Original-Research: VOQUZ Labs AG - from NuWays AG

Classification of NuWays AG to VOQUZ Labs AG

Company Name: VOQUZ Labs AG
ISIN: DE000A3CSTW4

Reason for the research: Update
Recommendation: Kaufen
from: 22.03.2024
Target price: EUR 22.00
Target price on sight of: 12 Monaten
Last rating change:
Analyst: Philipp Sennewald

Huge potential from promising PwC partnership // chg.

On Wednesday, VOQUZ Labs announced a strategic partnership with PwC Solutions Germany for the marketing of remQ, the company’s business transaction monitoring and auditing software for SAP customers. In detail:

PwC will offer its client base in Germany the establishment of a digitalized internal control system (ICS) based on remQ. Mind you, remQ was added to the product portfolio within the framework of the company’s first M&A deal in early 2023. The software monitors business-critical transactions, i.e. procure- to-pay and order-to-cash processes, in real-time, hence improving data and transaction control across all business areas. Moreover, customers can upsell in order to add premium solutions such as payroll- and sanctions compliance or an AI-based criminal watchlist name-matching tool. The software is optimized for both SAP ERP and S/4HANA environments. PwC will likely position remQ as a managed service solution. In our view, this should be a well needed push for remQ after a flattish sales development in 2023 (eNuW: € 150k).

Given PwC’s market leading position with c. 13k auditing and consulting customers in Germany, the partnership is seen to significantly facilitate the go-to-market of remQ. As VOQUZ is typically targeting mid-sized customers with 500-20,000 employees, we estimate the deal to have a total potential of € 25-30m in annual revenues, based on an average annual contract volume of € 35k (eNuW).

As VOQUZ also aims to intensify cross-promotion with its flagship software samQ (SAP software asset management), top-line growth is seen to accelerate from 2024e onwards. We hence conservatively expect remQ sales to triple to € 450k in ‘24e before doubling again to € 900k in ‘25e.

visoryQ offering further upside. While the company’s core product samQ looks set to provide solid double-digit sales growth going forward (eNuW: 11.3% CAGR ‘23p26e) and setQ as a pure re-sell product likely remaining flat, visoryQ is also seen to contribute with strong growth momentum going forward. This should be, among others, driven by the ongoing S/4HANA transition (mainstream maintenance for old ERP software ends in 2027).

To remind you, visoryQ is a tool that largely maps advisory services via intelligent software and is designed to methodically help customers determine the optimal ERP strategy. For example, visoryQ visualizes various strategies to help decide whether on-premise, hyperscaler, RISE or composable ERP is the best fit and is providing customers with cost indications for all possible options considering the scope of service needed for the respective organization. Thus, especially for SAP customers who have not yet migrated to S/4HANA, visoryQ is a compelling offering in order to optimize TCO, in our view.

After introducing the self-developed solution in Q4 '22, it already met with brisk demand in 2023, accounting
for c. 10% of sales, e.g. € 0.5m (eNuW). Driven by an accelerating S/4HANA transition, topline should continue to develop dynamically at a 65% CAGR '23p-26e.

SAP cloud migration to fuel visoryQ and samQ

While the majority of SAP ERP customers has not yet migrated, SAP introduced financial incentives at the start of the year to help accelerating the transition to S/4HANA. Until the end of 2024, customers opting for a cloud migration via the RISE or GROW with SAP program may receive a one-time credit of 60% of their first year’s fee if they currently use on-premise S/4HANA, and a 45% credit if they currently use SAP legacy software. Apparently, SAP actively offered these incentives to users already in Q4’23 and received positive feedback. The CPO for cloud ERP, Mr Jan Gilg, stated that it ‘hit the right spot’ and was ‘able to convince a lot of customers to move to Rise’.

While this should be clearly benefitting visoryQ, the ongoing cloud migration is set to also have a positive effect on samQ, the company's SAP software asset management tool. While cloud-based solutions offer a higher degree of flexibility on the one hand, they also increase complexity on the other, as they inherit an innumerable amount fo native and third-party services. In order to be able to deal with such an increasing complexity, there should be no way around an appropriate SAM tool like samQ, in our view. Already today, the average SAP customers manages 3,500 users and 20 systems, i.e. has to classify 70,000 data points. As a result, roughly 30% of SAP users are incorrectly licensed.

Overall, VOQUZ looks set to be well positioned to pick up the pace again after a difficult H1´23 that was partially compensated by a solid H2 (click here for update on FY '23 prelims). For FY24, we estimate 19% sales growth (eNuW: € 6.2m), a double-digit EBITDA margin (eNuW: 15.5%) and postive FCF (eNuW: € 0.5m).

Despite the promising share price performance YTD, valuation still looks undemanding with the stock trading on a mere 1.2x EV/Sales and 7.8x EV/EBITDA ‘24e (0.9x/4.4x based on FY25e) carried by the strong underlying mid-term prospects as well as the scalability of the capital light business model.

BUY with an unchanged PT of € 22.00 based on DCF.

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