Mensch & Maschine Software — Firing on all cylinders

Mensch & Maschine Software (DB: MUM)

Last close As at 22/04/2024

56.60

−1.20 (−2.08%)

Market capitalisation

971m

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Research: TMT

Mensch & Maschine Software — Firing on all cylinders

Mensch und Maschine (M+M) has reported strong revenue growth for H118, with both divisions reporting double-digit growth on a year-on-year basis. Group EBITDA margins expanded over the same period, with better profitability for both businesses. Management has maintained its growth and profitability guidance for FY18, underpinned by the strong H118 results.

Katherine Thompson

Written by

Katherine Thompson

Director

TMT

Mensch und Maschine Software

Firing on all cylinders

Software

Scale research report - Update

26 July 2018

Price

€26.70

Market cap

€436m

Share price graph

Share details

Code

MUM

Listing

Deutsche Börse Scale

Shares in issue

16.7m

Last reported net debt at end-H118

€14.7 m

Business description

Mensch und Maschine Software (M+M) sells proprietary and Autodesk CAD/CAM software. It reports across two business lines: M+M Software (31% of FY17 revenues) and VAR (69% of FY17 revenues). The company has operations in Europe, the US and Asia-Pacific.

Bull

Largest European Autodesk value-added reseller.

High-margin, internally developed software.

Loyal workforce.

Bear

Reliant on Autodesk’s technology development and channel strategy.

Management owns more than 50% of the company.

Analyst

Katherine Thompson

+44 203 077 5730

Mensch und Maschine (M+M) has reported strong revenue growth for H118, with both divisions reporting double-digit growth on a year-on-year basis. Group EBITDA margins expanded over the same period, with better profitability for both businesses. Management has maintained its growth and profitability guidance for FY18, underpinned by the strong H118 results.

Strong performance continues into Q2

M+M reported H118 revenue growth of 13% y-o-y, with Q1 growth of 6.8% y-o-y accelerating to 20.3% in Q218. Both divisions contributed to growth, confirming that the VAR business is back on track now that the demand fluctuations related to the switch to subscription licensing for Autodesk software are substantially over. Both divisions expanded EBITDA margins, resulting in a 1.6pp y-o-y increase in group EBITDA margin to 12.5% in H118. The Software business is now generating EBITDA margins ahead of its 25% target (Q1 29.5%, Q2 27.0%), and the VAR business is making steady progress towards its 10% target (5.9% in H118 vs 4.7% in H117; both Q1 and Q2 margins were higher y-o-y). To make further progress towards this target, we expect the VAR business to focus on increasing the level of value-added services and proprietary software that it can provide to its Autodesk customer base.

FY18 outlook unchanged

The company has maintained its outlook for FY18 and FY19. Consensus forecasts are for revenue growth of 10.4% in FY18 and 10.1% in FY19, and EPS growth of 35% in FY18 and 25% in FY19. Based on H118 performance, these forecasts appear reasonable in our view.

Valuation: Margin growth key to upside

The stock is up 26% year-to-date, but continues to trade at a discount to peers on all valuation metrics, although we note that it generates lower margins than the peer group. With the main impact of the Autodesk licensing transition in the past, and with Autodesk back on a revenue growth path, we see potential for the VAR business to improve profitability and hence drive up group margins. The stock is supported by a dividend yield rising to 3% by FY19e.

Consensus estimates

Year
end

Revenue
(€m)

PBT

(€m)

EPS

(€)

DPS
(€)

P/E

(x)

Yield
(%)

12/16

167.1

11.1

0.40

0.35

66.8

1.3

12/17

160.9

13.6

0.53

0.50

50.9

1.9

12/18e

177.6

18.2

0.71

0.65

37.6

2.4

12/19e

195.6

22.0

0.89

0.80

30.0

3.0

Source: Bloomberg

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.

Review of H118 results

Exhibit 1: Half-yearly results highlights

€m

H118

H117

y-o-y

Revenues

94.46

83.59

13.0%

Gross profit

52.39

48.21

8.7%

EBITDA

11.81

9.12

29.5%

Operating profit

10.28

7.75

32.6%

Net income after minority interest

6.09

4.45

36.9%

EPS (€)

0.372

0.274

35.8%

Net debt

14.66

20.05

-26.9%

Source: Mensch und Maschine

Exhibit 2: Divisional results

€m

H118

H117

y-o-y

Revenues

Software

28.0

25.2

10.8%

VAR

66.5

58.4

13.9%

Total

94.5

83.6

13.0%

Gross profit

Software

27.4

24.5

11.5%

VAR

25.0

23.7

5.8%

Total

52.4

48.2

8.7%

Gross margin

Software

97.8%

97.3%

0.5%

VAR

37.6%

40.6%

-2.9%

Total

55.5%

57.7%

-2.2%

EBITDA

Software

7.9

6.4

24.4%

VAR

3.9

2.8

41.3%

Total

11.8

9.1

29.5%

EBITDA margin

Software

28.3%

25.2%

3.1%

VAR

5.9%

4.7%

1.1%

Total

12.5%

10.9%

1.6%

Source: Mensch und Maschine

Exhibit 3: Quarterly performance by division

Q117

Q217

Q317

Q417

Q118

Q218

Revenues (€m)

VAR

32.64

25.73

21.11

30.91

34.56

31.94

Software

12.83

12.39

10.78

14.47

14.02

13.93

Total

45.47

38.12

31.88

45.38

48.58

45.87

Revenue growth y-o-y

VAR

-16.0%

-0.6%

-28.3%

15.8%

5.9%

24.2%

Software

11.4%

6.9%

4.2%

13.1%

9.3%

12.4%

Total

-9.7%

1.8%

-19.8%

14.9%

6.8%

20.3%

EBITDA (€m)

VAR

1.87

0.90

0.36

2.22

2.48

1.43

Software

3.54

2.81

1.96

4.39

4.14

3.76

Total

5.42

3.70

2.32

6.60

6.62

5.19

EBITDA margin

VAR

5.7%

3.5%

1.7%

7.2%

7.2%

4.5%

Software

27.6%

22.7%

18.1%

30.3%

29.5%

27.0%

Total

11.9%

9.7%

7.3%

14.6%

13.6%

11.3%

Source: Mensch und Maschine

M+M reported strong revenue growth of 13.0% for H118, with growth of 10.8% for the Software division and 13.9% for the VAR division. The Software division saw strong demand for its CAM software and the VAR division saw good progress in the conversion of maintenance customers to subscription contracts.

We note that now that the main part of the transition to subscription licensing for Autodesk software is complete, the VAR business appears to have returned to normal seasonality. For both businesses, Q1 and Q4 are typically strong, with a dip in Q2 and Q3. On a quarterly basis, growth accelerated for both businesses in Q2, with the Software division accelerating from 9.3% in Q118 to 12.4% in Q218, and the VAR division seeing a large step up from growth of 5.9% in Q118 to 24.2% in Q218. This has translated into EBITDA margin expansion for both businesses, with the Software division ahead of its 25% target for both quarters, and the VAR division expanding margins on a year-on-year basis in both quarters. Group EBITDA margins of 12.5% for H118 were 1.6pp higher than in H117. The company ended H118 with a net debt position of €14.7m, down from €20.1m a year ago and €16.3m at the end of FY17.

Outlook unchanged

Management has maintained its outlook for FY18. With gross profit of €52.4m and EBITDA of €11.8m reported for H118, guidance for FY18 looks achievable.

Exhibit 4: Financial outlook

€m

FY18e

FY19e

FY20e

Gross profit

104–106

EBITDA

22–23

+4–5

+4–5

Net income

11–12

+3–4

+3–4

EPS (€)

0.67–73

+0.18–0.24

>1€

Dividend (€)

0.62–68

+0.15–0.20

+0.15–0.20

Source: Mensch und Maschine

Consensus forecasts prior to results were in line with this guidance; post-results there have been minimal upgrades to forecasts, which are still within the guidance range.

Valuation

The M+M share price is up 26% year-to-date and has gained 34% over the past 12 months. In the table below, we compare M+M’s valuation to a group of peers that includes European software companies operating in the CAD/CAM/PLM space, as well as larger international companies operating in this market. With a lower EBITDA margin than the group average, M+M continues to trade below the peer group on EV/sales, EV/EBITDA and P/E. We note that M+M’s dividend yield is at the top end of its peer group.

Exhibit 5: Peer group valuation

Company

Quoted ccy

Share price

Market cap (m)

EV (rep. ccy m)

EV/sales (x)

EV/EBITDA (x)

P/E (x)

Div yield

EBITDA margin

CY

NY

CY

NY

CY

NY

CY

NY

CY

NY

Mensch und Maschine Software

EUR

26.7

436

450

2.5

2.3

19.9

17.1

37.6

30.0

2.4%

3.0%

12.7%

13.4%

Aveva Group

GBP

2,630

4,233

4,137

6.7

6.3

25.7

23.1

32.6

29.4

1.3%

1.6%

26.1%

27.4%

Cenit

EUR

17.7

148

116

0.6

0.6

7.4

6.1

16.8

13.5

5.9%

6.4%

8.4%

9.7%

Ige + Xao

EUR

142.0

202

172

5.5

5.3

18.4

17.4

29.6

27.5

1.0%

1.1%

29.9%

30.4%

Nemetschek

EUR

116.0

4,466

4,424

9.8

8.5

37.0

31.6

59.2

49.8

0.7%

0.8%

26.4%

26.9%

Rib Software

EUR

19.5

1,006

772

6.3

5.4

18.9

15.0

58.8

38.6

1.0%

1.0%

33.2%

35.9%

Autodesk

USD

132.3

28,995

29,117

11.7

9.1

75.5

31.0

146.4

41.6

0.0%

0.0%

15.5%

29.4%

Dassault Systemes

EUR

123.6

32,464

30,422

8.9

8.2

23.8

23.0

41.8

37.0

0.5%

0.6%

37.6%

35.5%

Hexagon Ab-B

SEK

501.0

180,654

19,463

5.3

4.9

16.4

15.0

24.2

21.8

1.2%

1.3%

32.3%

33.1%

Ptc

USD

95.8

11,081

11,454

9.1

8.4

37.8

29.2

66.8

48.4

0.0%

0.0%

24.2%

28.6%

Average

7.1

6.3

29.0

21.3

41.2

33.3

1.3%

1.4%

25.9%

28.5%

Median

6.7

6.3

23.8

23.0

41.8

37.0

1.0%

1.0%

26.4%

29.4%

Source: Bloomberg (as at 25 July 2018)

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Germany

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United Kingdom

New York +1 646 653 7026

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10017, New York

US

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

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NSW 2000, Australia

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2017 was a record year for revenue and EBIT, with all three divisions outperforming the market. However, H2 performance, broadly in line with management expectations but showing an absolute decline from H1, contrasts with a marked ‘beat’ in H117. A strong orderbook (up 4% at December 2017) and continued successful investment underpin 2018 guidance of 2–3% revenue growth at significantly higher margin (c 7.5% on operating performance vs 6.3% last year). The company feels well placed to grow by c 20% towards the €300m pa revenue mark long-term target.

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