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Mensch und Maschine (M+M) has reported strong revenue growth for H118, with both divisions reporting double-digit growth on a year-on-year basis. Group EBITDA margins expanded over the same period, with better profitability for both businesses. Management has maintained its growth and profitability guidance for FY18, underpinned by the strong H118 results.
Mensch und Maschine Software |
Firing on all cylinders
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Scale research report - Update
26 July 2018 |
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Mensch und Maschine (M+M) has reported strong revenue growth for H118, with both divisions reporting double-digit growth on a year-on-year basis. Group EBITDA margins expanded over the same period, with better profitability for both businesses. Management has maintained its growth and profitability guidance for FY18, underpinned by the strong H118 results.
Strong performance continues into Q2
M+M reported H118 revenue growth of 13% y-o-y, with Q1 growth of 6.8% y-o-y accelerating to 20.3% in Q218. Both divisions contributed to growth, confirming that the VAR business is back on track now that the demand fluctuations related to the switch to subscription licensing for Autodesk software are substantially over. Both divisions expanded EBITDA margins, resulting in a 1.6pp y-o-y increase in group EBITDA margin to 12.5% in H118. The Software business is now generating EBITDA margins ahead of its 25% target (Q1 29.5%, Q2 27.0%), and the VAR business is making steady progress towards its 10% target (5.9% in H118 vs 4.7% in H117; both Q1 and Q2 margins were higher y-o-y). To make further progress towards this target, we expect the VAR business to focus on increasing the level of value-added services and proprietary software that it can provide to its Autodesk customer base.
FY18 outlook unchanged
The company has maintained its outlook for FY18 and FY19. Consensus forecasts are for revenue growth of 10.4% in FY18 and 10.1% in FY19, and EPS growth of 35% in FY18 and 25% in FY19. Based on H118 performance, these forecasts appear reasonable in our view.
Valuation: Margin growth key to upside
The stock is up 26% year-to-date, but continues to trade at a discount to peers on all valuation metrics, although we note that it generates lower margins than the peer group. With the main impact of the Autodesk licensing transition in the past, and with Autodesk back on a revenue growth path, we see potential for the VAR business to improve profitability and hence drive up group margins. The stock is supported by a dividend yield rising to 3% by FY19e.
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Consensus estimates
Source: Bloomberg |
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 H118 results
Exhibit 1: Half-yearly results highlights
€m |
H118 |
H117 |
y-o-y |
Revenues |
94.46 |
83.59 |
13.0% |
Gross profit |
52.39 |
48.21 |
8.7% |
EBITDA |
11.81 |
9.12 |
29.5% |
Operating profit |
10.28 |
7.75 |
32.6% |
Net income after minority interest |
6.09 |
4.45 |
36.9% |
EPS (€) |
0.372 |
0.274 |
35.8% |
Net debt |
14.66 |
20.05 |
-26.9% |
Source: Mensch und Maschine
Exhibit 2: Divisional results
€m |
H118 |
H117 |
y-o-y |
Revenues |
|||
Software |
28.0 |
25.2 |
10.8% |
VAR |
66.5 |
58.4 |
13.9% |
Total |
94.5 |
83.6 |
13.0% |
Gross profit |
|||
Software |
27.4 |
24.5 |
11.5% |
VAR |
25.0 |
23.7 |
5.8% |
Total |
52.4 |
48.2 |
8.7% |
Gross margin |
|||
Software |
97.8% |
97.3% |
0.5% |
VAR |
37.6% |
40.6% |
-2.9% |
Total |
55.5% |
57.7% |
-2.2% |
EBITDA |
|||
Software |
7.9 |
6.4 |
24.4% |
VAR |
3.9 |
2.8 |
41.3% |
Total |
11.8 |
9.1 |
29.5% |
EBITDA margin |
|||
Software |
28.3% |
25.2% |
3.1% |
VAR |
5.9% |
4.7% |
1.1% |
Total |
12.5% |
10.9% |
1.6% |
Source: Mensch und Maschine
Exhibit 3: Quarterly performance by division
Q117 |
Q217 |
Q317 |
Q417 |
Q118 |
Q218 |
|
Revenues (€m) |
||||||
VAR |
32.64 |
25.73 |
21.11 |
30.91 |
34.56 |
31.94 |
Software |
12.83 |
12.39 |
10.78 |
14.47 |
14.02 |
13.93 |
Total |
45.47 |
38.12 |
31.88 |
45.38 |
48.58 |
45.87 |
Revenue growth y-o-y |
||||||
VAR |
-16.0% |
-0.6% |
-28.3% |
15.8% |
5.9% |
24.2% |
Software |
11.4% |
6.9% |
4.2% |
13.1% |
9.3% |
12.4% |
Total |
-9.7% |
1.8% |
-19.8% |
14.9% |
6.8% |
20.3% |
EBITDA (€m) |
||||||
VAR |
1.87 |
0.90 |
0.36 |
2.22 |
2.48 |
1.43 |
Software |
3.54 |
2.81 |
1.96 |
4.39 |
4.14 |
3.76 |
Total |
5.42 |
3.70 |
2.32 |
6.60 |
6.62 |
5.19 |
EBITDA margin |
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VAR |
5.7% |
3.5% |
1.7% |
7.2% |
7.2% |
4.5% |
Software |
27.6% |
22.7% |
18.1% |
30.3% |
29.5% |
27.0% |
Total |
11.9% |
9.7% |
7.3% |
14.6% |
13.6% |
11.3% |
Source: Mensch und Maschine
M+M reported strong revenue growth of 13.0% for H118, with growth of 10.8% for the Software division and 13.9% for the VAR division. The Software division saw strong demand for its CAM software and the VAR division saw good progress in the conversion of maintenance customers to subscription contracts.
We note that now that the main part of the transition to subscription licensing for Autodesk software is complete, the VAR business appears to have returned to normal seasonality. For both businesses, Q1 and Q4 are typically strong, with a dip in Q2 and Q3. On a quarterly basis, growth accelerated for both businesses in Q2, with the Software division accelerating from 9.3% in Q118 to 12.4% in Q218, and the VAR division seeing a large step up from growth of 5.9% in Q118 to 24.2% in Q218. This has translated into EBITDA margin expansion for both businesses, with the Software division ahead of its 25% target for both quarters, and the VAR division expanding margins on a year-on-year basis in both quarters. Group EBITDA margins of 12.5% for H118 were 1.6pp higher than in H117. The company ended H118 with a net debt position of €14.7m, down from €20.1m a year ago and €16.3m at the end of FY17.
Outlook unchanged
Management has maintained its outlook for FY18. With gross profit of €52.4m and EBITDA of €11.8m reported for H118, guidance for FY18 looks achievable.
Exhibit 4: Financial outlook
€m |
FY18e |
FY19e |
FY20e |
Gross profit |
104–106 |
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EBITDA |
22–23 |
+4–5 |
+4–5 |
Net income |
11–12 |
+3–4 |
+3–4 |
EPS (€) |
0.67–73 |
+0.18–0.24 |
>1€ |
Dividend (€) |
0.62–68 |
+0.15–0.20 |
+0.15–0.20 |
Source: Mensch und Maschine
Consensus forecasts prior to results were in line with this guidance; post-results there have been minimal upgrades to forecasts, which are still within the guidance range.
Valuation
The M+M share price is up 26% year-to-date and has gained 34% over the past 12 months. In the table below, we compare M+M’s valuation to a group of peers that includes European software companies operating in the CAD/CAM/PLM space, as well as larger international companies operating in this market. With a lower EBITDA margin than the group average, M+M continues to trade below the peer group on EV/sales, EV/EBITDA and P/E. We note that M+M’s dividend yield is at the top end of its peer group.
Exhibit 5: Peer group valuation
Company |
Quoted ccy |
Share price |
Market cap (m) |
EV (rep. ccy m) |
EV/sales (x) |
EV/EBITDA (x) |
P/E (x) |
Div yield |
EBITDA margin |
|||||
CY |
NY |
CY |
NY |
CY |
NY |
CY |
NY |
CY |
NY |
|||||
Mensch und Maschine Software |
EUR |
26.7 |
436 |
450 |
2.5 |
2.3 |
19.9 |
17.1 |
37.6 |
30.0 |
2.4% |
3.0% |
12.7% |
13.4% |
Aveva Group |
GBP |
2,630 |
4,233 |
4,137 |
6.7 |
6.3 |
25.7 |
23.1 |
32.6 |
29.4 |
1.3% |
1.6% |
26.1% |
27.4% |
Cenit |
EUR |
17.7 |
148 |
116 |
0.6 |
0.6 |
7.4 |
6.1 |
16.8 |
13.5 |
5.9% |
6.4% |
8.4% |
9.7% |
Ige + Xao |
EUR |
142.0 |
202 |
172 |
5.5 |
5.3 |
18.4 |
17.4 |
29.6 |
27.5 |
1.0% |
1.1% |
29.9% |
30.4% |
Nemetschek |
EUR |
116.0 |
4,466 |
4,424 |
9.8 |
8.5 |
37.0 |
31.6 |
59.2 |
49.8 |
0.7% |
0.8% |
26.4% |
26.9% |
Rib Software |
EUR |
19.5 |
1,006 |
772 |
6.3 |
5.4 |
18.9 |
15.0 |
58.8 |
38.6 |
1.0% |
1.0% |
33.2% |
35.9% |
Autodesk |
USD |
132.3 |
28,995 |
29,117 |
11.7 |
9.1 |
75.5 |
31.0 |
146.4 |
41.6 |
0.0% |
0.0% |
15.5% |
29.4% |
Dassault Systemes |
EUR |
123.6 |
32,464 |
30,422 |
8.9 |
8.2 |
23.8 |
23.0 |
41.8 |
37.0 |
0.5% |
0.6% |
37.6% |
35.5% |
Hexagon Ab-B |
SEK |
501.0 |
180,654 |
19,463 |
5.3 |
4.9 |
16.4 |
15.0 |
24.2 |
21.8 |
1.2% |
1.3% |
32.3% |
33.1% |
Ptc |
USD |
95.8 |
11,081 |
11,454 |
9.1 |
8.4 |
37.8 |
29.2 |
66.8 |
48.4 |
0.0% |
0.0% |
24.2% |
28.6% |
Average |
7.1 |
6.3 |
29.0 |
21.3 |
41.2 |
33.3 |
1.3% |
1.4% |
25.9% |
28.5% |
||||
Median |
6.7 |
6.3 |
23.8 |
23.0 |
41.8 |
37.0 |
1.0% |
1.0% |
26.4% |
29.4% |
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Source: Bloomberg (as at 25 July 2018)
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2017 was a record year for revenue and EBIT, with all three divisions outperforming the market. However, H2 performance, broadly in line with management expectations but showing an absolute decline from H1, contrasts with a marked ‘beat’ in H117. A strong orderbook (up 4% at December 2017) and continued successful investment underpin 2018 guidance of 2–3% revenue growth at significantly higher margin (c 7.5% on operating performance vs 6.3% last year). The company feels well placed to grow by c 20% towards the €300m pa revenue mark long-term target.