mic — Fresh start

mic (DB: M3B)

Last close As at 18/04/2024

2.52

0.06 (2.44%)

Market capitalisation

47m

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Research: TMT

mic — Fresh start

mic’s “remarkable change of course” looks to be proceeding well with greatly improved financials and a sharpened focus on three business areas with good potential. Newly reported unqualified accounts for 2017 show a return to profit which, however minimal (€0.1m at the net level), is welcome after the previous year’s substantial loss (c €30m), marked by significant write-downs. Restructuring is apparently largely completed, with management confident that its portfolio focus is “very much on track”. Ahead of the annual report with likely management commentary/ guidance, immediate financial prospects are necessarily hard to assess.

Richard Finch

Written by

Richard Finch

Analyst, Consumer

TMT

mic

Fresh start

Financials

Scale research report - Update

10 August 2018

Price

€0.53

Market cap

€8m

Share price graph

Share details

Code

M3BG

Listing

Deutsche Börse Scale

Shares in issue

15.3m

Equity ratio at December 2017

95%

Business description

mic is a diversified technology investment company focused on large-scale data handling, automated optical inspection systems for the automotive industry and acoustic and strain monitoring over fibre-optic networks. It holds majority stakes in companies through intermediate holding companies.

Bull

Prospects for new technology businesses.

Radical strategic refocus largely completed.

Sound finances.

Bear

Unproven business record.

Execution risk of acquisition strategy.

Risk of dilution from refinancing.

Analyst

Richard Finch

+44 (0)20 3077 5700

mic’s “remarkable change of course” looks to be proceeding well with greatly improved financials and a sharpened focus on three business areas with good potential. Newly reported unqualified accounts for 2017 show a return to profit which, however minimal (€0.1m at the net level), is welcome after the previous year’s substantial loss (c €30m), marked by significant write-downs. Restructuring is apparently largely completed, with management confident that its portfolio focus is “very much on track”. Ahead of the annual report with likely management commentary/ guidance, immediate financial prospects are necessarily hard to assess.

2017 turnaround

2017 was notably free of business write-downs in contrast to the previous year’s total of €27m, which more than halved the size of the balance sheet. While this accounts predominantly for the recovery in profit at the net level (€0.1m vs €29.7m negative in 2016), there was also encouraging progress in gross profit (€1.3m vs €1.3m negative) and in efficiencies – specifically labour costs, which were down by over one-third. Individual business or subsidiary performances have not been disclosed. Despite restructuring, company finances have remained comfortable with €0.5m cash and negligible financial liabilities (excluding creditors) at year-end.

Management upbeat

In the absence of financial guidance, we may rely only on management’s recent comment that products and services are “selling well” and that customers are “very satisfied.” The company regards last year’s outturn as a turning-point and is confident that it is now on a promising footing. Management has been further stabilised with the extension of the contract of the sole board member, Andreas Empl, until 2021. mic’s areas of focus are now large-scale data retrieval (big data); digital factory and Industry 4.0, in particular automated optical inspection; and fibre-optic sensing within the context of monitoring infrastructure systems.

Valuation: Time to deliver

Given the scale of uncertainties about the refocusing, it is difficult to make firm assertions about mic’s valuation. Also, in terms of comparing the price with the NAV, full 2017 accounts will offer only a rudimentary guide to the value of operating companies, as publication is in line with HGB and thus at written-down cost price. mic does not pay a dividend, so earnings-based measures are of limited value.

Historical financials

Year
end

Net profit
(€m)

Total equity
(€m)

EPS
(€)

NAV/share
(€)

P/E
(x)

P/NAV
(x)

12/14

1.3

39.0

0.2

5.05

2.7

0.1

12/15

1.4

45.4

0.1

4.44

5.3

0.1

12/16

(29.7)

20.9*

(2.1)

1.51

N/A

0.4

12/17

0.1

21.9

N/M

1.47

N/M

0.4

Source: mic accounts. Note: *Including €5.1m from capital increase in progress at year-end.

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 2017 results

mic conducts its operations through distinct business units, each focused on a specific area of technology and application, and incorporated in discrete corporate entities: micData (large-scale data handling), Smarteag (fibre-optic infrastructure monitoring) and 4industries (industrial applications). One of these – micData – has a stock market quotation in its own right.

However, mic publishes accounts in line with German HGB solely for the parent company. While the presence of intermediate holding companies dilutes the impact of trading performance at the operating subsidiaries, general trends may be derived from the figures.

Exhibit 1: Financial summary

Year-end December (€m), HGB

2014

2015

2016

2017

Income statement

Gross profit

4.4

3.4

(1.3)

1.3

Net profit

1.3

1.4

(29.7)

0.1

Balance sheet

Equity in related companies

26.7

31.1

7.5

5.4

Loans to related companies

9.7

13.7

10.2

10.0

Investments

2.8

2.8

1.1

0.7

Equity

39.0

45.4

20.9*

21.9

Total assets

47.3

51.9

23.7

23.0

Source: mic accounts Note: *Including €5.1m from capital increase in progress at year-end.

After a phase of ambitious expansion that increased total assets by 78% to €51.9m in the five years to 2015, which appears to have overstretched the company, mic has now refocused and pared back its activities. This has involved extensive disposals (largely completed) with significant balance sheet implications, particularly on investments, which have been written down sharply across the board. There has also been a programme of overhead cost-cutting.

Exhibit 2: Gross and net profit evolution

Source: mic accounts

H217 saw continued recovery with gross profit moving firmly into the black y-o-y at €0.4m (€1.5m negative) and net profit at break-even versus €14.5m negative in H216.

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