DVS TECHNOLOGY — Recovering markets support results

DVS Technology (DB: DIS)

Last close As at 23/04/2024

17.00

0.00 (0.00%)

Market capitalisation

165m

More on this equity

Research: Industrials

DVS TECHNOLOGY — Recovering markets support results

DVS TECHNOLOGY’s H121 results have recovered since last year, which was affected by the COVID-19 pandemic. Operating leverage triggered an improvement in EBITDA margin of 440bp to 7.8%. The order intake was strong with 32% y-o-y growth in the first half and management expects further improvement in H221. The company has maintained its FY21 guidance for revenue growth of 11% but adjusted it for pre-tax profit from €5m to €3–5m, partly due to the expected impact of higher raw material prices and a shortage of components.

Johan van den Hooven

Written by

Johan van den Hooven

Analyst

Industrials

DVS TECHNOLOGY

Recovering markets support results

Industrials

Scale research report - Update

21 October 2021

Price

€17.10

Market cap

€166m

Share price graph

Share details

Code

DIS

Listing

Deutsche Börse Scale

Shares in issue

9.7m

Net debt at 30 June 2021

€69m

Business description

Besides engineering and manufacturing machine, grinding and honing tools, DVS TECHNOLOGY operates two production sites where automotive parts are machined in series production exclusively on DVS machines. It has three business units: Machine Tools & Automation, Tools & Components and Production.

Bull

Strong market position.

Few strategic threats.

Growth in contract manufacturing and tooling.

Bear

Very low free float of 2%.

Several loss-making subsidiaries.

Development of traditional automotive industry.

Analyst

Johan van den Hooven

+44 (0)20 3077 5700

DVS TECHNOLOGY’s H121 results have recovered since last year, which was affected by the COVID-19 pandemic. Operating leverage triggered an improvement in EBITDA margin of 440bp to 7.8%. The order intake was strong with 32% y-o-y growth in the first half and management expects further improvement in H221. The company has maintained its FY21 guidance for revenue growth of 11% but adjusted it for pre-tax profit from €5m to €3–5m, partly due to the expected impact of higher raw material prices and a shortage of components.

Good margin recovery in H121

DVS TECHNOLOGY has reported H121 results, which showed a recovery compared to last year, which was significantly affected by the COVID-19 pandemic. Revenues increased 12% y-o-y, with 24% y-o-y growth in the second quarter. With higher revenues, EBITDA jumped 175% to €8.4m, driving a margin improvement of 440bp to 7.8%. Flat staff costs were the main driver for the better margin. Management commented there was hardly any material impact from higher raw material prices and shortage of components in the first half.

H221 might be affected by shortage of components

The machine tool market is recovering and VDW, the German Machine Tool Builders' Association, expects production growth of 10% in FY21. DVS TECHNOLOGY’s order intake increased 32% in H121 and management expects a continuous improvement during H221. The company maintained its FY21 revenue guidance at €215m, which reflects growth of 11% y-o-y. Management expects there will be an impact from the higher raw material prices and shortage of components in the second half of 2021 and will make investments in the segments e-mobility and digitalisation. As a result, it has adjusted its pre-tax profit budget for FY21 from €5m to €3–5m, after reporting €2.5m in the first half.

Order intake shows recovery in automotive

DVS TECHNOLOGY’s automotive activities showed a strong recovery in order intake in H121 after being hit hard last year. As a percentage of total order intake, automotive increased from 28% in FY20 to 42% in H121. The e-mobility segment is expected to be an important driver for growth and this segment’s order intake stayed relatively stable at 35% of the total. The free float of the shares is only 2% and there are no consensus estimates available.

Historical financials

Year
end

Revenue
(€m)

PBT
(€m)

EPS
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/17

246.9

13.6

0.75

0.25

22.1

1.5

12/18

264.0

14.6

0.89

0.25

18.7

1.5

12/19

261.6

5.1

0.56

0.00

30.5

N/A

12/20

193.8

(1.3)

(0.13)

0.00

N/A

N/A

Source: DVS TECHNOLOGY

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

DVS TECHNOLOGY consists of 15 operationally independent production companies in the machine tool and abrasives industry, and three international sales and service companies. The company is split into three divisions, as shown in Exhibit 1. DVS Machine Tools & Automation is involved in producing high-precision machine tools and automation units and associated services (technical services, spare parts, overhauls/repairs), DVS Production consists of series production/system suppliers of automotive and commercial vehicle components on DVS machine tools and DVS Tools & Components focuses on the customised development, production and distribution of tools and abrasives. Several smaller units are grouped in ‘Other’, which represented 4% of total revenues in FY20.

Germany is still the most important country for the company as it represented 39% of total revenues in H121 (see Exhibit 2). The rest of Europe ranks second with 26% of total revenues, followed by Asia (24%) and America (11%). In H121, the rest of Europe reported the slowest recovery within DVS TECHNOLGY, while America reported the highest growth although it was hit the hardest by the pandemic last year.

Exhibit 1: Revenues split by segment, FY20

Exhibit 2: Revenues split by geography, H121

Source: DVS TECHNOLOGY

Source: DVS TECHNOLOGY

Exhibit 1: Revenues split by segment, FY20

Source: DVS TECHNOLOGY

Exhibit 2: Revenues split by geography, H121

Source: DVS TECHNOLOGY

H121 results showed a recovery compared to last year, which was significantly affected by the COVID-19 pandemic. Revenues increased 12% y-o-y to €101.2m with 24% y-o-y growth in Q2, after 2% growth in Q1. This revenue level is still below the H119 level of €126m. With a higher change in inventories, the total operating income increased 16% y-o-y to €108m. Other operating income from Kurzarbeit (short-time work: German governmental subsidy system) amounted to €0.7m in H121, which compares to €2.5m in H120.

EBITDA strongly recovered from €3.1m in H120 to €8.4m in H121, with margins increasing 440bp to 7.8% (as a percentage of total operating income). The margin in Q221 was 7.5%, slightly below the level in Q1. The margin improvement was largely caused by the flat staff costs with the average number of staff in H121 declining 2% y-o-y to 1,329. The other operating costs increased 12% when compared to last year.

EBIT turned from a loss of €1.5m in H120 to a profit of €4.0m in H121. Pre-tax profit improved to €2.5m, up from a loss of €3.1m in H120. The pre-tax profit was €1.1m in Q221 after €1.4m in Q121. DVS TECHNOLOGY reported a net profit of €1.5m, which is an improvement compared to the net loss of €2.8m last year.

The focus of the company’s R&D activities in FY21 will be on establishing the DVS Digital division, which will bundle digitalisation competences and develop digital products (in H121 the company spent €1.4m on development costs).


Exhibit 3: H121 results

€m, HGB accounting

H120

H121

% change

Revenue

89.9

101.2

12

Change in inventory

3.1

5.1

Capitalised own work

0.2

1.8

Total operating income

93.3

108.0

16

Other income

2.2

1.8

-19

Total income

95.5

109.8

15

Cost of materials

-38.5

-45.4

18

Personnel costs

-37.2

-37.2

0

Other operating costs

-16.8

-18.8

12

EBITDA

3.1

8.4

175

EBITDA margin (based on total operating income)

3.3%

7.8%

Depreciation

-4.6

-4.4

-5

EBIT reported

-1.5

4.1

N/A

EBIT margin (based on total operating income)

3.6%

2.1%

Net interest

-1.6

-1.5

N/A

Profit before tax (PBT)

-3.1

2.5

N/A

PBT margin (based on total operating income)

-3.4%

2.3%

Tax

0.4

-1.0

N/A

Net profit

-2.8

1.5

N/A

Minorities

-0.2

-1.4

N/A

EPS (€)

-0.31

0.01

N/A

Source: DVS TECHNOLOGY

Outlook

The overall recovering market conditions are reflected in the 32% y-o-y increase in the company’s order intake to €112.5m, with the order book up 10% y-o-y to €106m. The order intake was 59% higher y-o-y in Q221 after an increase of 11% y-o-y in Q121. As can be seen in Exhibit 4, the order intake strongly recovered in the automotive segment, which was hit the hardest during the COVID-19 pandemic. Due to the strong recovery in automotive, non-automotive has declined as a percentage of total revenues. This segment includes for instance agriculture, energy (windmills) and aircraft engines. The order intake was in particularly strong in Asia, which now represents 47% of the total, up from 32% in H120. DVS TECHNOLOGY expects a continuous improvement of the order intake in the second half of 2021 and, based on the current market conditions, it might be able to exceed the budgeted order intake of €215m by 5–10%.

Exhibit 4: Order intake by market segment

Percentage of total

H120

FY20

H121

Future mobility

36%

37%

35%

Automotive

29%

28%

42%

Non-automotive

35%

35%

23%

Total order intake, %

100%

100%

100%

Total order intake, €m

85.5

187.6

112.5

Source: DVS TECHNOLOGY

According to VDW, the German Machine Tool Builders' Association, nominal production for the machine tools industry as a whole in 2021 is expected to increase 10% y-o-y (in spring 2021 VDW expected 6% growth in production), based on an increase in order intake of 29% y-o-y in the first half. VDW expects a good recovery in the US and Asia, whereby the investment upswing in Europe is decisive for the magnitude of the overall recovery. Looking at sectors, development in the automotive industry will influence the outcome of market growth in 2021.

DVS TECHNOLOGY maintains its FY21 revenue guidance of €215m (+11%), with an anticipated normalisation of activities from Q3. This is still well below the level of €262m in 2019. Management has mentioned that the higher prices of raw materials and the shortage of semiconductor products have not had any material negative impact on results in the first half, but disruptions are expected to have an effect in H2. At the time of the FY20 results in June 2021, management expected the EBIT margin to improve by 180bp y-o-y to 3.9%. It now refers to pre-tax profit for which the previous budget was €5m, but is now adjusted to a range of €3–5m, mainly due to costs related to the higher sales levels and investments in the segments e-mobility and digitalisation. The guidance range compares to the reported pre-tax profit of €2.5m in the first half.

Financials

Cash flow from operating activities was €0.9m, which compares to a negative cash flow of €8m in H120. The cash flow from investing activities was €3.0m, higher than the €1.7m in H120 when investments were restricted due to the uncertain situation of the pandemic. The equity ratio of 51.5% was stable compared to 51.8% at year-end FY20 and net debt only increased slightly from €66m at the end of FY20 to €69m in H121. This was mainly due to the increase in working capital because of the higher activity level and the pending incoming orders.

A covenant holiday period was agreed from 1 July 2020 to 29 June 2021 for the company’s syndicated loan financing. The liquidity reserve ratio is used as covenant for this waiver and with €30.2m on 31 March 2021, this was significantly above the required €15m. Management assumes its financial resources will be sufficient to meet its payment obligations.

DVS TECHNOLOGY’s shareholder base has not changed in recent years, with 98% in the hands of shareholders holding a stake of more than 5% each. The shareholder base remains dominated by the Rothenberger family, which remains on board as a long-term investor.

Exhibit 5: DVS TECHNOLOGY shareholders

Shareholder

Stake

Rothenberger 4xS Vermögensverwaltung

65.8%

Günter Rothenberger Beteiligungen

17.6%

FWI Fritz Werner International

7.9%

Maschinenfabrik Heid

6.8%

Total of more than 5% stakes

98.1%

Free float

1.9%

Source: DVS TECHNOLOGY


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.

Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

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 research department of Edison 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 2021 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). 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

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

1185 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

More on DVS Technology

View All

Latest from the Industrials sector

View All Industrials content

Research: TMT

EQS Group — Grasping the whistleblowing opportunity

EQS has built a strong platform business in corporate compliance and investor relations, with growing recurring revenues. It is well positioned to capitalise on the time-limited expansion opportunity presented by the European Whistleblowing Directive, which has an implementation deadline of December 2021. Achieving a strong foothold here will be key for driving greater SaaS customer acquisition, underpinning management’s ambitious medium-term revenue and margin guidance.

Continue Reading

Subscribe to Edison

Get access to the very latest content matched to your personal investment style.

Sign up for free