Editing EQS Group (section)

== Valuation ==
The current restraints on profitability stemming from the investment programme make conventional peer-based valuation less useful, so Edison Investment Research supplements this with a DCF-based approach.

=== Peer context ===
As the internal investment is continuing to affect profitability, the most reliable of the traditional multiples is EV/Revenue (although Edison Investment Research also shows EV/EBITDA and P/E). There is a wide range of multiples for the financial software peer group. For FY1, EQS is trading at 6.6x sales versus the average for the peer group of 8.5x.

{| class="wikitable"
|+Exhibit 6: Peer comparison<ref>Source: Refinitiv. Note: Prices as at 16 June 2022.</ref>
!
!Price (reporting currency)
!Market
!YTD
! colspan="3" |EV/ Sales (x)
! colspan="3" |EV/EBITDA (x)
| colspan="3" |PE (x)
|-
|
|
|cap (m)
|%
|FY0
|FY1
|FY2
|FY0
|FY1
|FY2
|FY0
|FY1
|FY2
|-
|Euromoney (£)
|1086
|1,169
|17
|3.7
|3.1
|2.8
|15.4
|12.7
|10.7
|23.7
|19.5
|16.5
|-
|Thomson Reuters (U$)
|126.44
|61,592
|<nowiki>-16</nowiki>
|8.1
|7.7
|7.3
|26
|22.2
|18.4
|50.3
|40.3
|29.7
|-
|Envestnet (U$)
|54.14
|2,988
|<nowiki>-32</nowiki>
|2.9
|2.6
|2.3
|13.3
|13.7
|11.1
|22.4
|25
|19.7
|-
|Swissquote Group (€)
|101.5
|1,544
|<nowiki>-49</nowiki>
|8.8
|9.1
|8.1
|
|17.3
|14.9
|9.3
|9.1
|8.1
|-
|Globaldata (£)
|1085
|1,264
|<nowiki>-24</nowiki>
|7.9
|6.7
|6.3
|23.2
|19.6
|17.2
|32
|27.5
|23.9
|-
|MSCI (U$)
|397.39
|32,237
|<nowiki>-35</nowiki>
|17.5
|15.5
|14
|29.85
|27.2
|24.4
|39.9
|34.9
|30.4
|-
|S&P Global (U$)
|321.3
|109,223
|<nowiki>-32</nowiki>
|14.4
|9.7
|8.9
|25.7
|19.4
|17.3
|23.5
|25.7
|21.5
|-
|Marketaxess Holding (U$)
|270.04
|10,192
|<nowiki>-34</nowiki>
|14.1
|13
|11.6
|22.3
|21.1
|21.9
|39.9
|38.2
|33.6
|-
|Average
|
|
|<nowiki>-26</nowiki>
|9.7
|8.4
|7.7
|22.3
|19.2
|17.0
|30.1
|27.5
|22.9
|-
|Median
|
|
|<nowiki>-32</nowiki>
|8.5
|8.4
|7.7
|23.2
|19.5
|17.3
|27.9
|26.6
|22.7
|-
|EQS (€)
|29.3
|294.0
|<nowiki>-32</nowiki>
|8.5
|6.4
|4.6
|67.6
|184.6
|42.9
|N/A
|N/A
|42.8
|-
|Premium/(discount)
|
|
|
|1%
|<nowiki>-24%</nowiki>
|<nowiki>-40%</nowiki>
|204%
|864%
|152%
|N/A
|N/A
|87%
|-
|Application software peers
|
|
|<nowiki>-27</nowiki>
|4.2
|3.6
|3.3
|19.7
|17.9
|14.0
|29.2
|27.5
|26.2
|-
|Premium/(discount)
|
|
|
|103%
|78%
|39%
|243%
|931%
|206%
|N/A
|N/A
|N/A
|}
Edison Investment Research has also looked at a broader global set of quoted application software peers, which are, in general, rated at roughly 50% lower across EV/Revenue, EV/EBITDA and P/E. EQS shares trade at valuation between the two groups (financial software peers and application software peers) on FY1 and FY2 EV/Revenue. As would be expected by the suppression of short-term profitability to boost the longer-term potential, EQS trades at a considerable premium on EV/EBITDA (and for FY2 P/E) across both peer sets.

For illustrative purposes, closing the discount on FY2 EV/Revenue would imply a share price of €51. Obviously, the relatively small scale and early stage of business development warrant a considerable discount. A 25% discount, for example, would imply a share price of €38.35, which is still 31% above the level at which the shares are currently trading.

=== DCF also points to value above current price ===
Management has outlined its views on the medium-term revenue growth outlook, with Compliance growing at a CAGR of 34% from FY21 through to FY25 and IR growing at a more modest 13%. From the current mix (and assuming no further M&A), this equates to group revenue growth of 27%. On the basis of this forecast, management anticipates EBITDA margins exceeding 30% by the end of the forecast period.

In view of the rising interest rates globally, and not for any company-specific reasons, Edison Investment Research has increased the WACC at which Edison Investment Research calculates the DCF from 8% to 9%. If Edison Investment Research applies these assumptions to the DCF, assume that margins are sustainable at that level and that growth tails off by 200bp per year beyond FY25e simply through scale, then at a WACC of 9% and a terminal growth rate of 2%, the implied value per share is €47.66. In April, at the lower WACC, Edison Investment Research derived a figure of €57.93. Obviously, there is an element of execution risk here, with the bulk of the value accruing well beyond Edison's explicit forecast period (to FY23e).

{| class="wikitable"
|+Exhibit 7: DCF varying WACC, terminal growth using management mid-term assumptions<ref>Source: Edison Investment Research.</ref>
|
|
| colspan="5" |Terminal growth rate
|-
|
|
|0.00%
|1.00%
|2.00%
|3.00%
|4.00%
|-
| rowspan="10" |WACC
|12.50%
|25.28
|26.49
|27.93
|29.68
|31.84
|-
|12.00%
|26.83
|28.21
|29.86
|31.89
|34.41
|-
|11.50%
|28.53
|30.11
|32.01
|34.36
|37.34
|-
|11.00%
|30.41
|32.21
|34.41
|37.17
|40.71
|-
|10.50%
|32.47
|34.55
|37.11
|40.36
|44.61
|-
|10.00%
|34.76
|37.17
|40.17
|44.03
|49.18
|-
|9.50%
|37.32
|40.11
|43.66
|48.29
|54.61
|-
|9.00%
|40.17
|43.45
|47.66
|53.28
|61.14
|-
|8.50%
|43.39
|47.26
|52.31
|59.21
|69.17
|-
|8.00%
|47.03
|51.63
|57.77
|66.36
|79.24
|}