Edison Investment Research Limited
London, UK, 15 September 2020
Edison issues outlook on Esker (ALESK)
Esker reported revenue growth of 8% for H120, despite COVID-19 disruption. The company continued to invest in headcount during H1; while this resulted in a decline in operating profit year-on-year, Esker achieved a respectable operating margin of 11.4%. We have trimmed our revenue forecasts for FY20 and FY21 but this is outweighed by the positive effect of lower tax rates in both years. Esker's cloud delivery model has proven resilient during the pandemic and the company expects a resumption in 15%+ revenue growth rates from FY21 as the pipeline of new business converts and volumes transacted on Esker's platform return to more normal levels.
The stock has gained 50% year-to-date and is trading 22% higher than its pre-COVID-19 peak. The stock trades at a premium to DPA software and French software peers but at a discount to US SaaS peers. Esker has re-rated over the last year, with its P/E multiple moving more towards the US SaaS peer group. We believe that this is due to the value placed on businesses with high levels of recurring revenue, providing visibility through a period of economic uncertainty. Esker has the added advantage of a strong balance sheet that does not require additional funding to support growth. Successful execution of Esker's partner strategy could be a trigger for earnings and share price upside.
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