Basware is a public company listed on the Helsinki exchange.  Though I have included the company in some previous blog posts (here and here), I have not, until now, given the company its due.

Basware can, oversimplistically, be thought of as a procure-to-pay suite vendor (in Gartner’s leadership quadrant) plus an e-invoicing network. The company has been successfully making two transitions simultaneously:

• From installed, license software (primarily mid-market) to subscription SaaS software
• From having a network, to not having a network, to back to having an e-invoicing network

Here’s some data on these transitions from the company’s investor deck:

 

 

 

 

 

 

 

 

 

As you can see, SaaS revenues now account for more than 50% of sales.

The company’s e-invoicing network is growing about 30% annually and now accounts for about 33% of sales.

Investors have taken note of this transition, with the stock doubling over a 3 month period in early 2014 and holding on to that gain ever since:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

What about Basware’s valuation?

An interesting way to consider Basware’s valuation is to consider it as a combination of two other public companies:  Sciquest and Tungsten.

Sciquest is a reasonable proxy for the procure-to-pay portion of the Basware business.  Sciquest’s procure to pay business is a little bigger than Basware’s and is (I think) all SaaS, so it should be worth more than this portion of Basware’s business.  Sciquest has a current valuation of about $435 million, well below its high.

The best public proxy for Basware’s e-invoice network is Tungsten.  The Tungsten network appears to be a similar size to Basware’s, but less profitable, and showing less growth.  Advantage Basware.  Tungsten’s market cap is about $2oo million, well below its high and after a big additional decline on 5/15. (And it keeps falling.)

If we add Sciquest plus Tungsten, we get $635 million in market cap.  Basware has a market cap of about $650 million.  Apparently stock markets are sometimes efficient! 😉

A couple of points to consider in favor of Basware being undervalued:

• Both Tungsten and Sciquest are way down from their highs, while Basware has held its value. Perhaps those two companies were running too hot, and all is now right in the world.  Or does Basware equal the total of two highly undervalued companies?
• Given the growth of Basware’s e-invoice network, one could argue the company is much more valuable than the sum of Sciquest and Tungsten.  In addition, Tungsten appears to be struggling, which creates opportunities for Basware.

The case for Basware being over- or fairly valued is twofold:

• 10% top-line growth is not very impressive and
• The company still generates 60% of revenue in Finland and Scandinavia.  Basware has not demonstrated the ability to grow much in the rest of Europe and the rest of the world.  (The company’s recent purchase of ProcServe in the UK is designed, in part, to address this.)

Conclusion

Based on this simplistic analysis, the stock certainly does not appear to be overvalued.  I don’t own it, but it bears watching closely.