Basware Annual Results – eInvoicing Giants Announce Dash for Growth

Basware, the eProcurement and eInvoicing firm announced their fourth quarter and annual results last week and, as a publicly quoted company, held a session with city analyst-type folk in London that we also attended (part of it anyway).

The results on the surface looked pretty good to us, although year-on-year comparisons are distorted given the acquisition of Procserve in mid-2015. Q4 net sales were up to 39.2 million euros from 34.7 million in last year’s equivalent period, and operating profit was up to €4.3 million from €1.7 million.

Over the full year, sales were €143 million, up 12.3% on 2014, and profit came in at some €4.7 million, up almost 10% on the previous year. Network services sales were up 48% as more clients migrated to cloud based solutions.

The big surprise was that the firm announced there would be no dividend payment for 2015, and none for the next three years either. That perhaps explained the immediate small drop in the share price, but by the end of last week it was back to pre-announcement levels, although that is some 30% below last summer's record high.

So why this step in terms of the dividend, from a firm that is clearly profitable? It is all about the new growth strategy. Basware sees much potential in the eInvoicing market and the associated areas of P2P and supply chain finance, and intends to invest to drive faster growth and to take advantage of this opportunity.

We suspect the directors also look around and see the impressive valuations put on competitors like Coupa and Taulia, who are still private firms. These firms have not had to worry about profitability yet; it is their impressive growth that had driven the talk of billion-dollar valuations. Basware is still far bigger than both in revenue terms, makes real profits and yet is valued at “just” €470 million (and note, that still represents a very high P/E ratio by some measures). So the revised strategy is all about growth, with the Board calculating that investors will put up with the lack of dividends and short-term hit to the margins if they see growth accelerating, which will push up those valuation multiples.

So the revenue target has been increased, and the firm will invest some €100 million over the next three or four years to drive growth. That money will go into a doubling of the sales force (good news for successful procurement tech sales people, you are going to see demand increasing in your sector), marketing, product development and support. “Basware will invest in R&D activities aimed at shortening the implementation times of Basware's solutions and services with new and existing customers”, the firm says.

The key drive will be in the UK, USA and Germany, fairly obvious growth markets but of course also those where competition is stiff. The focus is also very much on the purchase to pay and eInvoicing proposition; there was virtually no mention of sourcing or sourcing technology during the session we attended, although the spend analytics capability of the product was highlighted.

It is a brave approach, signalling that the firm does not want to be a low-growth but solid cash generating machine, but aspires to be seen as a high-growth cloud based provider, standing toe to toe with those sexy, younger firms like Coupa and Tradeshift, who have muscled in on the market in recent times. It’s going to be an interesting next couple of years, as some of those firms may float – or be acquired – themselves, and will then come under more scrutiny perhaps than they have received up to now.

But Basware shouldn’t under-estimate the competition, and whilst announcing a big investment in growth is one thing, making it happen is another - doubling the size of the sales force comes with its own risks, for instance. However, the firm has much going in its favour too, and their supply chain finance offerings are certainly amongst the strongest and best thought-out in the industry, we believe. We’ll watch the developments with interest.

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