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I recently read a Substack post from Heavy Moat Investments that made me discover the company. I am not a paid member, but the preview was enough to pique my interest (go check it out - well written).
**Innoscripta AG** is a young company, founded a bit more than a decade ago in Germany (they were first focused on consultancy), but IPO early 2025 (switching to an SaaS model a couple of years ago).
Basically, they digitise workflows for identifying, documenting, and managing R&D tax credit claims and associated R&D project data. They are targeted at mid-sized and large corporations with active R&D functions.
They make money like a classic subscription base SaaS service, so a recurring contract to access tax credits and, maybe a bit more uniquely, they charge variable fee linked to the amount of R&D costs successfully documented and claimed. The more a customer spends on R&D, the more Innoscripta makes money, but only if it helps the client maximise compliant, recoverable R&D credits.
**MOAT**: Strong switching cost. They also have a network effect but it is only growing as their core business is germany focused. However, they clearly expand in different market (in practice, they already support different countries) and have good reputation with their current large German client base.
It is expanding, and obviously vulnerable.
One issue is that there is no real barrier that I can think of that would disallow a larger SaaS company to replicate the business model. It is not yet done, they focus and aim is quite unique as of today and - if their trend continues, they could become very large in europe.
But, as always (especially in Europe), their capacity to implement and expand in other countries can face many regulatory challenges.
**Financials**: Excellent.
.They operate with net cash, not net debt. Cash balances have increased materially alongside profitability.
.High EBIT margin (over 60%)
.Operating Margin 60% too
.No meaningful debt
.Free cash flow positive and increasing
.Revenue also steadily increasing
Obviously, could dig much deeper into the financials but to me it gives me reassuring first picture but a recently IPO'd company.
**Management**: Also great
Management has a lot of skin in the game - once their stock price dipped after IPO'd they immediately took the opportunity to buy a lot of shares.
CFO worked at Birkenstock
**Valuation**: Not done in depth yet.
It looks undervalued at first glance, considering the financials, growth path, management quality, low-ish PE. I quickly had a look at some analyst (not widely covered) prediction and they believe that at 87e /share, it is greatly undervalued (they estimate fair value at around 180-200e).
I will NOT open a position yet. I am not risk-averse, but I do like the more cautious approaches. I want to at least see their next report in March and see how they evolve in other countries they have started to integrate, like UK and France (among other things - such as German politics).
Thoughts?
PS (not sure if relevant but for context: I mainly invest in a broad index - so my goal with the 10% single stock allocation is to take a bit more risk **while still only touching quality companies** that are fairly or undervalued. I especially like smaller companies (not micro). I mainly plan to have 60-70% of my single stock portfolio on large cap quality business eslike Visa, Deutsche Boerse, RELX, Linde, and many more and the rest on small growth bets that do not have insane valuations or are at the brink of bankruptcy after a crash.