Expert System – Equity Update 09.10.2017
1H17 results are lower than our forecast. Sales declined by 11,2% compared to 1H16 to €11,7 mln (19% vs our forecast). Ebitda was negative for €4 mln (€-2 mln in 1H16 vs positive for €1,2 mln of our forecast). Sales reduction is primarily due to different revenues mix: increase in annual licenses sales against perpetual. This is consistent with the company's future strategy driven by the increase in the recurring component of revenues. The future strategy is also focused on increasing sales overseas, which is also confirmed by the performance of sales in 1H17, where this component has reached about 62% (+29% on 1H16) or €5,2 mln (€4 mln in 1H16). In the light of 1H17 results, taking into account Expert's management strategy and waiting for a new business plan, we reduce our expectations for 2017-19F. In other words, we believe that FY17F could be still a transition year. From 2018F, and even more since 2019F, we believe that the Expert System group could be able to express a sustainable profitability (Ebitda margin) similar to that of the last 10 years and above 20%. Our estimates for the 2019E will reach an Ebitda margin of 16,4% (21,7% our previous estimate).