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Expert System — Strong finish to the year

Expert.ai (MI: EXAI)

Last close As at 05/08/2026

—

— 0.00 (0.00%)

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More on this equity

Research: TMT

Expert System — Strong finish to the year

Expert System saw an uptick in demand towards the end of FY17, resulting in revenues and EBITDA ahead of our forecasts. The company has revised its outlook for FY18/19, expecting double-digit sales growth and EBITDA margin expansion; we have revised up our FY18 forecasts to reflect this. The company expects to burn cash in FY18 before turning cash-flow positive in FY19. Evidence of sustained customer demand combined with good cost and cash control will be key to share price upside.

Written by

Katherine Thompson

Director

TMT

Expert System

Strong finish to the year

FY17 results

Software & comp services

11 April 2018

Price

€1.28

Market cap

€46m

Net debt (€m) at end December 2017

8.8

Shares in issue

35.7m

Free float

73.1%

Code

EXSY

Primary exchange

AIM Italia

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(2.3)

(7.5)

(29.3)

Rel (local)

(3.8)

(7.0)

(37.9)

52-week high/low

€2.0

€1.2

Business description

Expert System has developed and patented technology that extracts useful information from unstructured text using semantic-based techniques. It applies this technology to a number of verticals including enterprise search, customer experience management and big data analytics.

Next events

AGM

23 April 2018

Analyst

Katherine Thompson

+44 (0)20 3077 5730

Expert System is a research client of Edison Investment Research Limited

Expert System saw an uptick in demand towards the end of FY17, resulting in revenues and EBITDA ahead of our forecasts. The company has revised its outlook for FY18/19, expecting double-digit sales growth and EBITDA margin expansion; we have revised up our FY18 forecasts to reflect this. The company expects to burn cash in FY18 before turning cash-flow positive in FY19. Evidence of sustained customer demand combined with good cost and cash control will be key to share price upside.

Year end

Revenue (€m)

EBITDA*
(€m)

EPS*
(€)

DPS
(€)

P/E
(x)

EV/EBITDA
(x)

12/16

25.1

(2.2)

(0.22)

0.0

N/A

N/A

12/17

27.8

1.7

(0.18)

0.0

N/A

31.2

12/18e

30.5

4.0

(0.05)

0.0

N/A

13.6

12/19e

34.8

7.0

0.02

0.0

53.4

7.8

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

Strong pick-up in revenues in H217

Expert reported FY17 sales growth of 11.8% y-o-y, versus our expectations for flat sales. This implies that H217 sales grew 110% sequentially, highlighting in part the typical seasonality that Expert experiences, but also a pick-up in demand for its solutions towards year end. Combined with slightly lower than expected operating costs, this generated a positive EBITDA of €1.7m before exceptional restructuring costs of €0.7m. The proportion of annual licences sold increased to 41% of licence revenues from 28% in FY16, and grew in absolute terms by 145% y-o-y. Year-end net debt of €8.8m was higher than we forecast, mainly due to higher receivables resulting from the heavy weighting of licence sales close to year end.

Revised growth targets

The company sees the market for its solutions starting to mature, with companies now actively looking for ways to use artificial intelligence (AI) to improve their business processes. Vertical solutions, which reduce the amount of customisation work required and shorten the sales cycle, combined with the availability of annual licensing are helping the company win new business. Expert has published its new growth and profitability targets for FY18/19, essentially pushing out the growth by one year from the targets set a year ago. This was flagged at H117 results, when we reduced our forecasts. Based on higher than expected FY17 revenues, we raise our FY18 revenue forecast by 6.7% (9.9% growth) and EBITDA forecast by 33%.

Valuation: Sustained customer demand key

Expert System trades on an EV/EBITDA of 13.6x FY18e. This is at a premium to its Italian software and services peers and at a discount to enterprise search and information management companies, and high-growth big data analytics software companies. Our DCF valuation of Expert System suggests a value of €1.91/share (previously €1.83). Expert’s ability to convert customer interest in the fast-growing data mining and analytics market into commercial contracts, combined with achieving the targeted profitability, will be key to share price upside from this point.

Review of FY17 results

Exhibit 1: Results highlights

€m

FY16

FY17e

FY17

Diff

y-o-y

Sales

23.4

23.4

26.1

11.8%

11.8%

Other income and grants

1.7

1.8

1.6

(5.9%)

(2.5%)

Total revenues

25.1

25.1

27.8

10.6%

10.9%

Capitalised development costs & changes in WIP

4.5

5.0

5.0

0.5%

11.8%

Production value

29.6

30.1

32.8

8.9%

11.0%

EBITDA

(2.2)

(1.5)

1.7

N/A

N/A

EBITDA margin

-9.0%

-6.1%

6.3%

12.4%

15.2%

D&A

(3.7)

(4.0)

(4.9)

21.9%

32.4%

Normalised operating profit

(5.9)

(5.6)

(3.2)

(42.8%)

(46.3%)

Normalised operating margin

-23.7%

-22.2%

-11.5%

10.7%

12.2%

Amortisation of acquired intangibles

(2.6)

(2.6)

(2.6)

Exceptional items

0.0

0.0

(0.7)

Reported operating profit

(8.5)

(8.2)

(6.5)

20.6%

24.0%

Normalised EPS (c)

(22.0)

(14.0)

(18.3)

(31.5%)

(16.8%)

Net debt

12.4

4.3

8.8

107.3%

(28.9%)

Source: Expert System, Edison Investment Research

For FY17, Expert System reported sales 11.8% ahead of our forecast, with H217 revenues showing sequential growth of 110%. Half-yearly revenues saw acceleration in growth: H117 sales declined 1.5% y-o-y, whereas H217 sales saw 19.6% growth y-o-y. The higher level of revenues (particularly high-margin licences) combined with slightly lower than expected operating expenses, resulting in positive EBITDA of €1.7m, well ahead of our €1.5m loss forecast. Depreciation and amortisation was €0.9m higher than forecast, resulting in a normalised operating loss that was €2.4m smaller than forecast. The company incurred exceptional costs of €0.7m relating to reorganisation of the business. Net finance costs of €2.2m were higher than our €0.5m forecast, due to unrealised foreign exchange losses of €1.6m. Net debt at year end was higher than forecast primarily due to working capital and capex that were ahead of our forecasts. The large number of licences signed close to the end of the year inflated trade receivables at year end.

Revenue breakdown highlights growth in annual licences

For the first time, the company has disclosed a breakdown of revenues by type; see Exhibit 2. Subscription licence sales more than doubled in the year, whereas one-off licences grew by 33%. Maintenance revenues increased by 8%; these are only generated from one-off licences. Revenues from providing services decreased 15% y-o-y, reflecting the reorganisation of the professional services team to better balance utilisation and profitability. Recurring revenues made up more than a third of the total, up from 28% in FY16.

The company encourages customers to sign up for annual licenses; of those taking annual licenses, roughly half sign up for one year and half sign up for three-year contracts. This improves visibility for Expert and reduces the upfront cash outlay for the customer.

On a geographical basis, 63% of revenues came from international markets (vs 61% in FY16), with 25% growth in the US and 400% growth in the UK. The company expects the major driver of growth in FY18 and FY19 to come from outside of Italy.

Exhibit 2: Revenues by type

Revenues (€m)

FY16

FY17

Subscription licences

2.0

4.9

One-off licences

5.2

7.0

Maintenance

4.3

4.7

Services

10.4

8.9

Other

0.2

0.2

Total*

22.2

25.6

Proportion of total revenues

Subscription licences

9%

19%

One-off licences

24%

27%

Maintenance

19%

18%

Services

47%

35%

Other

1%

1%

Total

100%

100%

Growth y-o-y

Subscription licences

145%

One-off licences

33%

Maintenance

8%

Services

(15%)

Other

0%

Total

15%

Recurring revenues (subscription licences plus maintenance)

6.3

9.6

% of total

28.4%

37.3%

Source: Expert System. Note:*Revenues net of changes in work-in-progress.

Outlook and changes to forecasts

Expert’s view is that the market for artificial intelligence software is starting to mature, and companies are looking for ways to incorporate AI to improve the efficiency of their business processes. Expert is seeing the strongest demand from the financial and insurance sectors as well as intelligence agencies, helped by its focus on providing specialist vertical solutions for those markets. Partnering with system integrators and consultants should help the company to access more opportunities, as well provide more implementation resource for customers so that Expert can focus on developing and selling software.

The company has revised its outlook for FY18 and FY19 and is aiming to achieve the growth and profitability as below. This pushes out the company’s forecasts by roughly a year compared to the outlook this time last year, although this was highlighted when the company reported H117 results in September. The positive momentum seen in H217 gives some confidence that growth can be achieved in future years.

Exhibit 3: Revised outlook

€m

FY17

FY18e

FY19e

Sales*

25.6

28.5-30.0

33.0-34.5

Production value

32.8

35.5-37.0

39.8-41.3

EBITDA

1.0

4.0-5.0

7.0-8.0

Net income

(8.3)

(4.6-3.9)

(1.1-0.1)

Net debt

8.8

13.6-12.9

13.0-12.0

EBITDA margin

3.9%

14.0-16.7%

21.2-23.2%

Source: Expert System. Note:*Net of changes in work-in-progress

We have revised our forecasts to reflect better growth prospects in FY18. This results in higher EBITDA in FY18. We forecast the company to generate a net cash outflow in FY18, as operating cash flow is not yet high enough to cover capitalised development costs, before turning marginally cash flow positive in FY19.

Exhibit 4: Changes to forecasts

€m

FY18e old

FY18e new

Change

y-o-y

FY19e new

y-o-y

Sales

26.9

29.0

8.0%

11.1%

33.3

14.7%

Other income & grants

1.8

1.5

(14.3%)

(8.9%)

1.5

0.0%

Total revenues

28.6

30.5

6.7%

9.9%

34.8

14.0%

Capitalised development costs & changes in WIP

5.5

5.5

0.0%

9.5%

5.5

0.0%

Production value

34.1

36.0

5.6%

9.8%

40.3

11.8%

EBITDA

3.0

4.0

33.2%

130.4%

7.0

74.3%

EBITDA margin

10.6%

13.2%

2.6%

6.9%

20.2%

7.0%

D&A

(4.4)

(5.2)

17.7%

(5.5)

Normalised operating profit

(1.4)

(1.2)

(15.4%)

(62.4%)

1.6

(229.5%)

Normalised operating margin

-5.0%

-3.9%

1.0%

7.6%

4.5%

8.4%

Amortisation of acquired intangibles

(2.6)

(2.6)

0.0%

(2.6)

Exceptional items

Reported operating profit

(4.0)

(3.8)

5.4%

41.4%

(1.1)

72.3%

Normalised EPS (c)

(3.4)

(4.5)

(35.0%)

75.3%

2.4

152.9%

Net debt

7.4

12.6

72.0%

43.3%

12.6

(0.0%)

Source: Edison Investment Research

Valuation

The majority of Expert’s direct competitors are private companies or subsidiaries of large companies such as IBM or HP Enterprise. We have compared Expert’s valuation and operating metrics to peers operating in the natural language processing, big data analytics, enterprise search and information management markets, as well as to Italian software and IT services peers.

On our revised forecasts, based on EV/sales Expert is trading at a discount to all peer groups. This reflects that fact that the company is still in a growth phase and moving towards operating profitability. On an EV/EBITDA basis it is trading more in line with Italian software and IT services peers, and at a discount to all other groups. If the company can maintain the current sales momentum and meet the growth and profit targets it has set for FY18 and FY19, the valuation discount should start to close. Progress towards net cash generation will also help reduce the discount.

We note that Coveo, a privately owned intelligent search and predictive analytics company, recently attracted a $100m investment from Evergreen Coast Capital for a 27% stake in the company. This values the business at $370m. We understand from press articles that the company has an annualised revenue run rate of $50m, which values it on a price/sales multiple of 7.4x, more akin to high growth companies such as Splunk or Tableau.

We have also revised our DCF valuation, rolling the valuation forward by one year. Our 10-year DCF analysis values the company at €1.91/share, marginally up from our previous €1.83 valuation. We now forecast a revenue CAGR of 9.1% from FY17 to FY27, with EBITDA margins rising to 28% by FY27. Assuming the company continues to capitalised development spend, we forecast capex/sales reducing to 9.5% by FY27. We use a WACC of 9% and long-term growth of 3%. A 1% increase in the WACC results in a valuation of €1.50/share, while a 1% decrease results in a valuation of €2.49.

Exhibit 5: Peer group valuation

Market cap (m)

CY EV/ Sales

NY EV/ Sales

CY EV/ EBITDA

NY EV/ EBITDA

CY P/E

NY P/E

CY sales (m)

CY EBIT Margin

CY EBITDA Margin

Sales Growth NY

EPS Growth NY

Natural Language Understanding

 

 

 

 

 

 

 

 

 

 

 

Expert System

€46

1.8x

1.6x

13.6x

7.8x

N/A

53.4x

30.5

-3.9%

13.2%

14.0%

N/A

Nuance Communications

$4,505

3.0x

2.9x

N/A

9.7x

13.1x

12.4x

2,073

25.9%

N/A

3.9%

5.9%

Big Data Analytics

Splunk

$12,439

8.2x

6.5x

55.7x

38.2x

99.9x

69.3x

1,629

11.7%

14.7%

24.6%

44.2%

Tableau

$5,643

5.9x

5.2x

120.3x

62.5x

689.8x

174.7x

971

0.6%

4.9%

13.2%

294.9%

Teradata

$4,145

2.1x

2.0x

11.9x

11.2x

26.0x

23.2x

2,181

11.2%

17.3%

2.7%

12.3%

Average

5.4x

4.6x

62.6x

37.3x

271.9x

89.0x

7.8%

12.3%

13.5%

117.1%

Enterprise search and information management

OpenText

$7,894

4.1x

3.9x

11.0x

10.3x

13.1x

12.0x

2,806

33.7%

34.4%

4.2%

9.0%

IHS Markit

$16,691

6.1x

5.8x

15.5x

14.2x

21.4x

18.8x

3,872

21.1%

23.3%

5.8%

13.9%

CommVault

$2,599

3.6x

3.3x

29.3x

22.3x

64.0x

43.2x

706

11.7%

14.9%

10.2%

48.0%

Average

4.6x

4.3x

18.6x

15.6x

32.8x

24.7x

22.2%

24.2%

6.7%

23.6%

Italian software & services

TXT e-solutions

€140

1.4x

1.3x

14.6x

11.6x

63.1x

46.6x

39

6.6%

8.5%

7.4%

35.3%

Exprivia

€72

0.7x

0.7x

6.2x

5.9x

11.5x

10.6x

165

7.7%

8.0%

3.6%

8.3%

Piteco

€90

4.9x

4.5x

12.4x

11.0x

16.0x

14.6x

20

31.8%

32.8%

9.7%

9.7%

Reply

€1,669

1.6x

1.5x

11.5x

10.5x

18.9x

17.1x

982

12.9%

13.0%

9.0%

10.6%

Average

2.2x

2.0x

11.2x

9.8x

27.4x

22.2x

14.7%

15.6%

7.5%

16.0%

Source: Edison Investment Research, Bloomberg. Note: Priced at 5 April.

Exhibit 6: Financial summary

€'000s

2012

2013

2014

2015

2016

2017

2018e

2019e

31-December

IT GAAP

IT GAAP

IT GAAP

IT GAAP

IT GAAP

IT GAAP

IT GAAP

IT GAAP

PROFIT & LOSS

Revenue

 

 

11,593

11,109

13,045

19,368

25,057

27,783

30,531

34,793

EBITDA

 

 

2,624

2,014

2,339

1,463

(2,245)

1,746

4,024

7,015

Operating Profit (before amort. and except.)

1,765

916

609

(1,226)

(5,941)

(3,189)

(1,198)

1,552

Intangible Amortisation

0

0

0

(2,549)

(2,608)

(2,608)

(2,608)

(2,608)

Exceptionals

(319)

45

59

0

0

(700)

0

0

Other

0

0

0

0

0

0

0

0

Operating Profit

1,446

961

669

(3,775)

(8,549)

(6,496)

(3,806)

(1,055)

Net Interest

(298)

(376)

29

213

(156)

(2,191)

(601)

(601)

Profit Before Tax (norm)

 

 

1,467

539

638

(1,013)

(6,097)

(5,380)

(1,800)

951

Profit Before Tax (reported)

 

 

1,148

584

697

(3,562)

(8,705)

(8,687)

(4,407)

(1,656)

Tax

(452)

(359)

(609)

277

579

348

441

166

Profit After Tax (norm)

1,015

180

29

(934)

(5,692)

(5,164)

(1,620)

856

Profit After Tax (reported)

697

225

89

(3,284)

(8,126)

(8,339)

(3,966)

(1,491)

Average Number of Shares Outstanding (m)

22.0

22.0

22.0

22.8

25.8

28.1

35.7

35.7

EPS - normalised (c)

 

 

4.6

0.8

0.1

(4.1)

(22.0)

(18.3)

(4.5)

2.4

EPS - normalised and fully diluted (c)

 

4.6

0.8

0.1

(4.1)

(22.0)

(18.3)

(4.5)

2.4

EPS - (IFRS) (c)

 

 

3.2

1.0

0.4

(14.4)

(31.5)

(29.6)

(11.1)

(4.2)

Dividend per share (p)

0.0

0.0

0.0

0.0

0.0

0.0

0.0

0.0

EBITDA Margin (%)

22.6

18.1

17.9

7.6

-9.0

6.3

13.2

20.2

Adj Operating Margin (%)

15.2

8.2

4.7

-6.3

-23.7

-11.5

-3.9

4.5

BALANCE SHEET

Fixed Assets

 

 

6,691

9,905

5,719

20,301

20,379

18,828

17,198

15,127

Intangible Assets

1,111

2,462

4,640

18,539

18,372

16,944

15,349

13,329

Tangible Assets

635

606

692

916

915

792

757

707

Investments

4,945

6,836

387

846

1,092

1,092

1,092

1,092

Current Assets

 

 

12,767

15,491

32,681

42,588

37,012

37,671

35,279

36,393

Stocks

722

476

1,563

1,797

627

99

99

99

Debtors

5,488

5,820

7,866

10,228

10,233

12,384

13,870

15,812

Cash

2,065

2,967

4,900

11,249

9,063

11,235

7,416

7,422

Other

4,492

6,228

18,352

19,314

17,088

13,953

13,893

13,059

Current Liabilities

 

 

(8,871)

(10,333)

(13,639)

(20,517)

(22,679)

(19,521)

(19,965)

(20,499)

Creditors

(6,538)

(7,350)

(10,698)

(15,082)

(16,459)

(14,145)

(14,590)

(15,123)

Short term borrowings

(2,332)

(2,984)

(2,940)

(5,435)

(6,219)

(5,376)

(5,376)

(5,376)

Long Term Liabilities

 

 

(4,642)

(5,172)

(7,803)

(22,227)

(18,275)

(17,702)

(17,202)

(17,202)

Long term borrowings

(4,642)

(5,172)

(4,799)

(18,240)

(15,252)

(14,683)

(14,683)

(14,683)

Other long term liabilities

0

0

(3,005)

(3,987)

(3,023)

(3,019)

(2,519)

(2,519)

Net Assets

 

 

5,945

9,890

16,958

20,145

16,437

19,276

15,309

13,819

CASH FLOW

Operating Cash Flow

 

 

8,077

2,891

737

2,738

2,088

(1,921)

2,993

6,623

Net Interest

(298)

(376)

29

(324)

(155)

(626)

(612)

(617)

Tax

(452)

(359)

(609)

(1,576)

0

0

0

0

Capex

(3,095)

(2,384)

(3,905)

(20,045)

(6,378)

(6,321)

(6,200)

(6,000)

Acquisitions/disposals

0

0

(6,436)

3,045

46

1,275

0

0

Financing

0

0

12,341

6,573

4,418

11,178

0

0

Dividends

0

(180)

0

0

0

0

0

0

Net Cash Flow

4,232

(408)

2,156

(9,588)

18

3,585

(3,819)

6

Opening net debt/(cash)

 

 

6,352

4,909

4,822*

2,839

12,426

12,408

8,824

12,642

HP finance leases initiated

0

0

0

0

0

0

0

0

Other

(2,788)

128

(173)

0

0

0

0

0

Closing net debt/(cash)

 

 

4,909

5,189*

2,839

12,426

12,408

8,824

12,642

12,636

Source: Expert System, Edison Investment Research

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Expert System and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Limited (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided 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. Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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

295 Madison Avenue, 18th Floor

10017, New York

US

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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Expert System and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Investment Research Pty Limited (Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd (AFSL: 427484)) and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided 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. Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2018. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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

295 Madison Avenue, 18th Floor

10017, New York

US

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

295 Madison Avenue, 18th Floor

10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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