Group returns to growth in Q221

Mensch und Maschine 27 July 2021 Update
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Mensch und Maschine

Group returns to growth in Q221

Software

Scale research report - Update

27 July 2021

Price

€58.2

Market cap

€980m

Share price graph

Share details

Code

MUM

Listing

Deutsche Börse Scale

Shares in issue

16.8m

Last reported net cash as at end-FY20*
*
Excludes lease liabilities

€1.1m

Business description

Mensch und Maschine Software (M+M) sells proprietary and Autodesk CAD/CAM software. It reports across two business lines: M+M Software (FY20 31% of revenues, 62% of EBIT) and VAR (FY20 69% of revenues, 38% of EBIT). The company has operations in Europe, the United States 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.

Large exposure to DACH economies.

Analyst

Katherine Thompson

+44 203 077 5730

Mensch und Maschine (M+M) reported 4.4% y-o-y revenue growth for H121, driving 10.7% growth in operating profit and 10.0% growth in EPS. In Q221, the group returned to revenue growth (+23.1% y-o-y) after four quarters of mainly COVID-19-related weakness. Management maintained its outlook for FY21 EPS growth of 12–21% and introduced revenue guidance for growth of 6–10%, which implies H221 revenue growth of 8–16% y-o-y.

Q2 sees return to revenue growth at group level

H121 y-o-y revenue growth of 4.4% splits out as a decline of 8.0% for Q121 and growth of 23.1% for Q221, the first quarter of revenue growth for the group since Q120. H121 gross profit grew 6.3% y-o-y, operating profit 10.7% and EPS 10.0%. The operating margin of 13.6% was 0.8pp higher than in H120.

Both businesses back in growth mode

The Software business had already returned to year-on-year revenue growth in Q420, and this accelerated to 7.6% in Q121 and 17.5% in Q221 (partially reflecting the weak comparisons for both quarters). The VAR business reported revenue growth for the first time since Q120, with revenue up 26.0% y-o-y in Q221. Group EBIT profitability of 15.4% for Q121 and 11.5% for Q221 was 1.3pp and 0.6pp higher than a year ago, respectively. Management reconfirmed its EPS and DPS outlook for FY21 and introduced revenue guidance for growth of 6–10% for FY21. This implies H221 revenue growth of 8–16% y-o-y.

Valuation: Range-bound

Consensus forecasts are within management’s guidance at the EPS and DPS level, unchanged since the company reported Q121 results in late-April. The share price has been relatively range-bound year-to-date; in our view, upgrades are required to break out of this trend. The stock trades at a discount to peers on EV-based valuation metrics and substantially in line on a P/E basis, reflecting the fact that its operating margins are at the lower end of its peer group, in our view. The stock is supported by a dividend yield of c 2%, which is at the top end of its peer group.

Consensus estimates

Year
end

Revenue
(€m)

PBT

(€m)

EPS

(€)

DPS
(€)

P/E

(x)

Yield
(%)

12/19

245.9

26.3

0.99

0.85

58.7

1.5

12/20

244.0

29.8

1.12

1.00

52.2

1.7

12/21e

255.0

34.8

1.30

1.15

44.8

2.0

12/22e

282.4

41.8

1.55

1.30

37.7

2.2

Source: Mensch und Maschine investor relations pages.

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 H121 results

Exhibit 1: Half-year highlights

€m

H120

H121

y-o-y

Revenues

130.38

136.07

4.4%

Gross profit

65.68

69.83

6.3%

EBITDA

21.21

23.19

9.3%

Operating profit

16.72

18.51

10.7%

Net income after minority interest

10.07

11.11

10.3%

EPS (€)

0.60

0.66

10.0%

Net cash (excluding leases)

3.71

1.14

-69.3%

Gross margin

50.4%

51.3%

0.9%

EBITDA margin

16.3%

17.0%

0.8%

Operating margin

12.8%

13.6%

0.8%

Source: Mensch und Maschine

M+M reported revenue growth of 4.4% y-o-y for H121. We discuss the performance at a divisional level and the quarterly progression below. Gross profit was 6.3% higher, EBITDA 9.3% higher and operating profit 10.7% higher y-o-y, with operating costs up 4.8% y-o-y. Margins in all cases increased y-o-y. EPS grew 10.0% y-o-y, with minority interest slightly higher due to the strong performance of SOFiSTiK (M+M owns 51%). The company closed H121 with a net cash position of €1.1m (before €11.0m of leases).

Exhibit 2: Quarterly performance

Revenue (€m)

Q120

Q220

Q320

Q420

Q121

Q221

Software

20.5

17.4

17.1

20.7

22.0

20.4

VAR

58.2

34.4

33.2

42.7

50.3

43.3

Total

78.6

51.8

50.2

63.4

72.3

63.7

y-o-y growth

Software

11.3%

-9.0%

-0.9%

1.6%

7.6%

17.5%

VAR

29.9%

-9.4%

-10.0%

-16.8%

-13.5%

26.0%

Total

24.5%

-9.3%

-7.1%

-11.6%

-8.0%

23.1%

EBIT margin

Software

26.7%

25.8%

21.8%

26.4%

29.1%

25.4%

VAR

9.6%

3.4%

4.0%

8.9%

9.4%

5.0%

Total

14.1%

10.9%

10.0%

14.6%

15.4%

11.5%

Source: Mensch und Maschine

The Software business started to see a slowdown in Q120 as COVID-19 affected business in China and slowed further in Q220 as new business was harder to sign up during the height of the pandemic. The business saw a small recovery in y-o-y revenue growth in Q420, increasing further to 7.6% in Q121 and 17.5% in Q221 as business returned to pre-COVID levels. The EBIT margin for Software in Q221 was slightly lower than the previous year due to the mix of business in the quarter and the reinstatement of some costs that were cut last year.

The VAR business was very strong in Q120 as customers took advantage of the final promotions by Autodesk encouraging licensees to shift from maintenance to subscription contracts. Business then weakened through the rest of the year, reflecting difficulties in selling new business or providing training during the pandemic. The division returned to revenue growth in Q221, with y-o-y growth of 26.0%, resulting in a 1.6pp increase in the EBIT margin compared to Q220.

Outlook and changes to estimates

The company expects to continue to grow through the second half of the year, with an expectation for revenue growth of 6–10% for FY21 (equating to revenue of €259–268m), EPS growth of 12–21% (125–135c) and dividend per share of 115–120c. The EPS and dividend expectations have not changed since the start of the year, whereas the revenue guidance is new. Consensus estimates have not yet changed since they were updated in late-April for Q121 results. The table below shows current consensus estimates, which are in line with the company’s outlook for EPS and DPS, and marginally below for revenue.

Exhibit 3: Consensus forecasts

€m

FY21e

FY22e

Revenues

255.0

282.4

Revenue growth

4.5%

10.7%

EBITDA

45.3

52.4

EBITDA margin

17.7%

18.6%

EBIT

35.6

42.6

EBIT margin

14.0%

15.1%

EPS (€)

1.30

1.55

DPS (€)

1.15

1.30

Source: Mensch und Maschine investor relations pages

Valuation

The stock is up 27% over the past 12 months but is down 8% year-to-date. The shares trade at a discount to peers on EV-based valuation metrics and substantially in line on a P/E basis, in our view reflecting the fact that the company’s operating margins are at the lower end of its peer group. The stock is supported by a dividend yield of c 2%, which is at the top end of its peer group.

Exhibit 4: Peer valuation metrics

Company

Quoted

Share

Market

EV (rep

EV/sales

EV/EBIT

P/E

Dividend yield

EBIT margin

ccy

price

cap (m)

ccy -m)

CY

NY

CY

NY

CY

NY

CY

NY

CY

NY

M+M

EUR

58.2

980

978

3.8

3.5

27.7

23.3

44.8

37.7

2.0%

2.2%

13.9%

14.9%

AVEVA GROUP

GBP

3,998

12,057

12,535

10.1

9.3

36.2

31.6

38.7

33.8

0.9%

1.0%

27.9%

29.4%

CENIT

EUR

14.9

125

104

0.6

0.6

13.8

10.7

24.8

18.9

2.9%

3.2%

4.7%

5.7%

NEMETSCHEK

EUR

73.0

8,431

8,447

11.9

10.5

52.8

43.1

69.2

56.3

0.5%

0.6%

22.6%

24.3%

RIB SOFTWARE

EUR

28.9

2,136

1,947

4.9

4.9

28.3

27.9

37.1

37.1

1.2%

1.9%

17.5%

17.6%

AUTODESK

USD

312.7

68,787

69,502

16.0

13.5

52.3

36.6

63.8

45.6

0.0%

0.0%

30.5%

36.8%

DASSAULT SYSTEMES

EUR

44.5

59,103

60,637

12.7

11.6

40.3

36.4

51.3

48.3

0.4%

0.4%

31.5%

32.0%

HEXAGON

SEK

139.7

344,026

35,733

8.5

8.0

31.1

28.4

38.1

33.9

0.8%

0.8%

27.4%

28.0%

PTC

USD

152.7

17,843

19,025

11.0

10.0

34.7

31.4

45.9

39.9

0.0%

0.0%

31.7%

31.9%

Average

9.5

8.5

36.2

30.8

43.6

38.3

0.8%

1.0%

24.2%

25.7%

Median

10.5

9.7

35.5

31.5

42.3

38.5

0.6%

0.7%

27.6%

28.7%

Source: Refinitiv (as at 26 July 2021)

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