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Edison Investment Research Limited
 London, UK, 10 January 2020 Edison issues outlook on EQS Group (EQS) EQS is making progress on its journey to become a fully embedded provider of investor relations and compliance platforms and products to corporate customers. While conversion of sales leads has been slower than initially hoped, the group returned to EBITDA profitability in Q3 and is set to build a sustainable business model in markets driven by increasing regulation. FY19 guidance, revised with the Q3 figures, was for revenue growth of 10-15% pro-forma (down from 18-25%), taking EUR0.5m off EBITDA. The valuation is well below a DCF based on targeted growth.  The development stage of the group makes peer-based valuations unhelpful beyond EV/revenue, where EQS is trading at a significant discount of 66%. As management publishes medium-term revenue and EBITDA targets to FY25, we have looked at a reverse DCF, based on a WACC of 8% and terminal growth of 2%. The current share price suggests the market is sceptical of the revenue growth target or the EBITDA margin target (or both). Were the group to meet its ambition of 20% revenue CAGR and margins building to 30% by FY25, the DCF indicates a share price of EUR113. A 16% CAGR (lower end of guidance) and EBITDA margin of 25% generates a value of EUR74, around 20% above the current price.
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