Expert System — More funding for international expansion

Expert.ai (MI: EXAI)

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Research: TMT

Expert System — More funding for international expansion

A recent fund-raise generated gross proceeds of €3m for Expert System and added two new investors to the shareholder register. The company intends to use the proceeds to support its international expansion plans, primarily in the US. It recently announced a partnership with SDL to increase multilingual support.

Katherine Thompson

Written by

Katherine Thompson

Director

TMT

Expert System

More funding for international expansion

Fund-raise

Software & comp services

13 May 2020

Price

€2.86

Market cap

€118m

Net debt (€m) at end FY19

2.8

Shares in issue

41.1m

Free float

73%

Code

EXSY

Primary exchange

AIM Italia

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

18.7

3.6

50.5

Rel (local)

19.0

45.8

79.4

52-week high/low

€3.68

€1.53

Business description

Expert System has developed and patented an AI-based technology platform that extracts useful information from unstructured text using a unique mix of natural language understanding and machine learning algorithms and applies it to verticals such as enterprise search, customer experience management and big data analytics.

Next events

Shareholders meeting

26 June 2020

Analyst

Katherine Thompson

+44 (0)20 3077 5730

Expert System is a research client of Edison Investment Research Limited

A recent fund-raise generated gross proceeds of €3m for Expert System and added two new investors to the shareholder register. The company intends to use the proceeds to support its international expansion plans, primarily in the US. It recently announced a partnership with SDL to increase multilingual support.

Year end

Revenue (€m)

EBITDA*
(€m)

EPS*
(c)

DPS
(€)

P/E
(x)

EV/EBITDA
(x)

12/18

30.5

4.6

(1.4)

0.0

N/A

26.0

12/19

33.7

5.5

(1.3)

0.0

N/A

22.1

12/20e

35.5

5.1

(4.4)

0.0

N/A

23.8

12/21e

39.7

6.9

(0.5)

0.0

N/A

17.4

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

Fund-raise attracts new investors

The company has gained two new investors through the issue of 1.11m shares at €2.7 per share. Indaco Venture Partners SGR has acquired 740,740 shares (a 1.8% stake) and Investec has acquired 370,371 shares (a 0.9% stake), resulting in gross proceeds of €3m for Expert System. We have revised our forecasts to reflect the fund-raise. FY20 EPS moves from -€0.045 to -€0.044 and FY21 is unchanged at -€0.005. Our net debt forecast reduces from €7.2m to €4.2m at the end of FY20 and from €9.9m to €6.9m at the end of FY21.

Partnership with SDL for multilingual support

Expert System recently announced that it had entered into a partnership with SDL to expand knowledge discovery and intelligent process automation to additional languages. SDL develops and provides language translation technology; more specifically, the plan is to link SDL’s Machine Translation Edge software with Expert System’s Cogito platform. SDL is able to translate text for more than 140 language pairs, while Cogito is available in 12 languages. The partnership means that Cogito customers would be able to analyse a much wider range of content as they will not be restricted to the 12 languages for which Expert System has created knowledge graphs. We understand that the main way the two software solutions could be used together would be to use SDL’s software to translate all documents into a central language, eg English, before feeding the output into Cogito for semantic analysis.

Valuation: Reflects growth potential

Compared to a diverse set of peers, Expert System is forecast to grow faster but is less profitable. Based on EV/Sales, it is trading at a premium to Italian peers and at a discount to all other peer groups. On an EV/EBITDA basis, it is trading at a premium to Italian and enterprise search and information management peers, and at a discount to data analytics peers. Evidence that recent investment is accelerating revenue growth would be a key driver of share price upside once a more normal business environment resumes. Progress towards operating profitability and cash generation should also provide support.

Exhibit 1: Financial summary

€'000s

2015

2016

2017

2018

2019

2020e

2021e

31-December

IT GAAP

IT GAAP

IT GAAP

IT GAAP

IT GAAP

IT GAAP

IT GAAP

PROFIT & LOSS

Revenue

 

 

19,368

25,057

27,783

30,457

33,712

35,465

39,702

EBITDA

 

 

1,463

(2,245)

1,711

4,638

5,459

5,069

6,933

Operating Profit (before amort. and except.)

(1,226)

(5,941)

(3,189)

(662)

(312)

(1,199)

563

Intangible Amortisation

(2,549)

(2,608)

(2,608)

(2,567)

(2,567)

(855)

0

Exceptionals

0

0

(700)

0

0

0

0

Other

0

0

0

0

0

0

0

Operating Profit

(3,775)

(8,549)

(6,496)

(3,229)

(2,878)

(2,054)

563

Net Interest

213

(156)

(2,191)

97

(102)

(782)

(782)

Profit Before Tax (norm)

 

 

(1,013)

(6,097)

(5,380)

(565)

(413)

(1,981)

(219)

Profit Before Tax (reported)

 

 

(3,562)

(8,705)

(8,687)

(3,131)

(780)

(2,836)

(219)

Tax

277

579

348

(650)

(203)

284

22

Profit After Tax (norm)

(934)

(5,692)

(5,164)

(508)

(521)

(1,783)

(197)

Profit After Tax (reported)

(3,284)

(8,126)

(8,339)

(3,781)

(983)

(2,553)

(197)

Average Number of Shares Outstanding (m)

22.8

25.8

28.1

35.8

38.6

40.8

41.1

EPS - normalised (c)

 

 

(4.1)

(22.0)

(18.3)

(1.4)

(1.3)

(4.4)

(0.5)

EPS - normalised and fully diluted (c)

 

(4.1)

(22.0)

(18.3)

(1.4)

(1.3)

(4.4)

(0.5)

EPS - (IFRS) (c)

 

 

(14.4)

(31.5)

(29.6)

(10.6)

(2.5)

(6.3)

(0.5)

Dividend per share (c)

0.0

0.0

0.0

0.0

0.0

0.0

0.0

EBITDA Margin (%)

7.6

-9.0

6.2

15.2

16.2

14.3

17.5

Adj Operating Margin (%)

-6.3

-23.7

-11.5

-2.2

-0.9

-3.4

1.4

BALANCE SHEET

Fixed Assets

 

 

20,301

20,379

18,864

16,655

14,708

14,185

14,415

Intangible Assets

18,539

18,372

16,944

14,734

13,092

12,582

12,839

Tangible Assets

916

915

792

715

702

689

661

Investments

846

1,092

1,128

1,206

915

915

915

Current Assets

 

 

42,588

37,012

37,634

38,004

51,495

52,890

52,930

Stocks

1,797

627

99

109

59

59

59

Debtors

10,228

10,233

12,384

15,792

20,447

22,901

25,649

Cash

11,249

9,063

11,235

7,883

21,647

20,305

17,575

Other

19,314

17,088

13,916

14,220

9,342

9,626

9,648

Current Liabilities

 

 

(20,517)

(22,679)

(19,480)

(21,170)

(22,839)

(23,264)

(23,731)

Creditors

(15,082)

(16,459)

(14,104)

(15,511)

(16,945)

(17,370)

(17,837)

Short term borrowings

(5,435)

(6,219)

(5,376)

(5,659)

(5,893)

(5,893)

(5,893)

Long Term Liabilities

 

 

(22,227)

(18,275)

(17,742)

(18,411)

(22,464)

(22,464)

(22,464)

Long term borrowings

(18,240)

(15,252)

(14,683)

(14,811)

(18,588)

(18,588)

(18,588)

Other long-term liabilities

(3,987)

(3,023)

(3,060)

(3,600)

(3,876)

(3,876)

(3,876)

Net Assets

 

 

20,145

16,437

19,276

15,077

20,901

21,348

21,151

CASH FLOW

Operating Cash Flow

 

 

2,738

2,088

(1,921)

2,583

3,144

3,016

4,628

Net Interest

(324)

(155)

(626)

(441)

(694)

(758)

(758)

Tax

(1,576)

0

0

0

0

0

0

Capex

(20,045)

(6,378)

(6,321)

(5,830)

(6,401)

(6,600)

(6,600)

Acquisitions/disposals

3,045

46

1,275

(76)

7,189

0

0

Financing

6,573

4,418

11,178

0

7,000

3,000

0

Dividends

0

0

0

0

0

0

0

Net Cash Flow

(9,588)

18

3,585

(3,764)

10,237

(1,342)

(2,730)

Opening net debt/(cash)

 

 

2,839

12,426

12,408

8,824

12,587

2,834

4,176

HP finance leases initiated

0

0

0

0

0

0

0

Other

0

0

0

0

(484)

0

(0)

Closing net debt/(cash)

 

 

12,426

12,408

8,824

12,587

2,834

4,176

6,906

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 2020 Edison Investment Research Limited (Edison).

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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.

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

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New York +1 646 653 7026

1,185 Avenue of the Americas

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United States of America

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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

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 2020 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.

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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