Esker's H121 results confirm growth has accelerated after a period of COVID-19-induced weaker demand in FY20. Revenue growth of 19% y-o-y compares to 8% growth in H120 and FY20. Despite increasing headcount by 12% y-o-y, Esker reported operating profit growth of 47% and an operating margin at the higher end of the company's 13-15% target range. While FY21 guidance is unchanged, our earnings forecasts for FY21/22 have been revised to reflect the pace of cost increases and wage inflation.

The stock trades at a premium to document processing automation software and French software peers but at a discount to US SaaS peers. Esker has re-rated over the past two years (the stock is up 109% over the last year and 259% over two years), with its P/E multiple moving much closer to the US SaaS software peer group. We believe this is due to the value placed on businesses with high levels of recurring revenue, providing visibility through a period of economic uncertainty, and the potential for multi-year profitable double-digit growth. Esker has the added advantage of a strong balance sheet to fund growth.