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EQS Group — Update 21 April 2016

EQS Group (SCALE: EQS)

Last close As at 26/12/2024

40.80

▲ −0.40 (−0.97%)

Market capitalisation

409m

More on this equity

Research: TMT

EQS Group — Update 21 April 2016

EQS Group

Fiona Orford-Williams

Written by

Fiona Orford-Williams

Director, TMT

TMT

EQS Group

Investing in expansion

Full year results

Media

21 April 2016

Price

€32.00

Market cap

€38m

Net debt (€m) at end 2015

3.0

Shares in issue

1.2m

Free float

42%

Code

EQS

Primary exchange

FRA

Secondary exchange

MUN

Share price performance

%

1m

3m

12m

Abs

8.5

4.6

(1.5)

Rel (local)

3.6

(5.7)

12.4

52-week high/low

€33.0

€27.6

Business description

EQS is a leading global provider of digital solutions for investor relations and corporate communications. Its solutions and services are provided to more than 7,000 clients worldwide, helping them to fulfil complex domestic and international corporate information requirements.

Next events

Q1 figures

31 May 2016

Half-year figures

26 August 2016

Analysts

Fiona Orford-Williams

+44 (0)20 3077 5739

Bridie Barrett

+44 (0)20 3077 5700

EQS Group is a research client of Edison Investment Research Limited

EQS Group’s FY15 figures reflect the impact of accelerated expansion to establish the group as a leading global provider of digital IR solutions. December’s Swiss acquisition provides market leadership in that territory, while the January 2016 purchase of Obsidian gives a strong base from which to leverage UK growth. Asia remains the region with the greatest potential to transform the group. The valuation remains at a marked discount to global software and B2B media peers, partly reflecting the earlier stage of corporate development, but not signalling a growing SaaS revenue stream.

Year end

Revenue
(€m)

PBT*
(€m)

EPS*
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/14

16.4

3.4

1.83

0.75

17.5

2.3

12/15

18.4

3.1

1.15

0.75

27.8

2.3

12/16e

20.8

3.2

1.81

0.80

17.7

2.5

12/17e

22.8

3.5

2.01

0.85

15.9

2.7

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

Short-term margin impact of growth investment

In FY15, 85% of revenues were generated in Germany. We estimate that this figure will be nearer 70% in FY16, despite domestic revenues growing at 5% compound, as newer territories have gained pace. The investment in expansion, particularly in Asia, moved the group EBITDA margin from 22.3% in FY14 to 19.0% in FY15. We have revised our model to take account of the speed and scale of the investment programme in new geographies and in IT. It now indicates a further retrenchment in FY16 EBITDA margin to 17.9% as the infrastructure to support the growth is built.

Improving quality of earnings

The FY15 domestic performance was resilient in the face of difficult markets for SME bonds and a decrease in listed companies. Asia remains very attractive, with no major incumbents and a professionalising market, while the Obsidian purchase gives a strong foothold in the UK. To be a true global player EQS will, at some stage, require a presence in the US. The business model is increasingly focused on growing SaaS income, selling licences and cloud-based solutions, rather than a simple reliance on the volume of regulatory information releases and distribution.

Valuation: Discount to larger peers

We look at EQS’s valuation in relation to three sets of peers: software companies in the financial and B2B sectors, global financial information service majors and B2B media companies. Many of these groups are large and complex global enterprises, with some legacy business requiring reinvention for new channels. On our revised numbers, EQS trades at a discount of 17-32% to the media groups and a greater discount to the software stocks. Further, we note that PR Newswire was sold by UBM for 11.2x historic EBITDA in December 2015 (yet to complete) to Cision, backed by GCTR Canyon. We would expect the discount to the quoted sector to close as EQS starts to show the benefits of its international expansion through generating a good ROI, internally and by acquisition.

Investment costs in the short term

The scale of the investment cost in FY15 was greater than we had been anticipating as the group accelerated its programme to gain stronger market positioning. The tax rate was also at a higher level than we had modelled, leading to a greater shortfall at the earnings per share level. The return on the investment will not be apparent in the short term – this is all about positioning EQS to be a significant global business service provider in the medium term. The German origins are a strong marketing springboard for access to Far Eastern markets, where the American presence is less established. Following the FY15 results, we have revised our model to take account of the speed and scale of the investment programme in new geographies and in IT. Our new estimates indicate a further retrenchment in the FY16 EBITDA margin as the infrastructure to support the growth is rolled out. That said, while our FY16 and FY17 forecasts have been pulled back, this is in the context of a more substantive operation further down the line, rather than reflecting any deterioration in trading.

Exhibit 1: Revisions to forecasts

EPS (€)

Normalised PBT (€m)

EBITDA (€m)

Old

New

% chg.

Old

New

% chg.

Old

New

% chg.

2015

1.84

1.15

-38

3.2

3.1

-3

4.0

3.5

-13

2016e

2.14

1.81

-15

3.8

3.2

-16

4.6

3.7

-20

2017e

2.36

2.01

-15

4.2

3.5

-17

5.0

4.0

-20

Source: Company accounts, Edison Investment Research. Note: 2015 old = Edison estimate, new = actuals.

Regulatory Information & News

(31% FY15 revenues; 59% FY15 adjusted EBIT)

De-listings and down-listings continued to be an issue for the German market through 2015, with the number of stocks quoted on the Deutsche Börse falling from 670 at end 2014 to 619 by end 2015. Nevertheless, EQS maintained its pricing structures and its market share in domestic markets and held divisional revenues steady through adding new customers in Asia, with a step-up in adjusted EBIT margin from 27.6% in FY14 to 29.8% in FY15. 855 announcements were issued via COCKPIT ASIA in its first year. In the German market, the number of regulatory announcements saw a small increase (+2%), while there was a greater step-up in corporate news and press releases. The well-documented problems in the Russian economy affected the number of disclosures by Russian companies with London listings. In FY16, regulatory changes (TUG3), standardising new rules for voting rights announcements and withdrawing the obligation for quarterly reporting, will keep up the pressure on divisional results within Europe and clearly illustrate the importance of expansion into overseas territories. The introduction of the EU’s Market Abuse Directive in mid-2016 may adjust company and bond issuer’s reporting requirements.

Products & Services

(69% FY15 revenues; 41% FY15 adjusted EBIT)

Strong growth in sales in both Reports & Webcasts and in Websites & Platforms demonstrates that EQS is offering the market products and services that are needed and valued. It is in this division, though, that the margins are being most strongly affected by the costs of expansion, with the overall divisional EBIT margin retrenching from 14.9% to 9.3%. This is already starting to pay off, with Asian revenues in Websites & Platforms ahead by 37%.

Valuation context

We repeat the exercise carried out at the time of our initiation note in September 2015. While the software companies have retrenched in terms of valuation in the intervening period, the media and financial publishing companies have edged ahead. A 15% discount to reflect EQS’s shorter trading history and lower levels of stock liquidity still implies a good level of upside in the stock price.

Exhibit 2: Comparison of valuation between EQS and global quoted peers

Aggregate market cap (US$)

TTM EBITDA margin

TTM Revenue growth

EV/Rev
(x)

EV/EBITDA
(x)

Forward EV/Rev
(x)

Forward EV/EBITDA
(x)

Business Intelligence

2,165

14.9%

10.0%

2.9

16.2

2.6

12.5

Financial & Accounting

3,123

24.9%

5.0%

3.3

15.8

3.1

12.4

Vertical - Finance

6,486

32.9%

7.4%

5

14.9

4.7

12.6

Weighted software companies

11,773

27.5%

7.2%

4.2

15.4

3.9

12.5

B2B media businesses

26,062

28.8%

5.8%

3.0

10.3

2.9

11.1

Financial publishing companies

48,250

25.5%

4.3%

3.8

16.2

3.6

13.9

EQS

22.3%

12.1%

2.2

11.5

1.9

10.8

EQS valuation implied by software valuation

€61.76

€42.51

€57.54

€36.61

Average

€49.61

Upside

59.4%

EQS valuation implied by B2B media valuation

€43.18

€27.64

€42.57

€32.15

Average

€36.38

Upside

16.9%

EQS valuation implied by financial publishing valuation

€56.27

€44.84

€53.76

€41.05

Average

€48.98

Upside

32.3%

Source: Thomson Reuters, Software Equity Group, Edison Investment Research. Note: Prices as at 15 April 2016.

Exhibit 3: Financial summary

€'000s

2013

2014

2015

2016e

2017e

31-December

IFRS

IFRS

IFRS

IFRS

IFRS

PROFIT & LOSS

Revenue

 

 

15,829

16,390

18,377

20,800

22,750

Cost of Sales

0

0

0

0

0

Gross Profit

15,829

16,390

18,377

20,800

22,750

EBITDA

 

 

3,572

3,660

3,485

3,718

4,033

Operating Profit (before amort. and except.)

3,418

3,311

2,983

3,243

3,518

Intangible Amortisation

(140)

(280)

(351)

(520)

(520)

Exceptionals

0

(211)

(268)

0

0

Other

28

177

167

35

35

Operating Profit

3,306

2,997

2,532

2,758

3,033

Net Interest

(29)

(52)

(45)

(67)

(56)

Profit Before Tax (norm)

 

 

3,418

3,436

3,105

3,211

3,497

Profit Before Tax (FRS 3)

 

 

3,278

2,945

2,486

2,691

2,977

Tax

(1,096)

(1,105)

(1,372)

(1,016)

(1,101)

Profit After Tax (norm)

2,283

2,148

1,355

2,159

2,395

Profit After Tax (FRS 3)

2,182

1,841

1,115

1,674

1,875

Average Number of Shares Outstanding (m)

1.19

1.17

1.18

1.19

1.19

EPS - normalised (€)

 

 

1.91

1.83

1.15

1.81

2.01

EPS - (IFRS) (€)

 

 

1.83

1.57

0.95

1.41

1.58

Dividend per share (€)

0.75

0.75

0.75

0.80

0.85

Gross Margin (%)

100.0

100.0

100.0

100.0

100.0

EBITDA Margin (%)

22.6

22.3

19.0

17.9

17.7

Operating Margin (before GW and except.) (%)

21.6

20.2

16.2

15.6

15.5

BALANCE SHEET

Fixed Assets

 

 

13,658

19,383

22,287

27,011

27,996

Intangible Assets

10,524

15,827

17,360

21,094

21,094

Tangible Assets

1,032

1,468

2,796

3,786

4,771

Investments

2,103

2,088

2,131

2,131

2,131

Current Assets

 

 

6,055

4,750

6,972

6,523

7,086

Stocks

0

0

0

0

0

Debtors

2,971

3,282

3,215

4,337

4,744

Cash

2,980

1,370

3,607

2,036

2,193

Other

104

98

150

150

150

Current Liabilities

 

 

(3,274)

(4,380)

(5,325)

(6,485)

(6,374)

Creditors

(2,273)

(2,689)

(3,475)

(4,685)

(5,124)

Short term borrowings

(1,001)

(1,691)

(1,850)

(1,800)

(1,250)

Long Term Liabilities

 

 

(1,070)

(3,882)

(6,805)

(8,038)

(8,038)

Long term borrowings

(982)

(2,500)

(4,767)

(6,000)

(6,000)

Other long term liabilities

(88)

(1,382)

(2,038)

(2,038)

(2,038)

Net Assets

 

 

15,369

15,870

17,129

19,011

20,671

CASH FLOW

Operating Cash Flow

 

 

2,476

4,050

4,989

4,285

4,500

Net Interest

(29)

(52)

(45)

(67)

(56)

Tax

(1,096)

(1,105)

(1,371)

(1,283)

(1,037)

Capex

(3,088)

(1,041)

(1,978)

(1,500)

(1,500)

Acquisitions/disposals

0

(3,669)

(1,046)

(3,300)

(250)

Equity Financing

(202)

(100)

569

0

0

Dividends

(892)

(1,623)

(883)

(890)

(950)

Net Cash Flow

(2,831)

(3,540)

235

(2,755)

707

Opening net debt/(cash)

 

 

(3,827)

(996)

2,821

3,009

5,764

HP finance leases initiated

0

0

0

0

0

Other

0

(277)

(423)

(0)

0

Closing net debt/(cash)

 

 

(996)

2,821

3,009

5,764

5,057

Source: Company accounts, Edison Investment Research

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DISCLAIMER
Copyright 2016 Edison Investment Research Limited. All rights reserved. This report has been commissioned by EQS Group 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 Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. 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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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 9258 1161

Level 25, Aurora Place

88 Phillip St, Sydney

NSW 2000, Australia

Wellington +64 (0)48 948 555

Level 15, 171 Featherston St

Wellington 6011

New Zealand

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