providing support for growth in FY23 and FY24. Management maintained its guidance for FY23; we have trimmed our FY23 forecasts, which sit within the guidance range, and introduce forecasts for FY24. We forecast EPS to decline 1% in FY23 (as the currency benefit and accrual reversal are not expected to repeat) and increase 17% in FY24.
Esker |
Sticking with tried and tested growth strategy |
FY23 results |
Software and comp services |
28 March 2023 |
Share price performance
Business description
Next events
Analyst
Esker is a research client of Edison Investment Research Limited |
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Esker reported FY22 revenue growth of 19% (13% constant currency (cc)), operating profit growth of 29% and normalised diluted EPS growth of 29%. SaaS revenue grew 23% (17% cc) and now makes up 80% of group revenue. Bookings intake increased 19% cc y-o-y on an annual recurring revenue basis, providing support for growth in FY23 and FY24. Management maintained its guidance for FY23; we have trimmed our FY23 forecasts, which sit within the guidance range, and introduce forecasts for FY24. We forecast EPS to decline 1% in FY23 (as the currency benefit and accrual reversal are not expected to repeat) and increase 17% in FY24.
Year end |
Revenue |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/21 |
133.6 |
18.0 |
2.37 |
0.60 |
54.8 |
0.5 |
12/22 |
159.0 |
23.4 |
3.03 |
0.65 |
42.8 |
0.5 |
12/23e |
180.1 |
24.2 |
3.01 |
0.70 |
43.0 |
0.5 |
12/24e |
205.4 |
28.7 |
3.52 |
0.75 |
36.9 |
0.6 |
Note: *PBT and EPS are normalised and fully diluted, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
FY22: Underlying growth boosted by currency
FY22 revenue was in line with our forecast, with reported revenue and operating profit benefiting from the strength of the dollar versus the euro. Despite this, operating profit came in below our forecast as costs were 2% higher than expected, partly due to investment in recently acquired Market Dojo. This resulted in a 13.5% operating margin, within the guidance range of 13–15%. Operating profit included a €1.4m accrual reversal, which if excluded results in a margin of 12.6%. Year-end net cash of €32.7m was after paying €9.3m for Market Dojo and reflected higher than typical working capital at year-end due to a late payer (who has since paid).
Profitable growth strategy unchanged
For many years, Esker has focused on driving double-digit revenue growth while generating low to mid-teen operating margins. Investment in people has been key to its growth plans (headcount increased 16% in FY22) and we expect it to continue to reinvest incremental revenue in the business. Guidance for FY23 targets constant currency organic revenue growth of 12–14% and an operating margin of 12–15%. We have slightly reduced our FY23 forecasts to reflect the strengthening of the euro against the dollar and the higher FY22 cost base; our revenue forecast is at the upper end and our margin forecast at the lower end of guidance.
Valuation: Reflects recurring revenue potential
Based on EV/sales and P/E ratios, the stock continues to trade at a premium to French software peers (CY P/E c 29x), we believe due to its high level of recurring revenue, history of and potential for double-digit profitable growth and strong balance sheet, and at a discount to US SaaS peers (CY P/E c 70x). The company is well-funded to take advantage of opportunities to make bolt-on acquisitions, which in the current environment may become more affordable.
Review of FY22 results
Exhibit 1: FY22 results versus estimates and FY21
€m |
FY21 |
FY22e |
FY22 |
difference |
y-o-y |
Revenues |
133.6 |
158.9 |
159.0 |
0.0% |
19.0% |
EBITDA |
25.7 |
34.1 |
31.8 |
(6.8%) |
24.0% |
EBITDA margin |
19.2% |
21.5% |
20.0% |
(1.5%) |
0.8% |
Normalised EBIT |
16.8 |
24.1 |
21.7 |
(10.0%) |
29.0% |
Normalised EBIT margin |
12.6% |
15.2% |
13.6% |
(1.5%) |
1.1% |
Reported EBIT |
16.5 |
23.8 |
21.4 |
(10.1%) |
29.4% |
Reported EBIT margin |
12.4% |
15.0% |
13.5% |
(1.5%) |
1.1% |
Normalised PBT |
18.0 |
25.4 |
23.4 |
(7.7%) |
30.2% |
Normalised net income |
14.1 |
19.3 |
18.3 |
(5.1%) |
29.5% |
Reported net income |
14.2 |
18.7 |
17.9 |
(4.5%) |
25.4% |
Normalised diluted EPS (€) |
2.37 |
3.20 |
3.03 |
(5.1%) |
28.5% |
Reported basic EPS (€) |
2.44 |
3.21 |
3.03 |
(5.5%) |
24.4% |
Reported diluted EPS (€) |
2.38 |
3.10 |
2.96 |
(4.5%) |
24.4% |
Net cash |
38.6 |
37.2 |
32.7 |
(12.1%) |
(15.4%) |
DPS (€) |
0.60 |
0.65 |
0.65 |
0.0% |
8.3% |
Source: Esker, Edison Investment Research
With Esker having reported Q422 revenue in January, FY22 revenue was in line with our forecast. Revenue increased 19% or 13% in constant currency (cc). SaaS revenue increased 23% y-o-y (17% cc) to make up 80% of group revenue (FY21: 78%). Within SaaS revenue reported in FY22, transaction volume only grew 6% compared to more than 30% growth for the subscription element. This was partly due to lower economic activity during the year and partly due to a gradual change in subscription licensing, which is incorporating a higher proportion of monthly subscription revenue versus transaction fees. Professional services revenue increased 12% y-o-y (7% cc), making up 16% of group revenue. This saw a slow start to the year due to COVID-related issues. Legacy products declined 13% (21% cc), continuing the downward trend seen in previous years. Legacy products now make up less than 4% of group revenue.
EBITDA and EBIT came in below our forecasts, mainly due to higher than expected ‘purchase and external expenses’, which increased 32% y-o-y. This expense line includes travel and marketing costs, which increased €2.5m y-o-y as the business returned to pre-COVID behaviour. ‘Personnel and related taxes’ were in line with our expectations, including the €1.4m reversal of the tax accrual for share-based payments. Headcount increased 16% y-o-y to 972 full time equivalents (FTEs), which includes 22 heads from the acquisition of Market Dojo. Average headcount increased 13% to 917 for FY22. All expense lines were affected by currency translation. Overall, reported operating profit increased 29% y-o-y with an operating margin of 13.5%, within the company’s guidance range of 13–15%. With c 40% of revenues from North America but a lower proportion of costs in that region (most R&D is based in France), the company saw a €2.2m currency translation benefit to operating profit in FY22 versus FY21. The company noted that Market Dojo (acquired 1 June 2022) contributed revenue of €0.8m and an operating loss of €0.7m, reflecting increased investment in the business as Esker works to integrate it into the group.
Net interest income (€0.3m vs our €0.1m forecast) and the contribution from the Quadient JV (€1.5m vs our €1.2m forecast) were higher than forecast and the effective tax rate of 22% was lower than our 24% forecast. Altogether, net income and normalised diluted EPS were 5% below our forecast.
Net cash at the end of the year stood at €32.7m (this includes €4.7m held in long-term investments). This came in below our €37.2m forecast mainly due to higher-than-expected year-end working capital. Management noted that Quadient had delayed payment at year-end (since received), resulting in days sales outstanding increasing to 85.3 from 78.9 at the end of FY21. Earlier in 2022 the company took out a €17m five-year loan paying interest at less than 1%. The intention is to reserve this for potential M&A.
Improving gross margin
The company reports its income statement on a functional basis and according to French GAAP; we forecast based on the French GAAP presentation. Looking at the cost lines on a functional basis, growth was highest for customer experience (CX) and support costs, as the company invested in this function to support customer retention and upselling. Marketing costs increased as the company reverted to in-person marketing events post-COVID.
Exhibit 2: Functional income statement
€m |
FY21 |
FY22 |
y-o-y |
Revenue |
133.58 |
158.99 |
19.0% |
Cost of Sales |
(42.09) |
(44.79) |
6.4% |
Gross profit |
91.49 |
114.19 |
24.8% |
R&D |
(14.23) |
(15.18) |
6.6% |
Selling costs |
(28.23) |
(35.62) |
26.2% |
CX and support costs |
(8.51) |
(11.37) |
33.5% |
Marketing costs |
(11.87) |
(15.71) |
32.4% |
G&A costs |
(12.07) |
(14.91) |
23.5% |
Operating profit |
16.58 |
21.41 |
29.1% |
Gross margin |
68.5% |
71.8% |
|
Operating margin |
12.4% |
13.5% |
Source: Esker
Gross margin increased by 3.3pp, helped by better gross margins in the SaaS business due to higher platform utilisation. Esker has been building out its partner ecosystem over the last few years and the cost of supporting new partners until they are ready to sell and implement Esker’s software themselves is factored into professional services cost of sales. As these partners become more independent, professional services revenue and costs are likely to decline as a percentage of group revenue and costs. Management estimates that the SaaS gross margin could expand into the high 80s.
Exhibit 3: Gross profit by business line
€m |
FY21 |
FY22 |
y-o-y |
FY21 |
FY22 |
y-o-y |
|
SaaS revenue |
103.48 |
127.45 |
23.2% |
PS* revenue |
22.98 |
25.63 |
11.5% |
SaaS cost of sales |
(18.13) |
(21.23) |
17.1% |
PS cost of sales |
(20.83) |
(23.37) |
12.2% |
SaaS gross profit |
85.35 |
106.22 |
24.5% |
PS gross profit |
2.15 |
2.26 |
4.9% |
SaaS gross margin |
82.5% |
83.3% |
PS gross margin |
9.4% |
8.8% |
Source: Esker. Note: *PS = professional services
Bookings growth supports future growth
For FY22, the company reported bookings with a lifetime contract value of €61m (+27% y-o-y). The annual recurring value (ARR) of FY22 contracts was €16.6m (+26% y-o-y, +19% cc), equating to an average contract length of 3.7 years. As a reminder, the ARR only includes the subscription fee element of the contract and does not include the volume-related element. Bookings were strong in the Americas (+23%) and Asia-Pacific (+45%), whereas customers in Europe were more cautious (+3%).
Outlook and changes to forecasts
The company expects to generate constant currency organic revenue growth of 12–14% for FY23 and maintains its operating profitability target range of 12–15%. With the euro stronger against the dollar than when we last updated our forecasts, we have revised down our revenue estimate for FY23. This equates to constant currency revenue growth at the top of the company’s guidance range. Reflecting the FY22 cost base, we have reduced our FY23 operating profit forecast by 5%, equating to an operating margin of 12.3%, at the lower end of the target margin range. We introduce forecasts for FY24 for revenue growth of 14% and an operating margin of 13%.
Exhibit 4: Changes to estimates
€m |
FY23e old |
FY23e new |
change |
y-o-y |
FY24e new |
y-o-y |
Revenues |
181.6 |
180.1 |
(0.8%) |
13.3% |
205.4 |
14.1% |
EBITDA |
35.1 |
33.9 |
(3.2%) |
6.7% |
39.7 |
17.0% |
EBITDA margin |
19.3% |
18.8% |
(0.5%) |
(1.2%) |
19.3% |
0.5% |
Normalised EBIT |
23.6 |
22.5 |
(4.8%) |
3.8% |
27.0 |
19.9% |
Normalised EBIT margin |
13.0% |
12.5% |
(0.5%) |
(1.1%) |
13.1% |
0.6% |
Reported EBIT |
23.4 |
22.2 |
(4.9%) |
3.8% |
26.7 |
20.1% |
Reported EBIT margin |
12.9% |
12.3% |
(0.5%) |
(1.1%) |
13.0% |
0.7% |
Normalised PBT |
25.0 |
24.2 |
(3.5%) |
3.1% |
28.7 |
18.7% |
Normalised net income |
19.0 |
18.4 |
(3.5%) |
0.3% |
21.8 |
18.7% |
Reported net income |
18.8 |
18.2 |
(3.5%) |
1.7% |
21.6 |
18.9% |
Normalised diluted EPS (€) |
3.10 |
3.01 |
(2.9%) |
(0.7%) |
3.52 |
16.8% |
Reported basic EPS (€) |
3.17 |
3.08 |
(2.9%) |
1.7% |
3.60 |
16.9% |
Reported diluted EPS (€) |
3.07 |
2.98 |
(2.9%) |
0.7% |
3.49 |
17.0% |
Net cash |
45.4 |
41.6 |
(8.5%) |
27.3% |
51.5 |
24.0% |
DPS (€) |
0.70 |
0.70 |
0.0% |
7.7% |
0.75 |
7.1% |
Source: Edison Investment Research
Exhibit 5: Financial summary
€'000s |
2018 |
2019 |
2020 |
2021 |
2022 |
2023e |
2024e |
||
Year end 31 December |
French GAAP |
French GAAP |
French GAAP |
French GAAP |
French GAAP |
French GAAP |
French GAAP |
||
PROFIT & LOSS |
|||||||||
Revenue |
|
|
86,871 |
104,188 |
112,274 |
133,580 |
158,987 |
180,096 |
205,427 |
EBITDA |
|
|
18,279 |
20,054 |
21,927 |
25,653 |
31,802 |
33,927 |
39,700 |
Operating Profit (before amort and except) |
|
|
11,955 |
12,843 |
14,037 |
16,844 |
21,672 |
22,490 |
26,963 |
Amortisation of acquired intangibles |
(344) |
(425) |
(425) |
(263) |
(263) |
(263) |
(263) |
||
Exceptionals and other income |
(88) |
(62) |
0 |
0 |
0 |
0 |
0 |
||
Other income |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||
Operating Profit |
11,523 |
12,356 |
13,612 |
16,581 |
21,409 |
22,227 |
26,700 |
||
Net Interest |
(57) |
268 |
(67) |
202 |
272 |
125 |
125 |
||
Profit Before Tax (norm) |
|
|
12,215 |
13,634 |
14,462 |
18,048 |
23,441 |
24,165 |
28,688 |
Profit Before Tax (FRS 3) |
|
|
11,783 |
13,147 |
14,528 |
18,188 |
22,879 |
23,902 |
28,425 |
Tax |
(2,940) |
(3,402) |
(2,966) |
(3,907) |
(5,015) |
(5,736) |
(6,822) |
||
Profit After Tax (norm) |
9,168 |
10,106 |
11,509 |
14,171 |
18,303 |
18,365 |
21,803 |
||
Profit After Tax (FRS 3) |
8,843 |
9,745 |
11,562 |
14,281 |
17,864 |
18,165 |
21,603 |
||
Ave. Number of Shares Outstanding (m) |
5.4 |
5.4 |
5.7 |
5.8 |
5.9 |
5.9 |
6.0 |
||
EPS - normalised (c) |
|
|
170 |
186 |
203 |
242 |
310 |
311 |
364 |
EPS - normalised fully diluted (c) |
|
|
165 |
179 |
199 |
237 |
303 |
301 |
352 |
EPS - (GAAP) (c) |
|
|
164 |
180 |
204 |
244 |
303 |
308 |
360 |
Dividend per share (c) |
41 |
33 |
50 |
60 |
65 |
70 |
75 |
||
Gross margin (%) |
N/A |
N/A |
N/A |
N/A |
N/A |
N/A |
N/A |
||
EBITDA Margin (%) |
21.0 |
19.2 |
19.5 |
19.2 |
20.0 |
18.8 |
19.3 |
||
Operating Margin (before GW and except) (%) |
13.8 |
12.3 |
12.5 |
12.6 |
13.6 |
12.5 |
13.1 |
||
BALANCE SHEET |
|||||||||
Fixed Assets |
|
|
39,635 |
47,201 |
48,987 |
57,229 |
71,650 |
75,600 |
79,200 |
Intangible Assets |
28,096 |
29,323 |
30,787 |
33,644 |
47,651 |
50,151 |
52,151 |
||
Tangible Assets |
7,050 |
10,434 |
10,036 |
9,896 |
8,986 |
8,886 |
8,886 |
||
Other |
4,489 |
7,444 |
8,164 |
13,689 |
15,013 |
16,563 |
18,163 |
||
Current Assets |
|
|
49,016 |
52,022 |
72,918 |
71,534 |
90,671 |
103,740 |
120,788 |
Stocks |
147 |
185 |
257 |
341 |
512 |
512 |
512 |
||
Debtors |
25,551 |
30,015 |
31,440 |
35,548 |
46,158 |
50,328 |
57,407 |
||
Cash |
22,794 |
21,357 |
40,421 |
34,978 |
42,887 |
51,786 |
61,755 |
||
Other |
524 |
465 |
800 |
667 |
1,114 |
1,114 |
1,114 |
||
Current Liabilities |
|
|
(30,072) |
(34,300) |
(50,150) |
(45,872) |
(45,533) |
(48,375) |
(51,787) |
Creditors |
(30,072) |
(34,300) |
(38,650) |
(44,703) |
(45,533) |
(48,375) |
(51,787) |
||
Short term borrowings |
0 |
0 |
(11,500) |
(1,169) |
0 |
0 |
0 |
||
Long Term Liabilities |
|
|
(10,810) |
(8,276) |
(6,342) |
(2,497) |
(18,148) |
(18,148) |
(18,148) |
Long term borrowings |
(9,318) |
(6,516) |
(3,644) |
0 |
(15,034) |
(15,034) |
(15,034) |
||
Other long term liabilities |
(1,492) |
(1,760) |
(2,698) |
(2,497) |
(3,114) |
(3,114) |
(3,114) |
||
Net Assets |
|
|
47,769 |
56,647 |
65,413 |
80,394 |
98,640 |
112,817 |
130,053 |
CASH FLOW |
|||||||||
Operating Cash Flow |
|
|
18,366 |
20,290 |
24,389 |
28,844 |
22,410 |
32,599 |
36,032 |
Net Interest |
63 |
352 |
(30) |
253 |
866 |
125 |
125 |
||
Tax |
(2,795) |
(3,329) |
(884) |
(3,420) |
(5,074) |
(5,736) |
(6,822) |
||
Capex |
(7,789) |
(10,995) |
(10,167) |
(11,140) |
(12,492) |
(14,100) |
(15,000) |
||
Acquisitions/disposals |
(225) |
(486) |
(492) |
(5,491) |
(8,902) |
0 |
0 |
||
Financing |
785 |
1,449 |
48 |
2,769 |
792 |
0 |
0 |
||
Dividends |
(1,756) |
(2,237) |
(1,896) |
(2,897) |
(3,555) |
(3,988) |
(4,367) |
||
Net Cash Flow |
6,649 |
5,044 |
10,968 |
8,918 |
(5,955) |
8,900 |
9,969 |
||
Opening net debt/(cash) |
|
|
(10,016) |
(16,576) |
(21,018) |
(30,285) |
(38,609) |
(32,653) |
(41,552) |
HP finance leases initiated |
0 |
0 |
0 |
0 |
0 |
0 |
0 |
||
Other |
(90) |
(602) |
(1,701) |
(594) |
(1) |
(0) |
0 |
||
Closing net debt/(cash) |
|
|
(16,576) |
(21,018) |
(30,285) |
(38,609) |
(32,653) |
(41,552) |
(51,521) |
Source: Esker, Edison Investment Research
|
|
Research: Investment Companies
Leaning into opportunities in China, along with stock selection in India, Korea and Hong Kong, has contributed positively to performance. The fund is ahead of its Asian closed-ended peers on an NAV total return (TR) basis for the year to end-February 2023 and over the long term it continues to generate a double-digit annualised NAV TR (c 10% in sterling over the past 10 years), supported by consistent income. IAT pays a regular six-monthly dividend equivalent to 2% of NAV (4% pa). The managers, Ian Hargreaves and Fiona Yang, target double-digit annualised returns from each portfolio holding over a rolling three-year period.
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