An Inside Look At Esker

Esker’s document process automation (DPA) software helps customers move from paper-based to digital document processing. Its well- established SaaS solution has attracted a large number of customers, with transaction-based revenues making up a growing proportion of revenues. We expect growth in the on-demand business to outweigh declines in the legacy and traditional on-premise businesses. Share price upside will depend on the rate of adoption of the on-demand solution.

Document Process Automation Specialist
Esker’s main business is the development and sale of DPA software and services. Its solutions enable companies to automate accounts payable, accounts receivable, sales order processing and document delivery processes. Benefits include reducing paper-related costs and errors in processing, speeding up the cash conversion cycle, improving process visibility within the enterprise and improving customer service. Its declining legacy business sells fax servers and terminal emulators. Revenues are generated in Europe and the US, with minimal exposure to Asia, and the company is targeting sales expansion in South America and Canada.

SaaS Solutions Driving Growth
Esker offers its DPA solutions as on-premise and on-demand products, designed as end-to-end solutions. Esker has the advantage of being a long way through the transition from on-premise to SaaS software delivery, with all the relevant technology development complete and a large number of customers already using the on-demand service. The on-demand version has seen the strongest growth over recent years with per-transaction revenues growing from 33% of revenues in FY09 to 48% in FY12. We expect this to fuel growth in FY13-14 (up to 55% of revenues) and to drive growth in recurring revenues (traffic and maintenance fees), which already made up 71% of FY12 revenues and close to 75% in Q113.

Financials And Valuation: On-Demand Adoption Is Key
We expect on-demand DPA revenue growth to outweigh the decline in on-premise licences and legacy products. Esker trades on a P/E multiple of 22.3x FY13e and 19.7x FY14e EPS, at a similar level to global DPA peers in FY13 and at a premium to French small-cap software peers. Esker has a very high level of recurring revenues, and after this year should be able to grow revenues faster than the cost base and expand margins. Esker pays a small dividend, with a yield of 1% for FY13 and FY14, and has a strong cash position that should enable it to fund bolt-on acquisitions.