Esker: Accelerating SaaS Growth
Edison | Oct 17, 2019 07:43AM ET
Esker (PA:ALESK) has seen revenue growth accelerate through the course of 2019. Group revenues grew 18% y-o-y in Q3 on a constant currency basis while cloud-based revenues grew 22% over the same period. The company has maintained its full-year revenue guidance, which we view as conservative. We maintain our estimates but highlight that risk is weighted to the upside.
Q3 sees record SaaS growth
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Revenue growth accelerated in Q3, with Esker reporting 21% year-on-year growth in revenues to €25.4m. In constant currency, revenues grew 18%, up from 14% in Q1 and 16% in Q2. Revenues for 9M19 of €75.5m were 19% higher year-on-year and 16% higher on a constant currency basis. Cloud-based revenues (SaaS and consulting) made up more than 90% of Q3 revenues, growing 25% y-o-y and 22% in constant currency (up from 17% in Q1 and 21% in Q2). Surprisingly, legacy product sales grew 21% y-o-y in constant currency in Q3 and 13% for 9M19. Net cash at the end of Q3 increased to €19m from €15m at the end of H1.
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Outlook and estimates maintained
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Management continues to expect to achieve revenues of at least €100m in FY19. Based on revenues reported to date, this would require revenue of at least €24.5m in Q4, which should be achievable considering the performance in Q3 and the strength of the dollar versus the euro. We maintain our forecasts but highlight that risk is to the upside.
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Valuation: Reflects SaaS business model
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Esker’s stock has gained 39% year-to-date and trades at a premium to French small-cap software peers and global DPA software providers. Compared to companies with a similar SaaS business model, however, Esker trades at a discount on all multiples. As the company accelerates revenue growth towards its 20% target, we would expect the shares to re-rate. We note that Esker has a strong balance sheet with €19m net cash at the end of Q319, representing ample funds to support growth via internal investment or selective M&A.
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Business description
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Esker provides end-to-end document automation solutions, offering on-demand and on-premise delivery models. In FY18, the business generated 58% of revenues from Europe, 37% from the US and the remainder from Asia and Australia.
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