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Expert System — Accelerating investment in growth

Expert.ai (MI: EXAI)

Last close As at 04/11/2024

1.51

▲ −0.10 (−6.21%)

Market capitalisation

79m

More on this equity

Research: TMT

Expert System — Accelerating investment in growth

While H119 revenues were slightly below those reported a year ago, Expert System is confident of meeting revenue expectations for the full year, which imply year-on-year growth of 13%. Management is using the funds raised in April to accelerate investment in sales and support. Although this reduces our EBITDA forecasts for FY19 and FY20, it should lead to stronger revenue growth in the medium term as the company takes advantage of the strong interest in the practical application of artificial intelligence in business processes.

Katherine Thompson

Written by

Katherine Thompson

Director

TMT

Expert System

Accelerating investment in growth

H119 results

Software & comp services

3 October 2019

Price

€2.72

Market cap

€109m

Net debt (€m) at end H119

5.7

Shares in issue

39.9m

Free float

73%

Code

EXSY

Primary exchange

AIM Italia

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

6.6

(16.7)

100.0

Rel (local)

7.1

(16.2)

96.0

52-week high/low

€3.68

€1.15

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

FY19 trading update

January 2020

Analyst

Katherine Thompson

+44 (0)20 3077 5730

Expert System is a research client of Edison Investment Research Limited

While H119 revenues were slightly below those reported a year ago, Expert System is confident of meeting revenue expectations for the full year, which imply year-on-year growth of 13%. Management is using the funds raised in April to accelerate investment in sales and support. Although this reduces our EBITDA forecasts for FY19 and FY20, it should lead to stronger revenue growth in the medium term as the company takes advantage of the strong interest in the practical application of artificial intelligence in business processes.

Year end

Revenue (€m)

EBITDA*
(€m)

EPS*
(c)

DPS
(€)

P/E
(x)

EV/EBITDA
(x)

12/17

27.8

1.7

(18.3)

0.0

N/A

66.7

12/18

30.5

4.6

(1.4)

0.0

N/A

24.6

12/19e

34.5

5.6

(2.0)

0.0

N/A

20.5

12/20e

38.5

7.6

1.5

0.0

180.9

15.1

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

Growing the recurring revenue base

In H119 Expert reported a 7.7% y-o-y decline in sales to €11.9m and an EBITDA loss of €0.4m. As part of an ongoing strategy to shift to a subscription licensing model, the company saw 91% of licence revenues generated from subscription sales compared to 79% a year ago. This increases the company’s revenue visibility and presents a less challenging initial investment decision for customers. The company expects to achieve revenues of c €33m for FY19 (at the lower end of its previous guidance range), which implies a one-third/two-third revenue split for the year, typical of seasonality seen prior to FY18.

Estimate changes reflect accelerated investment

When the company raised funds of €7m in April, it highlighted that it intended to use some of the proceeds to accelerate sales, particularly in the US. It has therefore reduced EBITDA guidance for FY19 from €7–8m to €5–6m to reflect this accelerated investment. Although this slows the pace of margin expansion, it should position the company for faster revenue growth in the medium term. The company is also investing in supporting channel partners, which present another route to market and provide additional implementation resources. We have revised our estimates to reflect management guidance.

Valuation: Reflects growth potential

The share price has performed well since the fund-raising in April, as the proceeds allowed the company to reduce its debt burden and accelerate investment in growth. Compared to a diverse set of peers, Expert is forecast to grow faster but is less profitable. Evidence that the recent investment is accelerating revenue growth would be a key driver of share price upside. Progress towards operating profitability and cash generation should also provide further support.

Review of H119 results

Exhibit 1: Half-year results highlights

€m

H119

H118

y-o-y

Sales

11.87

12.86

(7.7%)

Grants and other income

0.81

0.69

17.3%

Total revenue

12.69

13.56

(6.4%)

Capitalised development costs

2.76

2.34

18.0%

Changes in WIP

(0.09)

0.00

N/A

Total production value

15.36

15.90

(3.4%)

Staff costs

9.44

9.63

(1.9%)

Other costs

6.35

6.20

2.3%

EBITDA

(0.43)

0.07

N/A

EBITDA margin

(3.4%)

0.5%

N/A

Depreciation & amortisation - in-house

2.53

2.54

(0.3%)

Normalised EBIT

(2.96)

(2.47)

20.1%

Normalised EBIT margin

(23.4%)

(18.2%)

28.3%

Depreciation & amortisation - acquired

1.26

1.10

14.5%

Exceptional costs/(income)

0.00

0.00

N/A

EBIT

(4.22)

(3.57)

18.4%

Net income

(4.02)

(3.75)

7.4%

Net debt

5.70

10.00

(43.0%)

Source: Expert System

In H119, Expert reported a 7.7% y-o-y decline in sales, while grants and other income was €0.12m higher than H118, resulting in a decline in total revenue of 6.4% y-o-y. This decline should be considered in light of the company’s strong sales performance in H118, which made up 45% of FY18 sales – well ahead of the historical 35% contribution of H1 sales to full year sales.

The company increased capitalised development costs by €0.42m y-o-y whereas staff and other costs were broadly flat year on year. This resulted in EBITDA declining from €0.07m in H118 to a €0.43m loss in H119. With depreciation and amortisation effectively flat, normalised EBIT was lower by a similar amount.

Reflecting the €7m in funds raised during H119, net debt at the end of H119 fell to €5.7m, down from €10.0m at the end of H118 and €12.6m at the end of FY18.

Shift to subscription licensing continues

The company noted that of licence revenues reported in H119, 91% were from subscription licences, compared to 79% in H118 and 72% in FY18. Professional services made up 40.5% of H119 revenues (vs 40% in H118), with the remaining 59.5% consisting of licence and maintenance revenues. Although the company did not disclose the split between licence and maintenance revenues, the fact that perpetual licences have now fallen to 9% of total licence revenues implies that recurring revenue (subscription licences plus maintenance) is approaching 60% of group revenue (we estimate it was nearer 50% in H118).

International business growing faster than Italy

The company disclosed the geographic revenue split in Exhibit 2. Sales outside Italy were flat year-on-year compared to a decline in sales from Italy. The company noted that business in the UK saw strong growth (+62% y-o-y), with particular success in the insurance market. After a period of restructuring, the French business saw better growth (+23% y-o-y). Sales in the US were helped by strong demand from US government customers. Business in Italy was lower year-on-year, with delays in decision making due to the uncertain political and economic environment.

Exhibit 2: Geographic split of sales

€m

H119

H118

y-o-y

Italy

5.0

5.9

(15.7%)

Europe (ex-Italy)

4.2

4.6

(10.3%)

US

2.7

2.3

17.9%

Total

11.9

12.9

(7.7%)

Revenue contribution

Italy

42%

46%

Europe (ex-Italy)

35%

36%

US

23%

18%

Source: Expert System

Share capital increase from fund-raise and option exercise

The company issued 3.89m shares to ERGO (a group of private investors) in April and received gross proceeds of €7m. Also in H119, an additional 0.2m shares were issued from various share grant schemes, including the final tranche from the Temis acquisition.

Business update

So far this year, the company has continued to receive positive reviews from market research analysts. For the fifth year running, it is included in KM World’s ‘100 Companies That Matter in Knowledge Management’. It also featured in Gartner’s recently published Insight Engines Magic Quadrant.

Notable customers this year include:

■

Swiss Re: the company is collaborating with Expert to use Cogito to manage ‘high intensity information’. This includes helping to automate processes such as risk assessment or analysing requests for reimbursement as well as identifying news that could indicate sources of future losses.

■

AXA Group: AXA XL Risk Consulting chose Cogito to enhance its capabilities in Property Risk Engineering. This includes reducing the time required to read all necessary documentation and to therefore speed up the quote process.

■

OCP, the world’s largest producer of phosphate and phosphoric acid and one of the largest fertiliser producers in the world. The company is using Cogito to manage flows of information from external and open sources to help to identify strategic insights for internal analysts and management.

Product development

The company launched Cogito v14.4 in April. The latest version of the platform speeds up the ability to expand the knowledge graph via the acquisition of new information, has improved machine learning functionality and makes it easier to integrate with robotic process automation tools.

The company noted that product developments expected in H2 include:

■

a new release of the Cogito Intelligence Platform;

■

a beta version of Cogito for Life Sciences;

■

a restructure and widening of the knowledge graph for German, Arabic, Dutch and Chinese; and

■

new intelligent analysis of complex documents.

Channel partner progress

Expert continues to work with channel partners to broaden its addressable market and get access to implementation resources. It offers partners an e-learning platform and has so far issued 139 certifications to individuals at 21 companies in 18 countries.

Outlook and changes to forecasts

The company expects to achieve sales of c €33m in FY19. It previously suggested it could achieve of €33–34.5m and we forecast sales of €33.3m for the year. This implies that revenues in H119 would make up roughly one-third of full-year revenues. Although this looks low compared to the prior year when H1 revenues made up 45% of full-year revenues, this is more like the pattern seen in FY17 and prior years. Based on deals signed since the end of H119, renewals of subscription contracts expected in H2 and deals in the pipeline, management is confident it will see a step-up in revenues in H2 to meet the €33m FY19 target.

The company has reduced guidance for FY19 EBITDA from €7–8m to €5–6m. When it raised funds of €7m in April, the company noted that proceeds were to be targeted at growing the business. It plans to do this by increasing headcount for sales and pre-sales, technical support for channel partners and R&D to simplify the implementation of Expert’s software by partners. We have revised our forecasts for staff and other operating costs to take this extra investment into account. The company noted it would be drafting and presenting its 2020–2022 business plan in the next few months.

Exhibit 3: Changes to forecasts

€m

FY19e old

FY19e new

Change

y-o-y

FY20e old

FY20e new

Change

y-o-y

Sales

33.3

33.0

(1.1%)

14.9%

37.4

37.0

(1.0%)

12.4%

Other income and grants

1.5

1.5

0.0%

(14.7%)

1.5

1.5

0.0%

0.0%

Total revenues

34.8

34.5

(1.0%)

13.2%

38.9

38.5

(1.0%)

11.8%

Capitalised development costs & changes in WIP

5.1

5.1

(0.0%)

0.9%

5.2

5.2

0.0%

2.0%

Production value

39.9

39.6

(0.9%)

11.4%

44.1

43.7

(0.9%)

10.6%

EBITDA

7.6

5.6

-26.9%

20.2%

9.8

7.6

-22.9%

35.5%

EBITDA margin

21.9%

16.2%

(5.7%)

0.9%

25.2%

19.6%

(5.6%)

3.4%

D&A

(5.7)

(5.7)

0.0%

N/A

(6.0)

(6.0)

0.0%

N/A

Normalised operating profit

2.0

(0.1)

N/A

(84.4%)

3.8

1.5

(59.2%)

N/A

Normalised operating margin

5.6%

-0.3%

(5.9%)

1.9%

9.7%

4.0%

(5.7%)

4.3%

Amortisation of acquired intangibles

(2.6)

(2.6)

0.0%

N/A

0.0

(0.9)

N/A

N/A

Exceptional items

0.0

0.0

0.0%

N/A

0.0

0.0

N/A

N/A

Reported operating profit

(0.6)

(2.7)

333.6%

17.3%

3.8

0.7

(81.7%)

N/A

Normalised net income

1.2

(0.8)

N/A

(53.9%)

2.8

0.6

N/A

N/A

Reported net income

(1.1)

(3.1)

170.6%

18.2%

2.8

(0.2)

N/A

94.6%

Diluted normalised EPS (c)

3.0

(2.0)

N/A

(42.5%)

7.1

1.5

(78.8%)

174.3%

Net debt

4.9

6.6

35.4%

(47.7%)

2.3

6.5

184.7%

(2.0%)

Source: Edison Investment Research

Valuation

Most of Expert’s direct competitors are private companies or subsidiaries of large companies such as IBM or Micro Focus. 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.

Based on EV/sales, Expert is trading at a premium to Italian peers and at a discount to all other peer groups, with forecast revenue growth towards the upper end of the group. On an EV/EBITDA basis, Expert is trading at a premium to Italian and enterprise search and information management peers and at a discount to data analytics peers. Evidence that the recent investment in sales and support is driving accelerating revenue growth would be a key driver for share price upside. Progress towards net cash generation and operating profitability should provide key support to the share price.

Exhibit 4: Peer group metrics

YE

Market cap (€m)

CY EV/S

NY EV/S

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

Dec-18

109

3.3x

3.0x

20.5x

15.1x

N/A

180.9x

34.5

(0.3%)

16.2%

11.8%

N/A

Nuance Communications

Sep-19

4,587

3.1x

3.0x

10.5x

N/A

13.6x

13.1x

1,648

27.1%

29.8%

3.1%

3.5%

Big Data Analytics

Splunk

Jan-20

15,813

7.3x

6.0x

44.6x

32.8x

61.6x

49.6x

2,047

14.4%

16.4%

21.8%

24.2%

Teradata

Dec-19

3,119

1.8x

1.7x

9.1x

7.6x

20.8x

14.8x

1,750

12.0%

19.3%

3.0%

40.7%

Average

4.5x

3.9x

26.9x

20.2x

41.2x

32.2x

13.2%

17.9%

12.4%

32.4%

Enterprise search and information management

OpenText

Jun-20

12,836

4.2x

4.1x

11.0x

10.5x

14.0x

13.3x

2,630

35.6%

36.2%

2.7%

5.2%

IHS Markit

Nov-19

23,307

7.1x

6.7x

17.8x

16.4x

25.5x

22.8x

3,909

28.9%

29.6%

5.0%

11.8%

Elastic

Apr-20

5,616

15.2x

11.2x

N/A

N/A

N/A

N/A

363

(23.1%)

(20.9%)

35.6%

2.8%

CommVault

Mar-20

1,749

2.3x

2.2x

17.4x

13.9x

33.0x

26.9x

597

11.4%

13.8%

4.1%

22.7%

Average

7.2x

6.1x

15.4x

13.6x

24.2x

21.0x

13.2%

14.7%

11.9%

10.6%

Italian software & services

TXT e-solutions

Dec-19

106

1.1x

1.0x

10.6x

8.2x

27.8x

24.6x

57

6.1%

7.8%

12.3%

13.2%

Exprivia

Dec-19

46

0.5x

0.5x

6.7x

6.1x

N/A

9.9x

582

3.4%

4.1%

4.3%

N/A

Piteco

Dec-19

93

4.2x

3.8x

9.7x

8.7x

12.6x

10.9x

25

N/A

N/A

10.6%

16.2%

Reply

Dec-19

2,011

1.7x

1.6x

11.7x

10.7x

19.7x

17.8x

1,175

12.2%

12.5%

8.4%

10.6%

Average

1.9x

1.7x

9.7x

8.4x

20.1x

15.8x

7.2%

8.1%

8.9%

13.4%

Source: Edison Investment Research, Refinitiv. Priced at 30 September.

Since the company raised funds in April at €1.80 (at an 18% premium to the share price at the time), the share price has performed well, peaking at €3.68 and now trading at €2.72. The proceeds have reduced Expert’s debt burden and provided funds to accelerate growth.

We have performed a reverse DCF to calculate the growth and profitability that is factored into the share price beyond our forecast period. We estimate the share price is factoring in a revenue CAGR of 9.5% from FY20 to FY28, with EBITDA margins rising to 28% by FY28. Assuming the company continues to capitalise development spend, we forecast capex/sales reducing to 7.8% by FY28, with a terminal EBIT margin of 19.6% (in line with established software companies). We use a WACC of 8.5% and long-term growth of 3%. A 1% increase in the WACC results in a valuation of €2.19/share, whereas a 1% decrease results in a valuation of €3.53.

Exhibit 5: Financial summary

€'000s

2015

2016

2017

2018

2019e

2020e

31-December

IT GAAP

IT GAAP

IT GAAP

IT GAAP

IT GAAP

IT GAAP

PROFIT & LOSS

Revenue

 

 

19,368

25,057

27,783

30,457

34,463

38,545

EBITDA

 

 

1,463

(2,245)

1,711

4,638

5,575

7,554

Operating Profit (before amort. and except.)

(1,226)

(5,941)

(3,189)

(662)

(103)

1,545

Intangible Amortisation

(2,549)

(2,608)

(2,608)

(2,567)

(2,567)

(854)

Exceptionals

0

0

(700)

0

0

0

Other

0

0

0

0

0

0

Operating Profit

(3,775)

(8,549)

(6,496)

(3,229)

(2,670)

691

Net Interest

213

(156)

(2,191)

97

(766)

(878)

Profit Before Tax (norm)

 

 

(1,013)

(6,097)

(5,380)

(565)

(869)

667

Profit Before Tax (reported)

 

 

(3,562)

(8,705)

(8,687)

(3,131)

(3,435)

(187)

Tax

277

579

348

(650)

344

19

Profit After Tax (norm)

(934)

(5,692)

(5,164)

(508)

(782)

601

Profit After Tax (reported)

(3,284)

(8,126)

(8,339)

(3,781)

(3,092)

(168)

Average Number of Shares Outstanding (m)

22.8

25.8

28.1

35.8

38.6

39.9

EPS - normalised (c)

 

 

(4.1)

(22.0)

(18.3)

(1.4)

(2.0)

1.5

EPS - normalised and fully diluted (c)

 

(4.1)

(22.0)

(18.3)

(1.4)

(2.0)

1.5

EPS - (IFRS) (c)

 

 

(14.4)

(31.5)

(29.6)

(10.6)

(8.0)

(0.4)

Dividend per share (p)

0.0

0.0

0.0

0.0

0.0

0.0

EBITDA Margin (%)

7.6

-9.0

6.2

15.2

16.2

19.6

Adj Operating Margin (%)

-6.3

-23.7

-11.5

-2.2

-0.3

4.0

BALANCE SHEET

Fixed Assets

 

 

20,301

20,379

18,864

16,655

13,719

12,556

Intangible Assets

18,539

18,372

16,944

14,734

12,102

10,967

Tangible Assets

916

915

792

715

702

675

Investments

846

1,092

1,128

1,206

915

915

Current Assets

 

 

42,588

37,012

37,634

38,004

52,184

53,853

Stocks

1,797

627

99

109

109

109

Debtors

10,228

10,233

12,384

15,792

18,003

20,523

Cash

11,249

9,063

11,235

7,883

20,887

21,017

Other

19,314

17,088

13,916

14,220

13,184

12,203

Current Liabilities

 

 

(20,517)

(22,679)

(19,480)

(21,170)

(21,732)

(22,406)

Creditors

(15,082)

(16,459)

(14,104)

(15,511)

(16,073)

(16,746)

Short term borrowings

(5,435)

(6,219)

(5,376)

(5,659)

(5,659)

(5,659)

Long Term Liabilities

 

 

(22,227)

(18,275)

(17,742)

(18,411)

(25,411)

(25,411)

Long term borrowings

(18,240)

(15,252)

(14,683)

(14,811)

(21,811)

(21,811)

Other long term liabilities

(3,987)

(3,023)

(3,060)

(3,600)

(3,600)

(3,600)

Net Assets

 

 

20,145

16,437

19,276

15,077

18,761

18,593

CASH FLOW

Operating Cash Flow

 

 

2,738

2,088

(1,921)

2,583

4,902

6,684

Net Interest

(324)

(155)

(626)

(441)

(742)

(854)

Tax

(1,576)

0

0

0

0

0

Capex

(20,045)

(6,378)

(6,321)

(5,830)

(5,446)

(5,700)

Acquisitions/disposals

3,045

46

1,275

(76)

291

0

Financing

6,573

4,418

11,178

0

7,000

0

Dividends

0

0

0

0

0

0

Net Cash Flow

(9,588)

18

3,585

(3,764)

6,005

130

Opening net debt/(cash)

 

 

2,839

12,426

12,408

8,824

12,587

6,583

HP finance leases initiated

0

0

0

0

0

0

Other

0

0

0

0

0

0

Closing net debt/(cash)

 

 

12,426

12,408

8,824

12,587

6,583

6,453

Source: Expert System, Edison Investment Research


General disclaimer and copyright

This report has been commissioned by Expert System and prepared and issued by Edison, in consideration of a fee payable by Expert System. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. 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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, 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 securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. 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, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under licence. 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.

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

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. 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.

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

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

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

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Expert System and prepared and issued by Edison, in consideration of a fee payable by Expert System. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: 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 and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. 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.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, 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 securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. 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, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under licence. 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.

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

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. 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.

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

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

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

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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