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Last close As at 26/05/2023
-56.60
▲ −1.20 (−2.08%)
Market capitalisation
971m
Research: TMT
Mensch und Maschine (M+M) reports strong revenue and earnings growth in 2019. Organic revenue growth of 25% was further boosted by the SOFiSTiK acquisition, driving EPS growth of 38% y-o-y and a dividend ahead of company guidance. Despite concerns over coronavirus, the company maintains its positive outlook for organic growth and profitability in FY20 and FY21.
Mensch und Maschine |
Another strong year
Software |
Scale research report - Update
18 March 2020 |
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Mensch und Maschine (M+M) reports strong revenue and earnings growth in 2019. Organic revenue growth of 25% was further boosted by the SOFiSTiK acquisition, driving EPS growth of 38% y-o-y and a dividend ahead of company guidance. Despite concerns over coronavirus, the company maintains its positive outlook for organic growth and profitability in FY20 and FY21.
Software business boosted by SOFiSTiK
The Software division saw revenue growth of 35% in FY19 (to €75.1m), of which 9% was organic. The SOFiSTiK acquisition was included from 1 January 2019 and contributed revenues of €14.3m and net income of €1.7m. The SOFiSTiK business generated a lower operating margin (18%) compared to the existing business (24%) resulting in divisional EBIT growth of 32% but a small decline in the EBIT margin from 23.7% in FY18 to 23.1% in FY19.
VAR business demand rebounds
Revenue growth for the VAR division accelerated to 32% in FY19 (to €170.9m), from the 17% achieved in FY18. Customers have been taking advantage of the deals on offer from Autodesk to switch from software maintenance to a subscription billing method; these deals are likely to come to an end in H120 at which point the company expects growth to moderate. Divisional EBIT grew 52% y-o-y and the margin expanded from 5.0% to 5.7% y-o-y.
Valuation: Reflects current market concerns
Even taking into account potential issues arising from the restrictions imposed by coronavirus, which are more likely to affect CAM software and training services, the company expects continued organic growth in revenues and profitability, equating to 18–24% EPS growth in FY20. Consensus estimates are at the lower end of the company’s guidance, possibly taking a conservative view based on current market conditions. The stock has fallen 42% over the last month on coronavirus fears and is essentially flat compared to year-ago levels; it trades at a discount to peers on all valuation metrics, with a dividend yield of c 3%.
Consensus estimates
Source: Analyst estimates as provided on Mensch und Maschine’s investor relations site |
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 FY19 results
Exhibit 1: Mensch und Maschine results highlights
€m |
FY19 |
FY18 |
y-o-y |
Revenues |
245.9 |
185.4 |
32.7% |
Gross profit |
127.9 |
103.9 |
23.1% |
EBITDA |
36.6 |
22.7 |
60.7% |
Operating profit |
27.2 |
19.7 |
38.3% |
Net income after minority interest |
16.7 |
11.7 |
42.6% |
EPS (€) |
0.99 |
0.71 |
38.5% |
DPS (€) |
0.85 |
0.65 |
30.8% |
Net debt |
23.7 |
11.2 |
111.1% |
Net debt exclding leases |
10.5 |
11.2 |
-6.0% |
Source: Mensch und Maschine
Mensch und Maschine (M+M) saw revenue growth of 32.7% in FY19, of which 25% was organic. Operating profit increased 38.3% over the same period, with 25% organic growth. EPS increased at a similar rate to operating profit and the company announced a dividend of €0.85, higher than the preliminary announcement of €0.83. Net debt excluding the impact of finance leases incorporated in FY19 was 6% lower than a year ago. One-off cash payments in FY19 included €1m to acquire SOFiSTiK and €3.0m to complete a new building for SOFiSTiK.
Divisional performance
Exhibit 2: Divisional performance
€m |
FY19 |
FY18 |
y-o-y |
Revenues |
|||
Software |
75.1 |
55.7 |
34.7% |
VAR |
170.9 |
129.7 |
31.8% |
Total |
245.9 |
185.4 |
32.7% |
Gross profit |
|||
Software |
68.7 |
54.4 |
26.4% |
VAR |
58.2 |
49.5 |
17.4% |
Total |
126.9 |
103.9 |
22.1% |
Gross margin |
|||
Software |
91.5% |
97.5% |
-6.0% |
VAR |
34.1% |
38.2% |
-4.2% |
Total |
51.6% |
56.0% |
-4.5% |
EBIT |
|||
Software |
17.4 |
13.2 |
31.5% |
VAR |
9.8 |
6.5 |
52.2% |
Total |
27.2 |
19.7 |
38.3% |
EBIT margin |
|||
Software |
23.1% |
23.7% |
-0.6% |
VAR |
5.7% |
5.0% |
0.8% |
Total |
11.1% |
10.6% |
0.5% |
Source: Mensch und Maschine
Software division
The exhibit below splits out the performance of this division between the original M+M Software business and the SOFiSTiK business acquired on 1 January 2019. The original M+M Software business division saw 9% revenue growth with a slightly expanded EBIT margin. The acquired business contributed revenues of €14.3m, adding a further 25% to revenue growth. At the EBIT level, SOFiSTiK generated a margin of 18%, bringing down the divisional margin.
Exhibit 3: Software division – organic versus SOFiSTiK performance
FY19 |
FY18 |
y-o-y |
|
M+M revenues |
60.8 |
55.7 |
9.1% |
SOFiSTiK revenues |
14.3 |
N/A |
N/A |
Total Software revenues |
75.1 |
55.7 |
34.7% |
M+M EBIT |
14.8 |
13.2 |
12.0% |
SOFiSTiK EBIT |
2.6 |
N/A |
N/A |
Total Software EBIT |
17.4 |
13.2 |
31.5% |
M+M EBIT margin |
24.3% |
23.7% |
0.6% |
SOFiSTiK EBIT margin |
18.0% |
N/A |
N/A |
Total Software EBIT margin |
23.1% |
23.7% |
(0.6%) |
Source: Mensch und Maschine
VAR division
The VAR business has benefited from a rebound in demand now that Autodesk’s transition to a subscription business is substantially complete. VAR revenues were 32% higher year-on-year and VAR EBIT grew 52% over the same period, to a margin of 5.7% (+0.8pp), despite a decline in gross margin.
Outlook and estimates
The company expects further healthy organic growth and sees sufficient operating margin potential, mainly in the VAR segment, to increase EPS by 18–24c pa and increase the dividend by 15–20c pa. The company noted that H120 growth is expected to be higher than in H220, coinciding with the end of Autodesk’s offer to transition from maintenance to subscription contracts.
The table below summarises the company’s expectations:
Exhibit 4: Company outlook
FY20e |
FY21e |
|
Gross profit |
€140–143m (+10–12%) |
+10–12% |
EBITDA |
€41–43m (+13–18%) |
+13–18% |
EPS |
€1.17–1.23 (+18–24c) |
+€0.18–0.24 |
Dividend |
€1.00–1.05 |
+15–20c |
Source: Mensch und Maschine
Consensus estimates were updated after the February trading update and have not all been updated for the final results. EPS and DPS forecasts for FY20 are just below company expectations.
Exhibit 5: Consensus forecasts
€m |
FY20e |
FY21e |
Revenues |
272.8 |
303.0 |
Revenue growth |
10.9% |
11.1% |
EBITDA |
41.6 |
47.4 |
EBITDA margin |
15.2% |
15.6% |
EBIT |
30.5 |
38.4 |
EBIT margin |
11.2% |
12.7% |
EPS (€) |
1.11 |
1.42 |
DPS (€) |
0.98 |
1.20 |
Source: Mensch und Maschine IR website, 17 March
Coronavirus impact
The company noted that its guidance already reflects some negative effects from coronavirus, particularly within the CAM business and training. At this point, it is difficult to judge how much impact the virus is likely to have, but we expect that business development is likely to be affected as travel is restricted and face-to-face meetings are cancelled.
Valuation
The stock has declined 43% over the last month as concerns about the impact of coronavirus have hit the stock market. The stock now trades at a large discount to peers on EV/sales and EV/EBIT multiples and at a smaller discount on a P/E basis, reflecting its lower operating margins versus peers. Its dividend yield is at the top end of its peer group.
Exhibit 6: Peer group metrics
Company |
Quoted ccy |
Share price |
Market cap (m) |
EV (rep ccy) |
EV/sales |
EV/EBIT |
P/E |
Dividend yield |
EBIT margin |
|||||
m |
CY |
NY |
CY |
NY |
CY |
NY |
CY |
NY |
CY |
NY |
||||
MENSCH UND MASCHINE |
€ |
31.2 |
524 |
548 |
2.0 |
1.8 |
18.0 |
14.3 |
28.1 |
22.0 |
3.1% |
3.8% |
11.2% |
12.7% |
AVEVA GROUP PLC |
GBp |
3082 |
4978 |
4989 |
5.9 |
5.6 |
22.9 |
20.3 |
28.6 |
25.2 |
1.6% |
1.7% |
25.9% |
27.6% |
CENIT AG |
€ |
9.8 |
82 |
61 |
0.3 |
0.3 |
5.9 |
5.0 |
N/A |
N/A |
N/A |
N/A |
5.7% |
6.5% |
NEMETSCHEK SE |
€ |
43.5 |
5062 |
5110 |
7.9 |
6.9 |
33.5 |
28.3 |
43.6 |
36.6 |
0.9% |
1.0% |
23.5% |
24.5% |
RIB SOFTWARE AG |
€ |
27.9 |
1448 |
1363 |
6.3 |
4.8 |
50.5 |
36.7 |
74.0 |
55.2 |
0.7% |
0.7% |
12.4% |
13.1% |
AUTODESK INC |
US$ |
158.0 |
34772 |
35013 |
8.9 |
7.5 |
29.3 |
21.2 |
36.6 |
26.3 |
0.0% |
0.0% |
30.2% |
35.2% |
DASSAULT SYSTEMES |
€ |
121.0 |
31814 |
34524 |
7.0 |
6.4 |
22.5 |
20.0 |
28.7 |
25.4 |
0.7% |
0.8% |
31.1% |
32.1% |
HEXAGON AB-B SHS |
SEK |
412.3 |
144648 |
15355 |
3.7 |
3.5 |
14.5 |
13.4 |
16.4 |
15.1 |
1.8% |
1.9% |
25.8% |
26.5% |
PTC INC |
US$ |
56.4 |
6510 |
7368 |
5.0 |
4.5 |
18.9 |
15.4 |
24.2 |
19.3 |
0.0% |
0.0% |
26.4% |
29.3% |
Average |
5.6 |
5.0 |
24.7 |
20.0 |
35.9 |
29.5 |
0.8% |
0.9% |
22.7% |
24.4% |
||||
Median |
6.1 |
5.2 |
22.7 |
20.2 |
28.7 |
25.4 |
0.7% |
0.8% |
25.9% |
27.1% |
Source: Refinitiv (as at 16 March)
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Research: Financials
OTC Market’s (OTCM’s) full-year results were close to our expectations with revenue progress across the group, while earnings were held back by investment in people, critical IT facilities and a move to a new head office. The near-term market background may act as a brake on new client wins but the group’s mainly subscription-based revenue provides stability and OTCM retains its focus on developing its cost-effective transparent markets for the long term.
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