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Research: TMT
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.
Mensch und Maschine |
Group returns to growth in Q221
Software |
Scale research report - Update
27 July 2021 |
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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.
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Consensus estimates
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 |
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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 |
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y-o-y growth |
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Software |
11.3% |
-9.0% |
-0.9% |
1.6% |
7.6% |
17.5% |
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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% |
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EBIT margin |
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Software |
26.7% |
25.8% |
21.8% |
26.4% |
29.1% |
25.4% |
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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% |
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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 |
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ccy |
price |
cap (m) |
ccy -m) |
CY |
NY |
CY |
NY |
CY |
NY |
CY |
NY |
CY |
NY |
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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% |
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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% |
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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% |
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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% |
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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% |
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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% |
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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% |
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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% |
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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% |
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Average |
9.5 |
8.5 |
36.2 |
30.8 |
43.6 |
38.3 |
0.8% |
1.0% |
24.2% |
25.7% |
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Median |
10.5 |
9.7 |
35.5 |
31.5 |
42.3 |
38.5 |
0.6% |
0.7% |
27.6% |
28.7% |
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Source: Refinitiv (as at 26 July 2021)
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Research: Investment Companies
The Merchants Trust (MRCH) is managed by Simon Gergel who is chief investment officer, UK equities, at Allianz Global Investors. He stresses that being a value investor does not mean buying bad businesses, and the polarised UK market is enabling him to invest in high-quality companies at reasonable prices. While the manager experienced a tough period of relative performance during the coronavirus-led market sell-off in early 2020, he adhered to his long-term, high-conviction process, which was the correct strategy as shown by the meaningful performance improvement in the chart below. MRCH consistently offers an above-market dividend yield (currently 5.3%).