EQS Group — Transition year

EQS Group (SCALE: EQS)

Last close As at 28/03/2024

40.80

−0.40 (−0.97%)

Market capitalisation

409m

More on this equity

Research: TMT

EQS Group — Transition year

EQS’s interims show good progress in its evolution into a leading technology provider to corporate entities. With its revamped cloud-based COCKPIT platform scheduled for launch in Q418 and an ever-tightening regulatory environment, the elements are in place to underpin medium- term growth. The additional costs are weighing on current-year profitability and FY18 EBITDA guidance has been reduced, but our view is that this is an investment in making the group a credible and scalable partner in investor relations and compliance, with an attractive monthly recurring revenue base.

Fiona Orford-Williams

Written by

Fiona Orford-Williams

Director, TMT

TMT

EQS Group

Transition year

Media

Scale research report - Update

24 August 2018

Price

€75.5

Market cap

€108m

Share price graph

Share details

Code

EQS

Listing

Deutsche Börse Scale

Shares in issue

1.43m

Net debt (€m) as at 30 June 2018

11.0

Business description

The EQS Group is a leading international technology provider for digital investor relations, corporate communications and compliance. With more than 8,000 client companies worldwide, its products and services are designed to fulfil complex national and international information obligations to the global investment community.

Bull

Financial market regulation.

Opportunities in governance and risk.

High percentage of recurring and repeatable income.

Bear

Renewed investment phase.

EBIT margin yet to trend up.

Dividend payment on hold.

Analysts

Fiona Orford-Williams

+44 (0)20 3077 5739

EQS’s interims show good progress in its evolution into a leading technology provider to corporate entities. With its revamped cloud-based COCKPIT platform scheduled for launch in Q418 and an ever-tightening regulatory environment, the elements are in place to underpin medium- term growth. The additional costs are weighing on current-year profitability and FY18 EBITDA guidance has been reduced, but our view is that this is an investment in making the group a credible and scalable partner in investor relations and compliance, with an attractive monthly recurring revenue base.

H118 revenues well ahead

First-half revenues were up 14% at €17.1m, including a €0.7m contribution from Integrity Line, acquired in December 2017. This was split roughly half and half between investor relations and compliance, the group’s newer area of activity, which grew its revenues by 31% over prior period (including the contribution from Integrity Line). The additional investment being made in the new COCKPIT platform meant an EBITDA result just below breakeven. The company has lowered FY18 guidance.

New COCKPIT launches next phase

FY18 is a transition year with management energy primarily focused on the new platform, giving the group a robust and scalable resource. The German domestic market has been helpful, with a healthy IPO pipeline providing new investor relations clients. In compliance, EQS has launched Insider Manager, benefited from being an authorised issuer of Legal Entity Identifiers (LEIs) and added Integrity Line’s whistle-blowing facility. In FY19, the new COCKPIT will enable EQS to offer clients integrated workflow platforms across both compliance and investor relations segments. It should be able to secure a larger share of client spend, generate ‘sticky’ monthly recurring revenues and improve the quality of earnings.

Valuation: High multiples due to transitory state

With the current investment draining earnings, peer-based comparisons are less useful than usual. On an FY1 EV/sales basis, EQS is trading at a +30% discount. However, EQS trades at a substantial premium on more traditional multiples such as EV/EBITDA and P/E due to the temporary margin compression.

Consensus estimates

Year end

Revenue (€m)

PBT*
(€m)

EPS*
(€)

DPS
(€)

P/E
(x)

EV/EBITDA
(x)

Yield
(%)

12/16

26.1

2.4

0.96

0.75

78.6

49.6

1.0

12/17

30.4

0.8

0.16

0.00

N/A

27.7

N/A

12/18e

36.3

(0.4)

(0.44)

0.00

N/A

161.5

N/A

12/19e

42.9

0.8

0.36

0.12

112.7

31.2

0.2

Source: Bloomberg

Edison Investment Research provides qualitative research coverage on companies in the Deutsche Börse Scale segment in accordance with section 36 subsection 3 of the General Terms and Conditions of Deutsche Börse AG for the Regulated Unofficial Market (Freiverkehr) on Frankfurter Wertpapierbörse (as of 1 March 2017). Two to three research reports will be produced per year. Research reports do not contain Edison analyst financial forecasts.

Review of H118 results

Exhibit 1: Geographic mix H118

Source: Company accounts

The German market accounts for the lion’s share of group revenues, as shown above. In H118, domestic revenues were up 13%, partly as a result of the ‘pull factor’ of increasing regulation and partly through a healthy German IPO market, where EQS won all the available IPO business. This more than offset the more difficult trading at ARIVA in H118, where sales were down 5%. Management is attributing this to timing and anticipates a good H218.

International sales were up 19% in H118. This is entirely due to adding in Integrity Line, without which revenues dipped by 2%. Russia continues to be a strong market for the group, but progress in the US, UK and France has been more sluggish than hoped. From the bases in Germany, France and the UK, good new business was won across Europe, including in Spain, Sweden and Belgium, while some of the group’s less profitable activities in Asia were wound down. With a growing proportion of the income stemming from monthly recurring revenues, the quality of forecast cash flows is obviously improving, resulting in better visibility and lower volatility of earnings. However, the renewed investment in COCKPIT meant that EBITDA fell to a loss of €0.05m (H117: €1.55m).

Nevertheless, operating cash flow for the six months just reported was €1.2m (H117: €0.4m), with just under €2.0m of own costs capitalised in the period. The total cash outflow of €5.2m was funded from increased borrowings, as planned. EQS raised €7.9m in a share placing in mid-December 2017, at €62.50, primarily to fund the purchase of Integrity Line (cost €5.0m) in Switzerland. At end FY17, net debt stood at €3.6m. By end June 2018, this had risen to €11.0m.

New EQS COCKPIT due Q418

Exhibit 2: Functionality within EQS COCKPIT

Source: EQS

The work on the new platform is being carried out by developers in Europe and in Cochin in India, with more teams working on the new (or adapted) products that will sit on the platform, such as the CRM and Investors. The different functionalities will (post Q418 launch) all be accessible via a central dashboard linking to the underlying cloud-based COCKPIT, with modules as required by the client in an intuitive format, as shown above.

For investor relations, clients will be able to manage their newswires, CRM, CMS, Shareholder ID and analytics. In the corporate compliance sphere, clients will be able to centralise all their internal and external operational policies through a policy management solution.

There remains good potential for growing the group’s client base across Europe, with further extensions into new markets such as energy exchanges as the rules for information dissemination become stricter.

Regulatory framework ever more complex

The key short-term drivers in the governance and compliance arena are the last two regulations in Exhibit 3 below. In H217, EQS has introduced its new whistle-blowing system module. This falls under a broader service area, known as Integrity Line. Further products and services in the pipeline fall into the areas of CRM, policy management, a multimedia learning platform and a quiz generator that will be used for continuing professional development and compliance requirements.

While the broader corporate communications and PR market is estimated by The Holmes Report at over $15bn globally, the investor relations market is considerably smaller at approximately $1bn (Source: IR Society). The former is estimated to be growing at around a 7% CAGR, while the IR market is likely to be growing at a more modest rate. The emerging governance, risk and compliance market is estimated by Gartner to be worth over $5bn (although with all these segments, the definitions can be hard to pin down accurately). Gartner’s assessment is that it is growing at a CAGR of 13.4% and is therefore a particularly attractive area for EQS’s involvement.

Valuation

Changing set of peers

As the group is transforming its business proposition, it makes sense for us to re-evaluate the peer set that we are using for comparative purposes. As EQS becomes more of a platform business with growing monthly recurring revenue streams, we have shifted emphasis away from Europe-listed B2B media companies, with a renewed focus on financial publishing and business services companies.

Exhibit 3: Quoted financial platform stocks

Company (reporting currency)

Ytd perf (%)

Price reporting currency

Market cap (m)

Hist EV/ sales last (x)

EV/sales 1FY (x)

EV/ EBITDA last (x)

EV/ EBITDA 1FY (x)

EV/ EBITDA 2FY (x)

P/E last (x)

P/E 1FY (x)

P/E 2FY (x)

Euromoney Instl Investor (£)

5

13.68

1,493.6

4.1

3.8

21.5

13.8

13.9

21.1

18.0

18.0

Dun & Bradstreet ($)

6

125.82

4,666

3.3

3.3

12.6

11.0

10.6

18.4

14.8

14.3

Thomson Reuters ($)

(2)

40.95

37,865

3.6

6.5

11.2

28.5

25.7

21.1

60.2

32.8

Envestnet ($)

24

61.65

2,788

4.1

3.8

39.2

20.1

16.8

413.9

33.4

27.8

Morningstar ($)

37

133.25

5,681

5.6

20.9

36.5

Swissquote Group (€)

84

70.30

1,078

N/A

N/A

(35.2)

25.8

20.9

18.3

Globaldata (£)

(23)

1.84

161

1.7

4.9

7.9

7.5

7.5

15.9

9.2

9.4

MSCI ($)

10

7.96

9,960

6.5

11.5

20.9

15.6

12.3

24.7

16.9

15.3

S&P Global ($)

(29)

0.80

593

4.2

8.4

98.5

19.7

11.4

45.4

18.6

16.3

Marketaxess Holdings ($)

8

4.15

1,662

5.7

15.4

24.0

18.0

15.2

33.7

25.6

22.2

Fidessa Group (£)

10

59.59

3,392

2.2

4.1

7.8

7.3

7.1

8.7

7.2

6.6

Average

4.1

4.8

20.8

16.0

13.3

64.4

23.0

18.1

EQS (€)

45

77.5

108

3.8

3.2

49.9

161.5

31.2

472.9

N/A

112.7

Source: Bloomberg, Edison Investment Research. Note: Prices at 23 August 2018.

Given the earnings numbers are suppressed by the investment phase, the only remaining available traditional multiple is that of EV/sales. For FY1 EQS is trading at a 34% discount to the global peer set of quoted financial platform stocks and at 3.8x historic EV/Sales against 4.1x. Due to the current low level of profitability, EQS trades at a substantial premium on earnings multiples.

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 Pty 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
Any Information, data, analysis and opinions contained in this report do not constitute investment advice by Deutsche Börse AG or the Frankfurter Wertpapierbörse. Any investment decision should be solely based on a securities offering document or another document containing all information required to make such an investment decision, including risk factors.

Copyright 2018 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Deutsche Börse AG 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 Ltd (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

More on EQS Group

View All

Latest from the TMT sector

View All TMT content

Rockhopper Exploration — Phase 1, a step closer to FID

Premier Oil’s (PMO) half-year results included several indications of the operator’s intent to progress the development of Sea Lion. This included: 1) sanction by Premier’s board of the Tolmount gas project, a key project that precedes Sea Lion in Premier’s development hopper (Falkland’s accounted for c 44% of Premier’s December 2017 net 2P reserves); 2) PMO’s expectation of remaining FCF positive at $65/bbl including Sea Lion capex; 3) the appointment of a pathfinder bank to assist with the senior financing structure of Sea Lion; and 4) signature of letters of intent (LOIs) with selected contractors for the provision of services and vendor financing. LOIs have been signed with the Sea Lion FPSO provider, drilling contractor, subsea equipment provider, well services, subsea installation contractor and for helicopter services. While Premier did not provide guidance on the timing of final investment decision (FID) for Sea Lion, we assume the project will be sanctioned in mid-2019 with the potential for first oil four years later in 2023. Our latest Rockhopper RENAV of 73.6p/share assumes a 55% commercial chance of success for Sea Lion Phase 1 based on a long-term Brent crude price of $70/bbl.

Continue Reading

Subscribe to Edison

Get access to the very latest content matched to your personal investment style.

Sign up for free