London, UK, 24 August 2018
Edison issues outlook on EQS Group (EQS)
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.
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. On a reverse DCF, taking the company's 2018-25e revenue CAGR guidance of around 17% and assuming a WACC of 8%, an EBITDA margin of c 17% is required to get to the current share price. A 1pp increase in margin would result in an EUR85/share valuation. Given the element of execution risk, the shares appear to be well underpinned at current levels.
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