reports
- Katherine Thompson
Expert System - Strong finish to the year
Expert System saw an uptick in demand towards the end of FY17, resulting in revenues and EBITDA ahead of our forecasts. The company has revised its outlook for FY18/19, expecting double-digit sales growth and EBITDA margin expansion; we have revised up our FY18 forecasts to reflect this. The company expects to burn cash in FY18 before turning cash-flow positive in FY19. Evidence of sustained customer demand combined with good cost and cash control will be key to share price upside.
Outlook: Investing in the international opportunity
Expert System’s 2015 acquisition of TEMIS has put it in a strong position to leverage its award-winning cognitive technology across a much larger global footprint in the text analytics market (expected to reach $6.5bn by 2020). It has extended its strategic partnerships, including becoming a Google Premier Technology Partner and developing its relationships with system integrators. Its impressive client base includes Eli Lilly, Thomson Reuters, UniCredit, Shell, and a number of national securi...
Update: Leveraging Cogito technology internationally
Expert System is transitioning from being largely Italy-facing into a truly international business with operations in the US, UK, France and Germany. The company estimates that the TEMIS acquisition (completed in September) will increase foreign exposure from 11% (H114) to 65% (H115 pro forma). Based on H115 results, we have reduced our FY15 revenue forecast for Expert System. With the inclusion of TEMIS, we forecast 46% group growth for FY15. We introduce a forecast for FY16 of 52% growth, supp...
Update: Transformational acquisition
Expert System has signed an agreement to acquire French text analytics company TEMIS for €12m EV (€4m cash, €1m debt acquired and €7m in shares). It has an impressive customer base that includes BNP Paribas, Reed Elsevier and BASF and would extend Expert System’s geographic reach to France, Germany and Canada if the deal is finalised. The transaction values TEMIS at a large discount to Expert System's and therefore the re-rating alone could result in up to 36% upside in Expert’s shar...
Update: Strong organic growth with acquisition upside
Expert Systems has announced encouraging order growth, with US orders up 82% and annual subscription licensing up 92% y-o-y. In addition, the formation of the CY4Gate JV and acquisition of iSOCO assets are important steps forward in the implementation of the internationalisation and product expansion strategy. It is difficult to quantify the impact of these acquisitions at this stage and therefore we have not changed our earnings estimates, but the strategic benefits appear to be substantial. Th...
Initiation: Interpreting natural language
Expert System has developed award-winning technology in the increasingly important area of natural language understanding (NLU). Its impressive client base includes a number of national security agencies, UniCredit, Raytheon, 3M, ING Direct, Chevron, ENI and Shell among others and is testament to the effectiveness of its product. Our base case DCF suggests a share valuation of €3.23, but does not take into account the opportunity to expand into a wide range of potential new applications.
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