Last close As at 05/08/2026
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Research: TMT
In H123 Esker reported strong growth in revenue (+16% y-o-y in constant currency (cc)) and bookings (+18% y-o-y cc) but this was outweighed by increases in costs, resulting in an operating margin decline. The company is taking measures to counter this, both in its contract pricing and by slowing the pace of hiring. While FY23 revenue outlook is unchanged, management reduced the mid-point of operating margin guidance by 1% to 12%. We have conservatively reduced our operating profit forecasts, which for FY23 were at the upper end of the new guidance range.
Esker |
Working to balance investment and profitability |
H123 results |
Software and comp services |
18 September 2023 |
Share price performance
Business description
Next events
Analyst
Esker is a research client of Edison Investment Research Limited |
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In H123 Esker reported strong growth in revenue (+16% y-o-y in constant currency (cc)) and bookings (+18% y-o-y cc) but this was outweighed by increases in costs, resulting in an operating margin decline. The company is taking measures to counter this, both in its contract pricing and by slowing the pace of hiring. While FY23 revenue outlook is unchanged, management reduced the mid-point of operating margin guidance by 1% to 12%. We have conservatively reduced our operating profit forecasts, which for FY23 were at the upper end of the new guidance range.
Year end |
Revenue |
PBT* |
EPS* |
DPS |
P/E |
Yield |
12/21 |
133.6 |
18.0 |
2.37 |
0.60 |
56.4 |
0.4 |
12/22 |
159.0 |
23.4 |
3.04 |
0.75 |
43.8 |
0.6 |
12/23e |
180.1 |
22.8 |
2.85 |
0.80 |
46.8 |
0.6 |
12/24e |
205.4 |
28.0 |
3.44 |
0.85 |
38.8 |
0.6 |
Note: *PBT and EPS are normalised and fully diluted, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Cost growth outweighed revenue growth in H123
Esker reported 15% y-o-y revenue growth for H123 (+16% cc) while total costs increased 23% over the same period through a combination of inflation, headcount increases, the acquisition of loss-making Market Dojo in June 2022 and the reversal of an accrual in H122. This resulted in an operating profit of €9.8m and an operating margin of 11.2%, down 5.7pp from H122. Adjusting for the acquisition and tax accrual, underlying operating profit was 1% higher y-o-y and the underlying margin 1.8pp lower at 12.3%. Net cash increased marginally h-o-h to €33.5m.
Margin guidance reduced slightly for FY23
To counter the pressure on profitability, the company is putting inflation-linked price increases through its contracts, which will take effect as contracts are renewed, and since the end of 2022 has slowed the pace of hiring. The company maintains its revenue guidance for FY23 for organic constant currency growth of 14–15%. Reflecting the higher-than-expected impact of inflation, the company has reduced its operating margin guidance from 12–14% to 11.5–12.5%. Our revenue forecasts are unchanged and we have reduced our operating margin forecasts by 0.6pp and 0.2pp, respectively, to 11.7% in FY23 and 12.8% in FY24.
Valuation: Profitable growth key to upside
Based on EV/sales and P/E ratios, the stock continues to trade at a premium to French software peers (CY P/E c 41x), 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 73x). With net cash of €33.5m at the end of H123, the company is well-funded to take advantage of opportunities to make bolt-on acquisitions, which in the current environment may become more affordable. The stock is down 16% from a recent high of €159 in August – in our view, evidence of stabilisation of the cost base would be a key trigger for upside from this point.
Review of H123 results
Exhibit 1: H123 results highlights
€m |
H123 |
H122 |
y-o-y |
Revenues |
87.9 |
76.3 |
15.2% |
EBITDA |
15.7 |
18.2 |
-13.3% |
EBITDA margin |
17.9% |
23.8% |
-5.9pp |
Reported operating profit |
9.8 |
12.9 |
-23.8% |
Operating margin |
11.2% |
16.9% |
-5.7pp |
Reported net income |
7.5 |
10.1 |
-26.4% |
Basic EPS (€) |
1.26* |
1.75 |
-27.7% |
Diluted EPS (€) |
1.22* |
1.72 |
-28.9% |
Net cash |
33.5 |
27.7 |
20.9% |
Source: Esker. Note: *Estimate based on FY23e average basic and diluted share count.
Esker reported H123 revenue in line with its July trading update. EBITDA and operating profit declined year-on-year for several reasons, which we explain below. The company generated €0.1m in net financial income and reported a €0.6m contribution from its joint venture with Quadient (-29% y-o-y). The tax rate was 29% compared to 24% in H122 and 21% in FY22.
Net cash at the end of H123 stood at €33.5m, including €4.8m cash held in long-term assets. This was slightly up on net cash of €32.7m at the end of FY22. Cash inflow from operating activities of €13.5m more than offset capex of €8.7m, dividends paid of €4.5m and other cash inflows of €0.8m.
Normalising operating profit for underlying performance
The table below shows the breakdown of costs/other income in H123 and H122.
Exhibit 2: Cost breakdown
€m |
H123 |
H122 |
y-o-y |
Purchase & external costs |
23.676 |
19.667 |
20% |
Personnel & related taxes |
54.641 |
43.536 |
26% |
Local & misc. taxes |
0.762 |
0.835 |
(9%) |
Depreciation and amortisation |
5.668 |
4.94 |
15% |
Reserves |
0.259 |
0.343 |
(24%) |
Other income |
(0.764) |
(0.737) |
4% |
Capitalised development costs |
(6.191) |
(5.17) |
20% |
Total costs |
78.051 |
63.414 |
23% |
Source: Esker
In H122, Esker reversed an accrual for tax on stock-based compensation totalling €2.247m. The company acquired Market Dojo in H122 and consolidated it from 1 June 2022. Excluding the reversal of the tax on stock-based compensation and the loss relating to Market Dojo, underlying operating profit would have been €10.739m in H122. In H123, adjusting out a tax accrual of €0.374m and the Market Dojo loss of €0.632m, underlying operating profit would have been €10.807m, marginally higher than in H122. Underlying operating margin declined 1.8pp y-o-y to 12.3% (see Exhibit 3).
Exhibit 3: Reported to underlying operating profit reconciliation
€m |
H123 |
H122 |
YoY |
Total reported operating costs |
78.051 |
63.414 |
23% |
Tax on stock-based compensation |
(0.374) |
2.247 |
N/A |
Market Dojo costs |
(0.632) |
(0.116) |
N/A |
Underlying costs |
77.045 |
65.545 |
18% |
Reported operating profit |
9.801 |
12.87 |
(24%) |
Reported operating margin |
11.2% |
16.9% |
(5.7%) |
Underlying operating profit |
10.807 |
10.739 |
1% |
Underlying operating margin |
12.3% |
14.1% |
(1.8%) |
Source: Esker
With staff costs the largest cost category, the company provided an analysis of the €11.1m increase year-on-year (see Exhibit 4). The largest increase was from the higher number of employees – average headcount increased 13% y-o-y. Since the end of 2022, the company has moderated the pace of hiring. Total full time equivalent headcount was 972 at the end of FY22, rising to 1,010 by the end of H123, and the company only expects this to increase to 1,030 by the end of FY23. This equates to an increase of 6% for FY23e compared to 16% for FY22. The company also noted that to ensure staff retention, it awarded staff pay rises in line with inflation. Annual employee turnover was 8% in Q123 and Q223 compared to c 15% in Q222 and Q322 and 13% in Q422 so this policy appears to be paying off. The company noted purchases and external expenses saw a c €1m increase due to inflation.
|
Exhibit 4: Breakdown of increase in staff costs year-on-year (€m) |
|
|
Source: Esker |
Bookings intake remains strong
The annual recurring value (ARR) of contracts signed in H123 was €9m, 18% higher y-o-y on a constant currency basis. Orders were 6% higher in the Americas (c 45% of orders), reflecting a strong H122. Orders in Europe ex-France (c 22% of total orders) were up 135% y-o-y, reflecting contract wins in the UK and Germany. Orders in France (c 23% of orders) declined 9% while companies assessed how to prepare for new e-invoicing legislation in France. APAC orders were 10% higher y-o-y (c 10% of orders). Management highlighted that in the Americas, Q3 would have a challenging base but Q4 should see strong growth. Despite the French government postponing the implementation of its e-invoicing legislation, management expects a stronger order intake in France in H223 as companies decide to prepare for the change anyway.
Inflation-linked price increases to gradually boost revenue
The company noted that H123 revenue growth includes a c 2% benefit from price increases in contracts. This is significantly lower than the inflationary increases affecting personnel and other costs. This was partly due to the French Syntec index (which is the index used in French contracts) reflecting much lower inflation rates than other sources, and some contracts having delayed index application. Customer prices are now increased automatically at contract anniversary date based on local CPI (consumer price index), so as contracts are renewed, the benefit should start to flow through.
Outlook and changes to forecasts
The company maintained its guidance for organic constant currency revenue growth of 14–15% for FY23. It has reduced its FY23 operating margin guidance, from 12–14% to 11.5–12.5% (midpoint reduces from 13% to 12%). Our forecast was for a margin of 12.3%, at the lower end of the previous range but now at the upper end of the new range. We maintain our revenue forecasts for FY23 and FY24. We have revised our cost forecasts to reflect H123 outturn – while personnel and other costs increase, we have also assumed a higher level of capitalised development costs. Overall, we reduce our operating profit forecast by 5% to €21.2m, which equates to an operating margin of 11.7%. For FY24, we reduce our operating margin forecast from 13.0% to 12.8%. We assume that the slowdown in hiring will dampen the rate of increase of staff costs and inflation is likely to moderate.
Exhibit 5: Changes to forecasts
€m |
FY23e old |
FY23e new |
change |
y-o-y |
FY24e old |
FY24e new |
change |
y-o-y |
Revenues |
180.1 |
180.1 |
(0.0%) |
13.3% |
205.4 |
205.4 |
(0.0%) |
14.0% |
EBITDA |
33.9 |
32.9 |
(3.2%) |
3.3% |
39.7 |
39.2 |
(1.2%) |
19.4% |
EBITDA margin |
18.8% |
18.2% |
(0.6%) |
(1.8%) |
19.3% |
19.1% |
(0.2%) |
0.9% |
Normalised EBIT |
22.5 |
21.4 |
(4.8%) |
(1.2%) |
27.0 |
26.5 |
(1.8%) |
23.7% |
Normalised EBIT margin |
12.5% |
11.9% |
(0.6%) |
(1.7%) |
13.1% |
12.9% |
(0.2%) |
1.0% |
Reported EBIT |
22.2 |
21.2 |
(4.9%) |
(1.2%) |
26.7 |
26.2 |
(1.8%) |
24.0% |
Reported EBIT margin |
12.3% |
11.7% |
(0.6%) |
(1.7%) |
13.0% |
12.8% |
(0.2%) |
1.0% |
Normalised PBT |
24.2 |
22.8 |
(5.5%) |
(2.6%) |
28.7 |
28.0 |
(2.3%) |
22.6% |
Normalised net income |
18.4 |
17.4 |
(5.5%) |
(5.2%) |
21.8 |
21.3 |
(2.3%) |
22.6% |
Reported net income |
18.2 |
17.2 |
(5.6%) |
(3.9%) |
21.6 |
21.1 |
(2.4%) |
22.9% |
Normalised dil. EPS (€) |
3.01 |
2.85 |
(5.5%) |
(6.4%) |
3.52 |
3.44 |
(2.3%) |
20.7% |
Reported basic EPS (€) |
3.08 |
2.91 |
(5.6%) |
(4.2%) |
3.60 |
3.52 |
(2.4%) |
20.9% |
Reported diluted EPS (€) |
2.98 |
2.82 |
(5.6%) |
(5.2%) |
3.49 |
3.40 |
(2.4%) |
20.9% |
Net cash |
40.9 |
38.6 |
(5.8%) |
18.2% |
50.3 |
46.1 |
(8.3%) |
19.5% |
DPS (€) |
0.80 |
0.80 |
0.0% |
6.7% |
0.85 |
0.85 |
0.0% |
6.3% |
Source: Edison Investment Research
Exhibit 6: Financial summary
€'m |
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 |
|
|
86.9 |
104.2 |
112.3 |
133.6 |
159.0 |
180.1 |
205.4 |
EBITDA |
|
|
18.3 |
20.1 |
21.9 |
25.7 |
31.8 |
32.9 |
39.2 |
Normalised Operating Profit |
|
|
12.0 |
12.8 |
14.0 |
16.8 |
21.7 |
21.4 |
26.5 |
Amortisation of acquired intangibles |
(0.3) |
(0.4) |
(0.4) |
(0.3) |
(0.3) |
(0.3) |
(0.3) |
||
Exceptionals and other income |
(0.1) |
(0.1) |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Operating Profit |
11.5 |
12.4 |
13.6 |
16.6 |
21.4 |
21.2 |
26.2 |
||
Net Interest |
(0.1) |
0.3 |
(0.1) |
0.2 |
0.3 |
0.1 |
0.1 |
||
Associates & joint ventures |
0.3 |
0.5 |
0.5 |
1.0 |
1.5 |
1.3 |
1.4 |
||
Exceptionals |
0.0 |
0.0 |
0.5 |
0.4 |
(0.3) |
0.0 |
0.0 |
||
Profit Before Tax (norm) |
|
|
12.2 |
13.6 |
14.5 |
18.0 |
23.4 |
22.8 |
28.0 |
Profit Before Tax (FRS 3) |
|
|
11.8 |
13.1 |
14.5 |
18.2 |
22.9 |
22.6 |
27.8 |
Tax |
(2.9) |
(3.4) |
(3.0) |
(3.9) |
(5.0) |
(5.4) |
(6.7) |
||
Profit After Tax (norm) |
9.2 |
10.1 |
11.5 |
14.2 |
18.3 |
17.4 |
21.3 |
||
Profit After Tax (FRS 3) |
8.8 |
9.7 |
11.6 |
14.3 |
17.9 |
17.2 |
21.1 |
||
Ave. No. of Shares Outstanding (m) |
5.4 |
5.4 |
5.7 |
5.8 |
5.9 |
5.9 |
6.0 |
||
EPS - normalised (€) |
|
|
1.70 |
1.86 |
2.03 |
2.42 |
3.11 |
2.94 |
3.55 |
EPS - normalised fully diluted (€) |
|
|
1.65 |
1.79 |
1.99 |
2.37 |
3.04 |
2.85 |
3.44 |
EPS - (GAAP) (€) |
|
|
1.64 |
1.80 |
2.04 |
2.44 |
3.04 |
2.91 |
3.52 |
Dividend per share (€) |
0.41 |
0.33 |
0.50 |
0.60 |
0.75 |
0.80 |
0.85 |
||
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 |
18.2 |
19.1 |
||
Normalised Operating Margin (%) |
13.8 |
12.3 |
12.5 |
12.6 |
13.6 |
11.9 |
12.9 |
||
BALANCE SHEET |
|||||||||
Fixed Assets |
|
|
39.6 |
47.2 |
49.0 |
57.2 |
71.7 |
76.9 |
81.8 |
Intangible Assets |
28.1 |
29.3 |
30.8 |
33.6 |
47.7 |
51.7 |
55.2 |
||
Tangible Assets |
7.1 |
10.4 |
10.0 |
9.9 |
9.0 |
8.9 |
8.9 |
||
Other |
4.5 |
7.4 |
8.2 |
13.7 |
15.0 |
16.3 |
17.7 |
||
Current Assets |
|
|
49.0 |
52.0 |
72.9 |
71.5 |
90.7 |
98.8 |
113.4 |
Stocks |
0.1 |
0.2 |
0.3 |
0.3 |
0.5 |
0.5 |
0.5 |
||
Debtors |
25.6 |
30.0 |
31.4 |
35.5 |
46.2 |
50.3 |
57.4 |
||
Cash |
22.8 |
21.4 |
40.4 |
35.0 |
42.9 |
46.8 |
54.4 |
||
Other |
0.5 |
0.5 |
0.8 |
0.7 |
1.1 |
1.1 |
1.1 |
||
Current Liabilities |
|
|
(30.1) |
(34.3) |
(50.2) |
(45.9) |
(45.5) |
(48.4) |
(51.8) |
Creditors |
(30.1) |
(34.3) |
(38.7) |
(44.7) |
(45.5) |
(48.4) |
(51.8) |
||
Short term borrowings |
0.0 |
0.0 |
(11.5) |
(1.2) |
0.0 |
0.0 |
0.0 |
||
Long Term Liabilities |
|
|
(10.8) |
(8.3) |
(6.3) |
(2.5) |
(18.1) |
(16.1) |
(16.1) |
Long term borrowings |
(9.3) |
(6.5) |
(3.6) |
0.0 |
(15.0) |
(13.0) |
(13.0) |
||
Other long term liabilities |
(1.5) |
(1.8) |
(2.7) |
(2.5) |
(3.1) |
(3.1) |
(3.1) |
||
Net Assets |
|
|
47.8 |
56.6 |
65.4 |
80.4 |
98.6 |
111.1 |
127.2 |
CASH FLOW |
|||||||||
Operating Cash Flow |
|
|
18.4 |
20.3 |
24.4 |
28.8 |
22.4 |
31.5 |
35.6 |
Net Interest |
0.1 |
0.4 |
(0.0) |
0.3 |
0.9 |
0.1 |
0.1 |
||
Tax |
(2.8) |
(3.3) |
(0.9) |
(3.4) |
(5.1) |
(5.4) |
(6.7) |
||
Capex |
(7.8) |
(11.0) |
(10.2) |
(11.1) |
(12.6) |
(15.6) |
(16.5) |
||
Acquisitions/disposals |
(0.2) |
(0.5) |
(0.5) |
(5.5) |
(8.9) |
0.0 |
0.0 |
||
Financing |
0.8 |
1.4 |
0.0 |
2.8 |
0.8 |
0.0 |
0.0 |
||
Dividends |
(1.8) |
(2.2) |
(1.9) |
(2.9) |
(3.6) |
(4.6) |
(5.0) |
||
Net Cash Flow |
6.6 |
5.0 |
11.0 |
8.9 |
(6.1) |
6.0 |
7.5 |
||
Opening net debt/(cash) |
|
|
(10.0) |
(16.6) |
(21.0) |
(30.3) |
(38.6) |
(32.5) |
(38.6) |
HP finance leases initiated |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
0.0 |
||
Other |
(0.1) |
(0.6) |
(1.7) |
(0.6) |
(0.0) |
(0.0) |
(0.0) |
||
Closing net debt/(cash) |
|
|
(16.6) |
(21.0) |
(30.3) |
(38.6) |
(32.5) |
(38.6) |
(46.1) |
Source: Esker, Edison Investment Research
|
|
Research: Metals & Mining
Three recent developments have served to put KEFI’s Tulu Kapi into the spotlight. The first is Ethiopia’s recent central bank directive exempting certain strategic industries – including mining – from foreign exchange controls, satisfying the last major condition precedent for the issuance of final approval by the project finance lenders. The second is Allied Gold’s listing on the TSX, including its decision to raise US$250m (US$160m in equity), of which 80% is to be invested in developing the Kurmuk mine, also in Ethiopia, on the border with Sudan, west of Tulu Kapi. The third is the takeover of early-stage OreCorp by Silvercorp at a price equivalent to 24.5% of attributable NPV5% or US$46.14 per resource ounce.