The Metals Company — Two steps forward, one step back

The Metals Company (NASDAQ: TMC)

Last close As at 18/05/2024

USD1.40

−0.08 (−5.41%)

Market capitalisation

USD449m

More on this equity

Research: Metals & Mining

The Metals Company — Two steps forward, one step back

The proposed equity issue and additional resources will largely complete the funding requirement for The Metals Company’s (TMC’s) further environmental study and completion of its mining application, which it intends to file in July 2024. While the regulatory delays in the International Seabed Authority’s (ISA’s) implementation of the mining exploitation code were disappointing, momentum behind the legislative process remains positive and the stepping stones towards TMC’s production of battery metals from the deep sea are steadily falling into place.

David Larkam

Written by

David Larkam

Analyst, Industrials

Nickel Refinery covered in dust_ Metal company

Metals & Mining

The Metals Company

Two steps forward, one step back

Funding and Q2 results

Metals and mining

16 August 2023

Price

$1.3

Market cap

$359m

Net cash ($m) at 30 June 2023

20.0

Shares in issue

281.3m

Free float

57%

Code

TMC

Primary exchange

Nasdaq

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(32.9)

100.7

45.7

Rel (local)

(31.8)

87.1

41.1

52-week high/low

US$2.9

US$0.6

Business description

The Metals Company is a deep-sea minerals exploration company focused on the collection, processing and refining of polymetallic nodules, containing nickel, copper and cobalt, found on the seafloor in the international waters of the Clarion Clipperton Zone, 1,300 nautical miles off the coast of Southern California.

Next events

Q3 results

November 2023

Analyst

David Larkam

+44 (0)20 3077 5700

The Metals Company is a research client of Edison Investment Research Limited

The proposed equity issue and additional resources will largely complete the funding requirement for The Metals Company’s (TMC’s) further environmental study and completion of its mining application, which it intends to file in July 2024. While the regulatory delays in the International Seabed Authority’s (ISA’s) implementation of the mining exploitation code were disappointing, momentum behind the legislative process remains positive and the stepping stones towards TMC’s production of battery metals from the deep sea are steadily falling into place.

Year end

Revenue
($m)

PBT*
($m)

EPS*
(c)

DPS
(c)

P/E
(x)

Yield
(%)

12/22

0.0

(86.0)

(35.84)

0.00

N/A

N/A

12/23e

0.0

(50.0)

(17.78)

0.00

N/A

N/A

12/24e

0.0

(50.0)

(17.29)

0.00

N/A

N/A

12/25e

0.0

(40.0)

(13.83)

0.00

N/A

N/A

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

Q2 and H1 results

Q2 underlying operating loss before share-based payments of $10.7m was similar to Q1’s $11.6m, reflecting ongoing exploration and administration costs with no major events in the period. Cash consumption of $7.9m in the quarter reflected the operating profit conversion adjusted for share-based payments and a positive working capital inflow of $2.2m. Net cash at the period end was $20m.

Funding and fund-raising

As part of the previously authorised shelf registration programme, on 14 August TMC announced plans to issue 13.462m shares at $2.0 per share to raise $27m before costs. The price represents an 82% premium on the previous day’s closing price. The issue includes 6.7m warrants (one warrant for every two new shares issued) with an initial exercise price of $3.00 per share, exercisable immediately on issue and expiring on 31 December 2027. Participants include existing shareholders and management. There is also a provision for certain investors to buy 5.5m new shares and warrants on the same terms until 15 September. This would suggest a raise of up to c $35m which, along with the undrawn $25m Allseas credit facility, covers the $60–70m that management estimates is required to complete and submit the exploitation licence for NORID (planned for July 2024).

Valuation: Uplift from $364m to $451m

Our project valuation, including our longer-term metal price assumptions (nickel 16,010$/tonne versus the current price of 20,500$/tonne), is unchanged. However, the on-site test, nodule collection and environmental programme has progressed and therefore de-risked the project to an extent, in our view, between a pre-feasibility and bankable feasibility study. This would suggest a valuation of between $362m and $541m or an average of $451m, which compares to our previous average valuation of $364m. Permitting remains the key catalyst, which would increase our valuation to $981m.

Company profile

TMC is looking to collect naturally occurring polymetallic nodules, which lie on the ocean floor in the deep water (over 4,000m) of the Clarion Clipperton Zone (CCZ) off the south-west coast of Southern California. These nodules contain nickel, cobalt, copper and manganese, all of which metals are essential for the electrification (primarily for batteries) required for decarbonising the transport sector. The CCZ forms part of the deep seabed and is controlled by the International Seabed Authority (ISA) under the United Nations Convention of the Law of the Sea, responsible for the mineral development and environmental protection of the seabed within international waters (ie more than 200 miles from land). TMC holds three exploration licences, as shown in Exhibit 1.

Exhibit 1: TMC concessions overview

Area (km²)

Estimated nodule content (Mt)

Estimated nickel content (Mt)

Sponsoring state

NORI

74,830

866

8.6

Republic of Nauru

TOML

74,713

768

7.6

Kingdom of Tonga

Marawana

74,990

Data not yet available

Republic of Kiribati

Source: TMC

TMC has been carrying out resource analysis and environmental investigation in the region since it was awarded an exploration licence in July 2011. 2022 saw the completion of the following key milestones in the development programme:

Operational: full sea trials of the Hidden Gem, the collection vessel and riser system were completed, with 3,000 tonnes of nodules collected and brought to the surface for processing trials.

Environmental: independent scientific analysis of the seabed undertaken to enable full analysis of the impact of the nodule collection system.

TMC is progressing its application for an exploitation licence from ISA as it seeks to become the first company to commercially collect polymetallic nodules from the deep sea for onshore processing. The planned programme schedule, Project Zero (small scale) and Project One (full commercial scale), involves a section of the NORI block (Nori-D) which covers an area 25.2km² and is estimated to contain 356Mt of nodules with 3.8Mt of nickel.

Mining licence progress

Regulatory update

ISA is mandated to establish exploitations licensing regulation while taking into account its environmental responsibilities. These negotiations have been somewhat protracted, reflecting the complexities of delivering such an agreement and the impact of COVID-19. Therefore the original intention for completion at ISA’s July 2023 meeting has not been fulfilled. Nevertheless, commentary remains positive for the direction of exploitation regulation albeit opponents remain, primarily on environmental grounds. Some recent statements include the following:

The United Nations resolution adopted by the General Assembly on 30 December 2022 concerning oceans and the law of the sea: ‘Welcomes the progress of the work of the Authority on draft regulations for exploitation of mineral resources in the Area, but also notes that the impact of the coronavirus disease (COVID-19) and the limitations recommended on meetings. [The United Nations] encourages the Authority to continue its work on the draft regulations as a matter of priority and to provide sufficient opportunities and time for substantive consideration and discussion of the draft regulations as well as the relevant standards and guidelines.’

A United Nations intergovernmental conference on marine diversity approved a new maritime biodiversity treaty covering areas beyond national jurisdiction. The treaty calls for the protection of 30% of the region. We note that ISA remains mandated to regulate the deep sea, including the CCZ, where TMC’s NORI-D is situated and where 43% of the region is already protected.

The opening comments of the ISA secretary general’s 2023 annual report included ‘The main driving factor in this respect is the ongoing commitment of the Council to move towards the adoption of the regulations for the exploitation of marine minerals in the Area.’ This was further supported by a road map for the continuation of work on the draft regulations.

The G20 Environment and Climate Ministers meeting in July commented: ‘In the context of the International Seabed Authority (ISA), we commit to engage in the development of a clear, robust and effective regulatory framework on deep seabed mineral exploitation that ensures effective protection for the marine environment from harmful effects…’.

The next ISA meetings are in November 2023, March 2024 and July 2024.

TMC’s position

In June 2021, the TMC subsidiary NORI notified ISA that it intended to apply for an exploitation contract (licence), effectively triggering a two-year window for exploitation regulations to be adopted. This deadline has now passed. As an act of good faith and reflecting the impact of COVID-19, progress made on the regulations and continued ISA commitment, management has decided to delay submitting its application until July 2024. This should permit a more seamless progression of the commercialisation process.

Project updates

Much of the work in 2023 has revolved around assimilating data from the 2022 sea trails. This has included environmental studies, with the data made fully available to third parties. TMC has made two recent updates on the development of the project.

Collector upgrade

TMC has announced plans to upscale the size of its collector vehicle and riser system following further engineering analysis after the successful on-site trials carried out in H222. The upgraded system will have a capacity of 3Mtpa of nodule collection against 1.3Mt for the previous system, a 130% uplift. This is not expected to change the annual production capacity of the project but will reduce the number of vessels and associated infrastructure required, thereby offering reduced capex and operational cost requirements.

Further test

TMC has committed to a further campaign to revisit the site of last year’s pilot collection trials in the CCZ to reassess the environmental impact. This will focus on the plumes generated in the collection process and how they have settled over time. The findings will be shared with the scientific community and form part of the environmental impact statement required as part of the mining exploitation licence application.

Q2 and H1 results

The Q2 underlying operating loss before share-based payments of $10.7m was similar to Q1’s $11.6m, reflecting ongoing exploration and administration costs. The H123 underlying operating loss of $22.3m was significantly lower than H222, which included the cost of the major on-site sea trials. The $13.8m profit on disposal reported in Q123 reflected the premium of the assets disposed of as part of the corporate agreement and investment in Low Carbon Royalties.

Q2 cash consumption of $7.9m reflected operating profit conversion adjusted for share-based payments and a positive working capital inflow of $2.2m. H122 cash spend included the movement in working capital, in part reflecting the cash associated with the H222 sea trials, leading to cash outflow for the half of $26.8m. Net cash at the period end stood at $20m.

Exhibit 2: Financial result summary

$m

H122

H222

2022

Q123

Q223

H123

PROFIT & LOSS

 

 

 

 

 

 

Group underlying operating profit

(21.5)

(65.6)

(87.1)

(11.6)

(10.7)

(22.3)

Profit/(loss) on disposal of fixed assets

 

 

 

13.8

 

13.8

Write downs

 

 

 

 

(0.4)

(0.4)

Share awards

(12.7)

(4.4)

(17.1)

(1.8)

(2.6)

(4.3)

EBIT (reported)

(34.3)

(70.0)

(104.2)

0.4

(13.6)

(13.2)

Bank Interest

0.2

0.9

1.1

0.5

 

0.5

FX gains/(losses)

 

 

 

 

(0.1)

(0.1)

Warrant costs etc

0.5

(68.3)

(67.8)

(0.8)

(0.5)

(1.3)

Financing charges

0.7

(67.4)

(66.7)

(0.4)

(0.6)

(0.9)

PBT reported

(33.5)

(137.4)

(170.9)

0.0

(14.1)

(14.1)

PBT before exceptionals

(21.3)

(64.7)

(86.0)

(11.2)

(10.7)

(21.8)

CASH FLOW

Underlying operating profit

(33.5)

(137.4)

(170.9)

0.0

(14.1)

(14.1)

Amortisation development costs

0.2

0.2

0.4

0.1

0.1

0.2

Net change in working capital

(17.0)

34.8

17.8

(12.3)

2.2

(10.2)

(Profit)/loss on sale of fixed assets

 

 

 

(13.8)

 

(13.8)

Charge for share schemes/warrants

12.7

73.4

86.2

1.8

3.9

5.6

Operating cash flow

(37.6)

(28.9)

(66.6)

(24.3)

(7.9)

(32.2)

Net capex

(0.5)

(0.7)

(1.2)

0.0

(0.1)

(0.1)

Free cash flow

(38.1)

(29.6)

(67.8)

(24.3)

(7.9)

(32.3)

Acquisitions & disposals

 

 

0.0

5.0

 

5.0

Equity/warrants issued/(repurchased)

 

29.7

29.7

 

0.1

0.1

Net cash flow

(38.1)

0.1

(38.1)

(19.3)

(7.9)

(27.2)

Other non-cash

0.2

(0.2)

 

0.9

(0.5)

0.4

Net cash/(debt) brought forward

84.9

46.9

84.9

46.8

28.4

46.8

Movement in net debt

(37.9)

(0.1)

(38.1)

(18.4)

(8.4)

(26.8)

Net cash/(debt)

46.9

46.8

46.8

28.4

20.0

20.0

Source: Edison Investment Research

Funding

Management’s recent update included comments that the cash requirement to submit the exploitation licence for NORI-D would be $60–$70m, in excess of the $20m cash currently on hand. Management also highlighted some of the avenues immediately available to it:

$25m unsecured and undrawn credit facility with an affiliate of Allseas.

$30m at-the-market (ATM) equity programme.

$100m effective universal ‘shelf’ registration statement pursuant to which TMC may issue securities, including the $30m in common shares issuable under the ATM.

TMC subsequently announced the issue of 13.462m shares at $2.0 per share to raise $27m before costs within the ‘shelf’ registration programme previously authorised. This is at an 82% premium to the previous day’s closing price. The issue includes 6.7m warrants (one warrant for every two new shares issued) with an initial exercise price of $3.00 per share, exercisable immediately on issue and expiring on 31 December 2027, which can also be called by the company at a share price above $6.50 on a weighted basis for 30 days. Participants include existing shareholders and management. There is also a provision for certain investors to buy 5.5m new shares and warrants on the same terms up to 15 September.

We estimate that this will raise c $25m, up to c $35m if the additional funds are committed. Along with the Allseas undrawn facility, this significantly reduces funding requirements over the next 12 months. Further funding will be required for the mining programme, which we show as debt in our forecasts.

Valuation

We have updated our project valuation to take into account the following changes to expectations.

Changes to timing: management expects to begin commercial operations in Q425. We have modelled commencement in Q126 with a two-year ramp-up to full capacity for Project Zero and five years for the main commercial programme, Project One, in line with previous expectations.

Update to financials: the plan to increase the scale of the nodule recovery system will reduce the number of vessels required and provide additional operational leverage, thereby reducing capex and/or operational costs. The negative side of the equation is that inflationary cost pressures have been greater than originally anticipated. Hence, until TMC is in a position to provide greater granularity to the likely costings, we have not made any adjustments.

Update to metal pricing expectations: the accelerating shift to electrification in the transportation sector is clearly positive for battery metals pricing. Nevertheless, we retain our medium-term metals pricing expectations. Nickel is key for TMC (we estimate 45% of revenues) at $16,010/tonne against the current price of $20,500/tonne.

Exhibit 3 provides a summary of our valuation relative to the position in the development process through to full commercialisation. TMC is clearly not a traditional mining business, which makes it somewhat less straightforward to assess its position in the development process. Previously, we foresaw TMC in the preliminary economic assessment/pre-feasibility stage. The successful sea trials and environmental campaign conducted in H222 further de-risk the project, suggesting a valuation between a pre-feasibility and bankable feasibility study. This would suggest a valuation of between $362m and $541m, or an average of $451m. Permitting remains the key catalyst, which would increase our valuation to $981m with further upside as the physical nodule collection progresses. This valuation is purely for Nori-D, which accounts for only 22% of the total estimated TORI and TOML resources.

Exhibit 3: Project valuation

Discount rate used

Valuation

High (%)

Low (%)

Low ($m)

High ($m)

Average ($m)

Preliminary economic assessment

36 

31 

177

369

273

Pre-feasibility study

34 

29 

241

483

362

Bankable feasibility study

31 

26 

369

712

541

Permitted

27 

21

627

1,336

981

Ramp-up

23 

19 

1,041

1,716

1,378

Project Zero

18 

13 

1,944

3,659

2,802

Project One

11 

4,734

6,147

5,440

Source: Edison Investment Research

Financials

We have updated our forecasts to reflect:

changes to the financial position of the group following the announced fund-raising including the dilution from the share issue; and

a delay in first production, which management now targets in Q425 (previously Q424). However, to ensure a degree of conservatism, we have delayed this until 2026.

Exhibit 4: Forecast changes

$m

2023e

2024e

2025e

Old

New

Change (%)

Old

New

Change (%)

Old

New

Change (%)

Revenues

0.0

0.0

N/A

71.7

0.0

(100.0)

358.4

0.0

(100.0)

Normalised operating profit

(50.0)

(50.0)

0.0

(59.4)

(50.0)

(15.8)

(35.5)

(40.0)

12.7

Normalised PBT

(50.0)

(50.0)

0.0

(59.4)

(50.0)

(15.8)

(35.5)

(40.0)

12.7

Normalised basic EPS (c)

(14.9)

(17.8)

19.7

(12.1)

(17.3)

43.5

(7.2)

(13.8)

92.0

Net debt/(cash)

(26.8)

(34.7)

29.2

(44.6)

15.3

(134.4)

64.5

104.9

62.6

Source: Edison Investment Research

Exhibit 5: Financial summary

$m

2022

2023e

2024e

2025e

Year to December

US GAAP

US GAAP

US GAAP

US GAAP

INCOME STATEMENT

Revenue

0.0

0.0

0.0

0.0

Cost of Sales

0.0

0.0

0.0

0.0

Gross Profit

0.0

0.0

0.0

0.0

EBITDA

(170.5)

(46.2)

(60.0)

(59.6)

Operating profit (before amort. and excepts.)

(87.1)

(50.0)

(50.0)

(40.0)

Amortisation of acquired intangibles

0.0

0.0

0.0

0.0

Exceptionals

0.0

13.8

0.0

0.0

Share-based payments

(17.1)

(10.0)

(10.0)

(20.0)

Reported operating profit

(104.2)

(46.2)

(60.0)

(60.0)

Net Interest

1.1

0.0

0.0

0.0

Exceptionals, warrants etc

(67.8)

0.0

0.0

0.0

Profit Before Tax (norm)

(86.0)

(50.0)

(50.0)

(40.0)

Profit Before Tax (reported)

(170.9)

(46.2)

(60.0)

(60.0)

Reported tax

0.0

0.0

0.0

0.0

Profit After Tax (norm)

(86.0)

(50.0)

(50.0)

(40.0)

Profit After Tax (reported)

(170.9)

(46.2)

(60.0)

(60.0)

Net income (normalised)

(86.0)

(50.0)

(50.0)

(40.0)

Net income (reported)

(170.9)

(46.2)

(60.0)

(60.0)

Average Number of Shares Outstanding (m)

240

281

289

289

EPS - normalised (c)

(35.84)

(17.78)

(17.29)

(13.83)

EPS - normalised fully diluted (c)

(32.46)

(16.33)

(15.91)

(12.73)

EPS - basic reported ($c)

(71.22)

(16.43)

(20.75)

(20.75)

Dividend (c)

0.00

0.00

0.00

0.00

BALANCE SHEET

Fixed Assets

44.8

45.8

50.8

100.4

Intangible Assets

42.8

42.8

42.8

42.8

Tangible Assets

2.0

3.0

8.0

57.6

Investments & other

0.0

0.0

0.0

0.0

Current Assets

49.7

37.6

2.9

2.9

Stocks

0.0

0.0

0.0

0.0

Debtors

0.0

0.0

0.0

0.0

Cash & cash equivalents

46.8

34.7

0.0

0.0

Other

2.9

2.9

2.9

2.9

Current Liabilities

(41.7)

(41.7)

(41.7)

(41.7)

Creditors

(41.7)

(41.7)

(41.7)

(41.7)

Tax and social security

0.0

0.0

0.0

0.0

Short term borrowings

0.0

0.0

0.0

0.0

Other

0.0

0.0

0.0

0.0

Long Term Liabilities

(11.7)

(11.7)

(27.0)

(116.6)

Long term borrowings

0.0

0.0

(15.3)

(104.9)

Other long-term liabilities

(11.7)

(11.7)

(11.7)

(11.7)

Net Assets

41.1

30.0

(15.0)

(55.0)

Minority interests

0.0

0.0

0.0

0.0

Shareholders' equity

41.1

30.0

(15.0)

(55.0)

CASH FLOW

Operating Cash Flow

(170.5)

(46.2)

(60.0)

(59.6)

Working capital

17.8

(9.9)

0.0

0.0

Exceptional & other

86.2

10.0

10.0

20.0

Tax

0.0

0.0

0.0

0.0

Net operating cash flow

(66.6)

(46.1)

(50.0)

(39.6)

Capex

(1.2)

(1.0)

(5.0)

(50.0)

Acquisitions/disposals

0.0

5.0

0.0

0.0

Net interest

0.0

0.0

0.0

0.0

Equity financing

29.7

30.0

5.0

0.0

Dividends

0.0

0.0

0.0

0.0

Net Cash Flow

(38.1)

(12.1)

(50.0)

(89.6)

Opening net debt/(cash)

(84.9)

(46.8)

(34.7)

15.3

FX

0.0

0.0

0.0

0.0

Other non-cash movements

0.0

0.0

0.0

0.0

Closing net debt/(cash)

(46.8)

(34.7)

15.3

104.9

Source: Company accounts, Edison Investment Research


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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.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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Copyright: Copyright 2023 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.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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After repeated delays, the German whistleblowing regulation came into law on 1 July and pent-up demand is now set to flow through into new customers and growing recurring revenues. Those customers present a pipeline of warm leads for selling EQS’s broader suite of cloud-based products and services, particularly in the Compliance segment, underpinning management’s medium-term ambitions for the top line and EBITDA margins, targeted at €130m and 30% respectively on a time frame of FY26 or FY27. We have edged up our FY23 and FY24 estimates to reflect the momentum and greater degree of confidence in the rest of H223. The shares continue to trade well below the level indicated by our DCF.

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