DCI business stronger than expected

Beta Systems 28 January 2020 Update
Download PDF German PDF Download

Beta Systems

DCI business stronger than expected


Scale research report - Update

28 January 2020



Market cap


Share price graph

Share details




Deutsche Börse Scale

Shares in issue


Last reported net cash at 30 September 2019, including €26m on deposit


Business description

Beta Systems provides data centre intelligence (DCI) solutions that enable efficient and secure bulk processing of data and identity access management (IAM) solutions. The company’s headquarters are in Berlin and it has sales and support offices in 13 markets globally. Approximately 75% of sales are derived in the DACH region.


Market leader in mainframe environments and DCI in Europe.

Strong order profile indicates that life remains in the mainframe market.

Strong balance sheet.


Mature mainframe market backdrop.

Subscale IAM business.

Strong dependence on DACH region.


Milosz Papst

+44 (0)20 3077 5700

Beta Systems delivered full year results at the upper end of company guidance (upgraded in April 2019), underpinned by the solid performance of its core DCI division in the DACH region. The group continues to develop the product portfolio organically, supported by M&A activity. This includes the recent acquisitions of HABEL/Akzentum Group and infinIT Codelab. FY20e EV/EBITDA is 7.4x, underpinned by strong cash generation and high level of total recurring revenues (well in excess of 80% currently).

DCI activities in DACH region deliver growth

In FY19, Beta Systems achieved €53.3m in sales, with EBITDA of €10.5m, which implies an EBITDA margin of 19.6%, up from 11.9% in the previous year. The bulk of the growth was organic, driven by good progress in the existing business and a better than expected volume of new orders, in the DCI division in particular. The company guides to FY20 sales of €67–74m, assisted by the recent acquisitions of HABEL/Akzentum Group and infinIT Codelab, and expects stable EBITDA of €9–12m (pre-IFRS 16). FY21 and FY22 guidance indicates volatile earnings, but this is due to the accounting treatment of its licence agreements with clients. Meanwhile, cash generation remains strong, enhanced by a high level of recurring revenues.

Acquisitions strengthen offering

The takeover of HABEL/Akzentum Group in July 2019 has strengthened the company’s product portfolio in the DCI division, including the offering outside the mainframe. In December 2019, Beta Systems acquired infinIT Codelab, which has led to a diversification in its revenue streams and an expansion in development resources of 200 employees. Beta Systems highlights that it may make further M&A deals, which should be supported by the strong balance sheet position (net cash was €31.9m at end-September 2019, including €26m on deposit).

Valuation: Trading at discount to peers

Following an upgrade to management guidance in April 2019 and the completion of two acquisitions in July and December 2019, Beta Systems’ share price has increased c 27% over the last 12 months. The midpoint of management’s EBITDA guidance implies an EV/EBITDA ratio of 7.4x in FY20e and 12.0x in FY21e. This translates into a 31% discount and a 16% premium to a set of global infrastructure software companies in FY20e and FY21e respectively, which could be related to the high volatility of Beta Systems’ earnings.

Historical financials









































Source: Beta Systems accounts. Note: *Management dividend proposal subject to shareholder approval.

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.

DCI activities in DACH region drive organic growth

In FY19, revenues increased c 16% y-o-y to €53.3m and EBITDA reached €10.5m, up 91% y-o-y. This included a three-month contribution from HABEL/Akzentum Group and an eleven-month contribution from Categis. Organic revenues were up 11% y-o-y to €51m and organic EBITDA was €10.2m, with both figures at the upper end of company guidance (€48–52m for revenues and €8–10.5m for EBITDA). Solid organic growth resulted from good progress in the existing business and a better than expected volume of new orders, in the DCI division in particular (representing 73% of revenue in FY19). Group results were also supported by Lynet and Auconet, which were acquired in FY18. Performance was driven by the largest business segment (DACH region), where sales to customers increased 23% y-o-y to €40.1m (16% organic growth y-o-y to €37.8m).

The strong growth of 2019 followed a weaker FY18 sales performance resulting from the licence renewal cycle. The bulk of group software is sold on a rental basis and Beta recognises rental revenues on a similar basis to a traditional licence (eg c 60% of total revenues from a three-year rental contract are recognised in the first year, with c 20% in each of years two and three). This adds volatility to revenues and brings them forward compared with Beta Systems’ operating cash flows (which remained broadly stable in FY19 at €8.2m vs FY18 at €8.3m). The predominant rental model means that c 80%+ of the group’s licence and maintenance revenues are recurring, while a large portion of the services revenues also have a recurring feature, which would take total recurring revenues to more than 90% of the overall total.

FY19 R&D expenses of €10.8m represented 20% of sales (vs 22% in FY18), which compares with the company’s target of more than 20%. The group has expanded its R&D team to 166 employees (at end-FY19) from 127 at end-FY18, representing 39% of the company’s total headcount of 442.

Exhibit 1: Financial summary and management guidance









Year-end 30 September




Management guidance






o/w licence




o/w maintenance




o/w services




o/w other sales












EBITDA margin




Total operating expenses













Profit before tax








Net income








EPS (€)








Operating cash flow








Source: Beta Systems accounts. Note: *Pre-IFRS 16 including PROXESS and infinIT Codelab acquisitions. **Post-IFRS 16.

During FY19, the company arranged an €8.0m loan, which it used to finance the c €10.8m acquisition of PROXESS (net of PROXESS cash). It also received €4.1m back from the deposit it had granted to its majority shareholder, Deutsche Balaton, as part of a cash-pooling arrangement (the company normally holds between €25m and €30m at Deutsche Balaton; its interest rate is typically c 1% and the investment horizon is up to six months). Consequently, net cash was €31.9m at end-September 2019 (including a €26m deposit from Deutsche Balaton) compared with €35.6m at end-September 2018. Hence the group has ample balance sheet headroom available to support ongoing portfolio development and modernisation, as well as acquisitions.

Management will recommend a dividend payout of €0.20 per share from FY19 income, translating into a dividend yield of c 1%. It is worth noting that Beta Systems has not paid a dividend yet as shareholders rejected management’s dividend proposal for the last two years. In this respect, we note that the shareholder base has not materially changed since then and Deutsche Balaton, a private equity company, remains Beta Systems’ majority shareholder with a stake of 59%.

Operating cash flow to remain firm

FY20 management guidance is for revenues of €67–74m (implying 32% y-o-y growth at the midpoint), EBITDA of €9–12m (unchanged vs FY19 at the midpoint) and EBIT of €7–10m (up 2% year-on-year). Beta Systems guides to operating cash flow of €7–10m in FY20. These are on a comparable basis, ie excluding the impact of IFRS 16, which Beta Systems will adopt from FY20. We present management guidance pre- and post-IFRS 16 adoption in Exhibit 1.

The company expects sales growth in FY20 to be largely driven by the first full-time consolidation of PROXESS and the first-time consolidation of infinIT Codelab (see details below). It is also worth noting that licences tend to be renewed on a three- to five-year basis and Beta Systems recorded a high number of high-value clients renewing their licences in FY17. Thus, the company estimates that renewal volumes in FY21 will be comparable to FY18, which will result in a drop in EBITDA and a subsequent rebound in FY22. However, this does not affect cash flows as the bulk of revenues are on a recurring rental basis.

Product developments and acquisitions continue

The group has two continuing divisions: data centre intelligence (DCI, solutions for data centre automation) and identity access management (IAM, solutions for central user and access management). A third division, digitalisation (DIG), was established via the acquisition of LYNET in 2018.

The DCI division delivered 20% y-o-y growth in sales to €39m, driven by solid performance in existing and new orders, as well as a first-time, full period consolidation of AUCONET. DCI recently benefited from strong demand for new-generation Symphony software, as well as the placement of new web modules. Revenues in the IAM division were broadly flat at €11.1m, as declining service revenues (down 14% y-o-y) offset higher licence and maintenance sales. Recent major product portfolio developments in the IAM division include front- and back-end improvements to one of the core products, Garancy Identity Manager.

Beta Systems’ current focus is to strengthen its DCI and IAM software portfolio organically, in the DACH region in particular. DCI plans to launch new archiving systems for the SAP environment in early FY20. The company is also working on the development of new product generations for Unix/Linux Output-Management and UX Suite’s Log Management (to be launched in FY21). IAM is preparing for market launch of RoleCenter, a new product for onboarding and maintenance of authorisation roles, in FY21. Beta Systems is looking to develop its product portfolio further (including an offering outside mainframe) with further investments in the internal innovation team (the company plans to spend €0.5m in FY20, and €1m in FY21 and FY22 on this).

Meanwhile, Beta Systems has continued integration and development of the six companies it has acquired in the last five years and highlights that it may use its strong balance sheet in the future to conduct further M&A deals.

With respect to its M&A activity in FY19, its subsidiary PROXESS Holding GmbH acquired HABEL/Akzentum Group for c €11.9m in July 2019. HABEL/Akzentum Group offers archiving, document recognition and workflow solutions and provides digitalisation and process automation support to medium-sized companies. It has 2,600 customers and operates in Germany, Austria and Switzerland. The company generated revenues of c €9.5m and EBITDA of c €1.1m in FY18. The acquisition has strengthened Beta Systems’ product portfolio in the DCI division, including the offering outside the mainframe. At the time of the acquisition, Beta Systems expected the transaction to have a positive impact on both sales and EBITDA, starting from FY20.

In December 2019, Beta Systems acquired an 80% stake in infinIT Codelab from insolvency for c €0.7m. Codelab offers software solutions for the automotive sector (c 80% of its sales), including tier one automotive suppliers, and telecom industries. Its focus is on embedded software systems, IoT solutions, connectivity and web portals. It has c 200 employees in Poland and generates annual sales of c €10m with an EBITDA margin close to zero. Beta Systems anticipates that Codelab will contribute €7–8m to group sales while being EBITDA neutral in FY20. That said, the company’s long-term EBITDA target is c 10%.

Beta Systems highlights that the shortage of qualified workers in mainframe technology remains a bottleneck for all companies in the market and one of its key aims is to acquire and train new DCI mainframe software developers. Beta Systems has a leading position in the mature mainframe software market in Europe (the company estimates its market share in selected segments at 50%+), which gives it a niche position in the market. Moreover, it made the first replacement deals after its main competitors, BMC Software and CA Technologies, were sold in 2018 and hopes to further benefit from post-transaction disturbances at these companies.


Beta Systems’ share price has increased c 27% over the last 12 months following an upgrade to management guidance in April 2019 and the completion of two acquisitions in July and December 2019. The company’s closest peers, CA Technologies and BMC Software, are not listed so we compare Beta Systems to a set of global infrastructure software companies, including IBM, Cisco, Citrix, HPE, Juniper and VMware. There is no consensus for Beta Systems, so we use management guidance for EBITDA at the midpoint. We also adjust our calculation of the EV to account for the €26m cash deposit with Deutsche Balaton, which we see as a cash equivalent given its accessibility. This implies an FY20e EV/EBITDA at 7.4x for Beta Systems, translating into a c 31% discount to its peers. Due to the volatility of the company’s EBITDA related to its renewal cycle, the EV/EBITDA ratio implies a 16% premium and a 44% discount to its peers in FY21e and FY22e, respectively. However, we again underline the stability of the company’s cash flows and high portion of total recurring revenues (well above 80% currently).

Exhibit 2: Peer group comparison

Market cap

P/E (x)



(lcy m) 








US$ 207,022








US$ 123,254








US$ 60,945








US$ 19,265








US$ 15,346







Juniper Networks

US$ 8,207







Peer average







Beta Systems








Premium/(discount) to peers







Source: Refinitiv consensus at 22 January 2020. Note: *Based on the midpoint of company guidance.

General disclaimer and copyright

Any Information, data, analysis and opinions contained in this report do not constitute investment advice by Deutsche Börse AG or the Frankfurter Wertpapierbörse. Any investment decision should be solely based on a securities offering document or another document containing all information required to make such an investment decision, including risk factors. This report has been commissioned by Deutsche Börse AG and prepared and issued by Edison for publication globally.

Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

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 2020 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2020. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.


Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

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.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt


London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Share this with friends and colleagues

You may be interested in