(News Bulletin 247) – The Lyon specialist in software for dematerializing administrative management documents has had a record year in terms of both order intake and activity. But on the other hand, Esker expects lower profitability in 2023.

Like small and medium-sized companies, Esker had a lackluster year in 2023 on the Paris Stock Exchange. The Lyon-based ETI has just completed this stock market financial year with a modest increase of 1.5%.

And this is not the first publication of the year 2024 from the Lyon software specialist which will give new impetus to the stock market file. The latest annual delivery turns out to be mixed, with reasons for satisfaction with the commercial dynamics of the Lyon group. But this has a “other side of the coin”, to use the terms of TP ICAP Midcap, since it will also damage Esker’s profitability in 2023.

Over the last part of the 2023 financial year, the company recorded growth of 13% at constant exchange rates, to amount to 46.9 million euros. However, this level of turnover over the last three months of 2023 is slightly below the expectations of the design office which for its part was counting on 47.9 million euros in income over the period.

Historic order intake

Over the whole of 2023, growth increases to 14% excluding currency effects and total revenues to 178.6 million euros. This growth rate is in line with the company’s expectations. “The initial objective (+12% to +14%) had been raised the first time in April 2023 (+13% to +15%) then a second time in July,” recalls TP ICAP Midcap.

Still, the most notable point is probably in terms of order intake. These increased by 58% excluding currency effects to 7 million euros in the fourth quarter and by 18% in the first half to 9 million euros. Here too, Esker indicated that it had achieved a record quarter and year, “while the 9-month trend was already solid (+14%)”, adds the financial intermediary.

“As management hoped, the company recorded record order intake during the last quarter of the year, thanks to a particularly favorable basis of comparison in its domestic market but also to the continuation of the positive dynamic of the reform of electronic invoicing in France (+146% in the 4th quarter) and market share gains in Europe (+10% in the 4th quarter)”, comments Stifel in its note.

“The performance is remarkable and reflects excellent commercial dynamics,” underlines TP ICAP Midcap for its part.

The company is in fact taking advantage of a regulatory change on the generalization of electronic invoices in France. “Electronic invoicing, already compulsory in the context of public procurement since January 1, 2020 for all companies, will gradually be extended to exchanges between companies (and associations) subject to VAT, established in France,” explains francenum.gouv. fr, the digital transformation portal for businesses.

“The price of success”

But this commercial dynamic linked to the reform of electronic invoicing in France accelerated at the end of the year and “resulted in the observation of acquisition costs higher than expected”, explains Esker. These are commissions on sales provisioned upon signing of contracts, while the turnover will only be recognized once the solution has been put into production.

In numerical terms, the company estimates the impact of these costs on its operating margin at 1 to 2 points. This forecast is also in line with the indications given by the group when it published its third quarter revenues last October. Esker, for whom these lost margin points are “the price of success”, is therefore targeting an operating margin of around 10% for the 2023 financial year.

“A point which is not likely to please the market but which, in our opinion, must be put into perspective”, judges TP ICAP Midcap. On the Paris Stock Exchange, Esker shares fell by 3.2% around 10:50 a.m. after having lost 3.74% in early trading. Investors are also trying to put this disappointment in profitability into perspective in light of the prospects presented by Esker and the analysts’ comments on the roadmap of the Lyon group.

A conservative speech

For the current year, Esker is forecasting annual revenue growth in a range of 12% to 14% on a comparable basis. The implementation of the electronic invoicing reform in France should extend into 2024, which will continue to boost order intake in the country, estimates Esker. The same phenomenon is expected to work in favor of Esker in Spain, Malaysia, Singapore and Germany in the coming quarters and years, depending on the timing of the implementation of e-invoicing obligations by the respective governments of these countries .

For Stifel, this growth objective should be beaten in view of the conservative discourse of Esker management. “The fact that order intake is increasing by more than 25% for the second year in a row suggests that growth will be much stronger,” continues the research office.

The operating margin is expected between 12% and 13% of turnover, which is in line with the group’s historical margins, notes Stifel, which expects this objective to be achieved “without too much difficulties”.

“If the revenue growth guidance is considered rather conservative, that on the margin is considered realistic by management. It risks leading to a downward revision of consensus expectations,” warns TP ICAP. Midcap. He also adds that the group has also confirmed its ambition to continue to increase its margin towards 15% in 2025, a point which was not in the initial press release.

Stifel confirmed its purchase recommendation and its price target of 175 euros. The financial intermediary continues to see significant potential in the Esker share price despite a clear revaluation of the stock over the last three months. He expects Esker’s future publications to remain “very solid.”

“The first quarter once again promises to be a very robust year, both in terms of turnover and order intake (the basis of comparison still being low). Margins should improve significantly from the first half of the year “. This should push Esker to quickly revise its turnover forecasts upwards.