Datagroup — Back on track

DATAGROUP (DB: D6H)

Last close As at 19/04/2024

84.10

−0.70 (−0.83%)

Market capitalisation

703m

More on this equity

Research: TMT

Datagroup — Back on track

After a difficult FY20, IT services provider DATAGROUP’s earnings recovered in H121, driven by a turnaround in its Financial IT Services (FIS) unit, which took a hit in FY20. The M&A-driven business model is intact, with the addition of Urano and dna in H121, and DATAGROUP’s target of an EBIT margin of 9% should be within reach in the medium term (2022/23). Trading at 24.3x FY22e P/E on consensus estimates, DATAGROUP is valued at an 11% premium to peers.

Edwin de Jong

Written by

Edwin De Jong

Analyst

TMT

DATAGROUP

Back on track

IT services

Scale research report - Update

1 June 2021

Price

€62.8

Market cap

€523m

Share price graph

Share details

Code

D6H

Listing

Deutsche Börse Scale

Shares in issue

8.3m

Last reported net debt at 31 March

€55.8m

Business description

DATAGROUP is an IT outsourcing provider, focused on the German Mittelstand market. It offers the full range of IT services on a modular basis, through its CORBOX ‘cloud enabling platform’. Services include service desk, end-user services, data centre services, application management and SAP services.

Bull

A compelling growth strategy, scaling the business across the Mittelstand sector.

Cloud services business model gives it an advantage over competitors.

Centralised SLA-based approach with a focus on customer satisfaction puts company in a strong position to consolidate a fragmented market.

Bear

Highly exposed to the German economy.

Acquisitions bring risks, but DATAGROUP has a proven track record in integrating acquisitions.

Increased debt levels

Analyst

Edwin de Jong

+31 (0)6 5122 5490

After a difficult FY20, IT services provider DATAGROUP’s earnings recovered in H121, driven by a turnaround in its Financial IT Services (FIS) unit, which took a hit in FY20. The M&A-driven business model is intact, with the addition of Urano and dna in H121, and DATAGROUP’s target of an EBIT margin of 9% should be within reach in the medium term (2022/23). Trading at 24.3x FY22e P/E on consensus estimates, DATAGROUP is valued at an 11% premium to peers.

H121 results show recovery from FY20

DATAGROUP’s H121 results recovered from a difficult FY20, which was affected by problems at its FIS unit. Revenue grew 24.4% to €211.5m, with the majority of growth originating from the acquisitions of Portavis and Cloudeteer last year. In contrast to the first lockdown, the second lockdown in Germany had a small positive effect on revenues, as commercial activities held up and new client wins were booked. EBIT increased 44% to €13.9m, partly due to cost savings from the restructuring of DATAGROUP’s FIS unit. FIS was the reason for the disappointing results last year, but the new management has adjusted prices for certain services and staff productivity has increased. Net profit increased by 21% as a result of a higher tax charge.

FY21 will be strong; FY22/23 ambitions intact

DATAGROUP increased its recently issued (March) FY21 guidance to revenue of more than €440m (previously €410–420m) and EBITDA of more than €61m (previously €56–58m). The increase is mostly driven by M&A, as CEO Max Schaber indicated in the post-H121 analyst call that the revenue contribution from Urano and dna this year will probably be slightly below €20m, while the EBITDA contribution will be over €2m. As such, the increased guidance should be achieved by the consolidating effect of the two acquisitions. DATAGROUP reiterated its ambition of reaching a 9% EBIT margin by 2022/23 versus FY22 previously (H121: 6.6%). Given the ongoing recovery at FIS and the margin levels of around 8% in previous years, this aspiration could be realistic.

Valued at a premium compared to peers

After the profit warning in August last year relating to setbacks at FIS, DATAGROUP’s shares fell below €40, but the share price has since recovered to more than €60 since. At current consensus estimates, the shares are trading at a premium to peers of 11% on an FY22e P/E of 24.3x, a premium that has been more or less stable since early this year.

Consensus estimates

Year
end

Revenue
(€m)

EBITDA
(€m)

EPS
(€)

DPS
(€)

P/E
(x)

Yield
(%)

09/19

306.8

46.9

1.74

0.70

33.7

1.2

09/20

358.2

53.8

0.03

0.70

N/A

1.3

09/21e

433.0

60.5

1.91

0.68

32.0

1.1

09/22e

462.0

68.5

2.53

0.81

24.3

1.3

Source: DATAGROUP, Refinitiv

Edison Investment Research provides qualitative research coverage on companies in the Deutsche Börse Scale segment in accordance with section 36 subsection 3 of the General Terms and Conditions of Deutsche Börse AG for the Regulated Unofficial Market (Freiverkehr) on Frankfurter Wertpapierbörse (as of 1 March 2017). Two to three research reports will be produced per year. Research reports do not contain Edison analyst financial forecasts.

H1 results show recovery

On 25 May, DATAGROUP published its H121 results to end March. Total revenues increased by 21.3% to €211.7m, with organic growth of c 10% in Q1 decreasing to 5.4% in Q2, much higher than the c 2% achieved in H120. Order intake has been strong, especially from the public sector, but also for home office improvement and pandemic-related special orders, eg IT facilities for vaccination centres. In contrast to the first lockdown, the second lockdown in Germany has had a slightly positive effect, as commercial activities held up and new client wins were recorded (14 new customers in H121 versus 21 in FY20).

Nevertheless, the acquisitions of Portavis in March last year and a minority participation in the much smaller Cloudeteer in June delivered the largest portion of revenue growth.

Gross margin decreased to 66.0% from 68.1% in H120, as material expenses increased as a percentage of sales due to special projects (like COVID vaccination centres), for which one-stop- shop contracts were closed, which included lower-margin equipment sales.

EBIT increased 44% to €13.9m, partly due to the cost savings from the restructuring of DATAGROUP’s FIS unit, which is on track. FIS was the reason for the disappointing results last year, but the new management has adjusted prices for certain services and staff productivity has increased.

Net profit increased by 21% as a result of higher taxes on profit. The financial position improved further from net debt of €63m in September 2020 to €55.8m in March 2021.

Exhibit 1: Key H121 figures

€000s

H120

H121

Change %

Revenues

170,010

211,482

24.4

Services & maintenance

143,039

176,253

23.2

Trade

26,794

34,864

30.1

Other

4,040

166

(95.9)

Own work capitalised

633

394

(37.8)

Total revenues

174,506

211,677

21.3

Material expenses/purchased services

(55,588)

(71,930)

29.4

Gross profit

118,918

139,747

17.5

Personnel expenses*

(90,768)

(100,199)

10.4

Other income

15,028

3,141

(79.1)

Other expenses

(19,539)

(12,410)

(36.5)

EBITDA

23,639

30,279

28.1

Depreciation from PPA

(2,036)

(2,332)

14.5

Other depreciation

(11,967)

(14,073)

17.6

EBIT

9,636

13,874

44.0

Financial result

(1,160)

(1,119)

(3.5)

EBT

8,476

12,755

50.5

Taxation

449

(1,927)

(529.2)

Net income

8,925

10,828

21.3

EPS (€)

1.07

1.30

21.3

Source: Company data

FY21 driven by M&A

Although 2021 is still strongly affected by the pandemic and lockdowns in large segments of the German economy, the second lockdown had no negative effects on DATAGROUP. Moreover, it was able to report an increase in organic growth compared to FY20 ahead of the level that is targeted in its business model of 4–6%. This was driven by the increased focus of private and public clients on IT.

DATAGROUP increased its recently issued FY21 guidance from revenues of €410–420m to more than €440m (FY20: €358.2m). Guidance for EBITDA increased to more than €61m from €56–58m (FY20: €53.8m). In the conference call, CEO Max Schaber stated that the revenue contribution from the two acquisitions this year is likely to be somewhat below €20m, while the EBITDA contribution will be more than €2m. As such, the increased guidance should be achieved by the consolidating effect of the two acquisitions alone.

Although the company had stated previously that its ambition of reaching a 9% EBIT margin by FY22 (H121: 6.6%) was too optimistic, Mr Schaber stated in the post-results call that DATAGROUP still has a strong ambition to reach the 9% EBIT margin target by 2022/23. As such, the delay in reaching this target seems limited. In H121, a large step was taken with an improvement in the EBIT margin from 5.5% to 6.6%. In the three years before FY20, DATAGROUP reached EBIT margins of c 8% and the business proposition has improved since in terms of scale, recurring business and product development. Together with the ongoing recovery in the FIS unit, we believe this aspiration is within reach.

Urano acquisition improves geographical profile

Inorganic growth is an important pillar in DATAGROUP’s strategy. After the acquisition of Portavis in March 2020, DATAGROUP announced the acquisition of dna in April 2021 and 70% of the shares of Urano Informationssysteme in early May 2021.

dna has just over 100 employees and annual revenues in the high single-digit million euros. Urano is much larger with roughly 300 employees and turnover of c €50m. DATAGROUP has the option to acquire the remaining 30% of Urano shares after two years.

Urano strengthens DATAGROUP’s profile and footprint in the Rhineland-Palaatinate and Hesse regions, in which DATAGROUP’s profile has so far been small. Public authorities in Rhineland-Palaatinate and Hesse are an important client group,as are SMEs in the region. Urano fits the traditional profile of a target company that could benefit from DATAGROUP’s CORBOX service offering, while adding new solutions (for the school sector in the case of Urano) to DATAGROUP’s proposition.

dna adds exposure to the financial sector and offers significant potential for synergies with Portavis, which was acquired last year. The acquisition process took much longer than for Urano, as dna has one major client, Finanz Informatik, which increases risk. This client provides IT services to German landesbanken and DATAGROUP eventually secured a longer-term commitment (more than five years) from this client.

Premium valuation

DATAGROUP is trading at an 11% premium on consensus FY22e P/E at 24.3x and a discount of 4% on FY22e EV/EBITDA of 8.9x versus peers. This P/E-based premium is relatively stable compared to our January update.

Compared to peers, which are more dependent on selling time or projects, like Atos, All for One Group and GFT, DATAGROUP has a much more resilient business model. The recurring revenue base amounts to 82% of total revenues, with limited revenues from one-time services and equipment. Furthermore, it has potential to achieve an EBIT margin close to 9%, a solid track record of integrating acquisitions, creating cross-selling synergies from upselling additional services and a clear focus on the large German SME sector. We believe all of this could justify a premium compared to peers.

Exhibit 2: Peer group comparison

Market cap

P/E (x)

EV/EBITDA (x)

Company

(local CCY m)

2020

2021e

2022e

2020

2021e

2022e

Allgeier

€262

N/A

43.4

32.7

3.3

8.0

7.1

ATOS

€6,010

8.2

7.8

7.1

5.3

4.8

4.6

Bechtle

€6,658

34.4

31.1

28.2

18.2

16.8

15.4

Cancom

€1,892

29.4

29.5

24.9

13.1

11.3

9.8

CENIT

€117

49.8

35.5

23.3

10.8

8.9

7.3

GFT

€538

31.3

20.6

17.5

14.5

12.0

10.6

q.Beyond

€222

N/A

N/A

N/A

N/A

27.3

9.0

S&T

US$1,333

24.0

19.9

16.2

10.6

9.4

8.1

SNP Schneider

€439

N/A

51.0

27.5

50.1

22.0

14.1

All for One Group

€304

23.9

24.0

19.1

7.7

7.7

6.8

Peer average

 

28.7

29.2

21.8

14.8

12.8

9.3

DATAGROUP

€523

42.7

32.0

24.3

11.4

10.2

8.9

Premium/(discount)

 

49%

9%

11%

(23%)

(21%)

(4%)

Source: Refinitiv. Note: Priced at 27 May 2021. Valuation multiples for DATAGROUP are not calendarised.

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Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

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This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

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London, WC1V 7EE

United Kingdom

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