Nynomic — Expanding photonics platform

Nynomic (DB: M7U)

Last close As at 23/04/2024

39.00

−0.70 (−1.76%)

Market capitalisation

222m

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Research: Industrials

Nynomic — Expanding photonics platform

The acquisition of LayTec helped drive revenue growth slightly ahead of the German sensors and measurement market during FY18, though Spectral Engines is not yet profitable, resulting in static EBIT margins. LayTec takes the group into a new, high growth industry vertical while Spectral Engines adds B2C activity.

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Industrials

Nynomic

Expanding photonics platform

Measurement instruments

Scale research report - Update

21 May 2019

Price

€20.7

Market cap

€105m

Share price graph

Share details

Code

M7U

Listing

Deutsche Börse Scale

Shares in issue

5.1m

Last reported net debt (€m) at end
December 2018

9.6

Business description

Nynomic (previously m-u-t) is an integrated provider of photonics solutions based on a common technology platform. It uses non-contact optical technology to create customised systems for OEMs, which are deployed in the clean tech, green tech and life science sectors.

Bull

Ability to provide customised solutions for OEMs.

Addresses high-growth emerging markets.

Multiple sectors give resilience.

Bear

Dependent on customer activity to drive sales.

Spectral Engines acquisition a drag on margin growth in 2018.

Dilutive impact of shares issued as part consideration for LayTec.

Analyst

Anne Margaret Crow

+44 (0)20 3077 5700

The acquisition of LayTec helped drive revenue growth slightly ahead of the German sensors and measurement market during FY18, though Spectral Engines is not yet profitable, resulting in static EBIT margins. LayTec takes the group into a new, high growth industry vertical while Spectral Engines adds B2C activity.

Acquisitions support record revenue levels

Group revenue rose by 11% year-on-year to a record €67.1m in FY18 with acquisitions accounting for most of the growth. However, Spectral Engines, which was acquired in May, is not yet profitable, so the group’s EBIT margin remained at 15%. Group EBIT increased by 11% year-on-year to €10.1m, while EPS rose more quickly, by 39% to €1.35, reflecting a reduction in the level of non-controlling interest. The group moved from €15.8m in net cash at the end of FY17 to €9.6m in net debt at the end of FY18. Operating cash flow reduced because of the release of provisions and a substantial (€8.0m) increase in working capital. The company spent €24.4m on acquiring LayTec, a 75% stake in Spectral Engines and the outstanding shares in Avantes, financed primarily through new loans.

Management reiterates FY19 guidance

In May management reiterated its FY19 guidance for group revenue to be slightly above the previous year's level with an EBIT margin in the range of c 12–15%. Spectral Engines is expected to continue to drag on profits in the short term as the group invests in technology and market development. In the medium term, management expects revenue and earnings growth to remain steady, with stable double-digit EBIT margins. Demand for the group's high-end, non-contact and non-destructive measuring technology continues to rise, supported by the new automated production methodologies loosely aggregated as industry 4.0.

Valuation: Trading at a discount to peers

The share price has declined by 19% from a high of €25.6 in February. A comparison of Nynomic’s prospective consensus EV/sales, EV/EBITDA and P/E multiples with those in our sample of European-listed companies involved in instrumentation shows the company is trading at a discount to the sample mean on most metrics. We note that Nynomic’s EBIT margin is below the sample mean. This indicates there is potential for share price appreciation if management can combine continued revenue growth with an improvement in the operating margin.

Consensus estimates

Year
end

Revenue
(€m)

EBIT

(€m)

EPS

(€)

DPS
(€)

P/E

(x)

Yield
(%)

12/17

60.7

9.1

0.97

0.0

21.3

N/A

12/18

67.1

10.1

1.35

0.0

15.3

N/A

12/19e

69.7

9.5

0.99

0.0

20.9

N/A

12/20e

75.6

11.3

1.25

0.0

16.6

N/A

Source: Company data, consensus (based on two estimates)

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.

Financials

Having created a cash-generative, profitable platform between 2014 and early 2016, management is adding to the product portfolio through a sequence of acquisitions. This has taken the group into new industry verticals, rounding out its offer of complete systems and addressing the B2C (business to consumer) sector for the first time. As well as moving up the value chain, management is hoping to improve margins by selling more product under brand names owned by subsidiaries and focusing on scalable products.

Revenues by segment/division

Exhibit 1: Revenues by segment FY18

Exhibit 2: Revenues by geography FY18

Source: Company data

Source: Company data

Exhibit 1: Revenues by segment FY18

Source: Company data

Exhibit 2: Revenues by geography FY18

Source: Company data

LayTec acquisition drives revenue growth

Group revenue rose by 11% year-on-year to a record €67.1m in FY18, driven primarily by acquisitions. This was faster than the market, which the AMA Association for Sensors and Measurement estimates grew by 10%. The life science segment reported a 30% year-on-year increase in revenues and the green tech segment 21%; the other two segments reported only mid single-digit rises. Revenues from North America declined by 31% because of an anticipated reduction in purchases by a major customer. The 35% increase in revenues from Europe was primarily the result of the LayTec acquisition. Management was pleased to note that revenues from Asia almost doubled.

Cost of materials as a percentage of sales, work-in-progress and finished goods declined by 9.1 percentage points to 33.4% in part due to successful pricing negotiations, as well as the favourable effect of acquisitions. However, personnel costs and other operating expenses both increased as a percentage of sales, reflecting the fact that Spectral Engines, which became part of the group in May, is not yet profitable, so EBIT margin was stable at 15%. Group EBIT increased by 11% year-on-year to €10.1m, while EPS (excluding non-controlling interests) rose more quickly, by 39% to €1.35, reflecting management’s programme to reduce the level of non-controlling interest.

Although EBIT was stronger year-on-year, operating cash flow reduced from €9.0m to €2.2m because of the release of provisions including those related to tax (€0.9m) and a substantial (€8.0m) increase in working capital. €24.4m was spent on acquiring LayTec (payment was delayed from November 2017 when Nynomic took its majority stake in the company, to LayTec’s full-year results becoming available in H118), a 75% stake in Spectral Engines and the outstanding 25% stake in Avantes (payment for this was also delayed from November 2017 when the transaction was announced, until the FY17 results were available in H118). Consideration for these acquisitions was financed primarily through €18.2m of loans. The group moved from a net cash position (€15.8m at the end of FY17) to one of net indebtedness (€9.6m at the end of FY18).

Management reiterates FY19 guidance

In May management reiterated its FY19 guidance. It expects group revenue to be slightly above the previous year's level, with an EBIT margin in the range of c 12–15%. This includes investment in technology and market development for Spectral Engines which is expected to drag on profits in the short term. In the medium term, management expects to see continued steady revenue and earnings growth and stable double-digit EBIT margins. The order book at end FY18 was lower than the previous year (€35.3m vs €41.2m). Management attributes this to a change in customer ordering behaviour towards shorter order cycles. Demand for the group's high-end, non-contact and non-destructive measuring technology continues to rise, supported by the new automated production methodologies loosely aggregated as industry 4.0.

Progress on execution of strategy

Entry into new industry vertical

Nynomic purchased a majority (75%) stake in LayTec in November 2017 and the outstanding shares in March 2018. LayTec develops measurement equipment used for in-situ process control in the manufacture of LEDs and vertical cavity surface emitting lasers (VCSELs), other compound semiconductor devices and solar cells. The acquisition gives the group a strong presence in a new, well-defined and growing industry vertical and expands its presence outside Europe. It gives LayTec faster and more direct access to the group’s technology. Management sees significant potential to improve LayTec margins by applying best practice from the rest of the group across the entire operation.

Entry into B2C market

Spectral Engines makes MEMS-based (microelectromechanical systems) spectral sensors, opening a route for manufacturing high volumes of extremely small, cost-effective spectrometers. These sensors measure material content such as moisture, fat, protein, hydrocarbons, textiles, polymers and pharmaceutical ingredients, including narcotics. The sensor technology is complemented by a cloud-based platform for processing data from the sensors and applying AI to interpret it. The technology is suitable for smart industry, smart agriculture, smart home and portable applications. The acquisition gives the group access to consumer applications for the first time. During FY18 the first strategic contract in the field of smart home applications, which was with Bosch-Siemens-Hausgeräte for the supply of MEMS-based spectral sensors, was concluded.

Valuation

Exhibit 3: Listed peers

Name

Market cap (€m)

EV/Sales FY1 (x)

EV/Sales FY2 (x)

EV/EBITDA FY1 (x)

EV/EBITDA FY2 (x)

P/E
FY1 (x)

P/E
FY2 (x)

Year 1 EBIT margin (%) 

Revenue CAGR (%) 

Halma

7,846

5.8

5.4

24.4

22.5

35.1

32.2

20.5%

9.1%

Hexagon

15,434

4.3

4.1

12.8

11.8

19.6

17.9

25.3%

6.9%

Isra Vision

707

4.3

3.8

13.4

12.0

27.6

24.5

21.9%

10.3%

Jenoptik

1,740

2.0

1.9

12.6

11.6

20.6

19.2

11.5%

5.2%

Oxford Instruments

772

2.2

2.1

12.1

11.6

19.0

17.8

15.4%

4.5%

Spectris

3,445

2.0

1.9

10.7

10.1

14.8

13.8

15.5%

3.1%

Vaisala

559

1.4

1.3

10.3

9.5

24.0

19.8

8.2%

7.5%

Mean

3.1

2.9

12.0

12.7

20.9

18.8

16.9%

6.7%

Nynomic

105

1.6

1.5

10.2

8.8

20.9

16.6

13.6%

6.1%

Source: Consensus (based on two estimates). Note: Prices at 16 May 2019. Grey shading indicates exclusion from mean.

The share price has declined by 19% from a high of €25.6 in February. At current levels, a comparison of Nynomic’s prospective consensus EV/sales, EV/EBITDA and P/E multiples with those in our sample of European-listed companies involved in instrumentation shows that Nynomic is trading at a discount to the sample mean on most metrics. We note that Nynomic’s EBIT margin is below the sample mean. This indicates to us that there is potential for further share price appreciation if management can combine meaningful improvement in the operating margin, which should be possible when Spectral Engines becomes profitable, with continued revenue growth.

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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.

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 Edison analyst 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 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “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.

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Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Myonlineadvisers Pty Ltd who holds an Australian Financial Services Licence (Number: 427484). 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

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. 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

Germany

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

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