As anticipated, now that the German whistleblower protection laws are in place, EQS is recruiting substantial numbers of new customers and is set for a strong fourth quarter, with good momentum into FY24. Once these new customers convert, they become a pipeline of warm leads for other EQS products and services, including more recent additions such as those for ESG monitoring and reporting. Q323 revenues were up 14% on the prior year and newly won annual recurring revenue (ARR), which precedes reported revenue, was up 50%. The rating remains well below that of peers and the value indicated by a discounted cash flow (DCF).
Year end |
Revenue (€m) |
EBITDA (€m) |
PBT* (€m) |
EPS* (€) |
EV/EBITDA (x) |
P/E (x) |
12/21 |
50.2 |
1.7 |
(5.4) |
(0.65) |
144.5 |
N/A |
12/22 |
61.4 |
4.6 |
(3.1) |
(0.20) |
55.1 |
N/A |
12/23e |
72.5 |
10.0 |
1.5 |
0.10 |
25.2 |
223.8 |
12/24e |
90.0 |
17.3 |
9.4 |
0.63 |
14.6 |
35.9 |
12/25e |
106.5 |
22.1 |
14.4 |
0.97 |
11.4 |
23.4 |
Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
EQS increased the number of its SaaS customers by 170% to 665 over Q3 as some of the pent-up demand for digital whistleblowing software systems flowed through following the transposition into law of the regulations in Germany on 1 July. Of the 1,331 new SaaS whistleblowing customers recruited over 9M23, 665 came on board in Q3. There is still a long way to go in building the understanding of the requirements to implement across organisations (not just corporate, but also public sector, charities, etc), so we anticipate demand continuing to be strong through FY24 and into FY25, for which we now publish our estimates for the first time. Our FY23 and FY24 figures are broadly unchanged, bar a better free cash flow performance, which reduces our year-end net debt forecast to €22.4m, from €27.3m, with management reporting a figure of €24.3m at end-September.
Margins expanding on market-leading position
With the increasing volumes, overhead recovery is improving. The Q323 EBITDA margin was 13.8%; 11.4% for 9M23. Our modelling suggests a Q424 EBITDA margin of 19.2% – a level that we regard as sustainable while the whistleblowing momentum continues, not just in Germany but across other EU jurisdictions. While figures are hard to come by, management asserts market leadership in Germany.
Valuation: Discount to peers and DCF
EQS is edging closer to an earnings-based valuation and parity with peers on FY24e EV/revenue would imply a share price of €31.69, down from €34.45 in August, as peers’ ratings have retrenched. This is a little below the €36.36 (August 2023: €36.18) indicated by our DCF at a WACC of 9% and terminal growth of 2%, with both valuations clearly well ahead of the current share price.