Mensch und Maschine — Growth in profits despite tough year

Mensch & Maschine Software (DB: MUM)

Last close As at 19/04/2024

56.60

−1.20 (−2.08%)

Market capitalisation

971m

More on this equity

Research: TMT

Mensch und Maschine — Growth in profits despite tough year

Mensch und Maschine (M+M) reported 12.5% growth in EPS despite a 0.8% decline in revenues in FY20. Reduced spend on travel and events combined with selective use of furlough benefits more than offset the decline in demand during Q2–Q4. The company expects its normal growth trajectory to resume from Q221 and has published its outlook for EPS and DPS growth in the short and medium term.

Katherine Thompson

Written by

Katherine Thompson

Director

TMT

Mensch und Maschine

Growth in profits despite tough year

Software

Scale research report - Update

18 March 2021

Price

€56.0

Market cap

€943m

Share price graph

Share details

Code

MUM

Listing

Deutsche Börse Scale

Shares in issue

16.8m

Last reported net debt as at end FY20*
*
Excludes lease liabilities

€3.2m

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 US 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 (0)20 3077 5730

Mensch und Maschine (M+M) reported 12.5% growth in EPS despite a 0.8% decline in revenues in FY20. Reduced spend on travel and events combined with selective use of furlough benefits more than offset the decline in demand during Q2–Q4. The company expects its normal growth trajectory to resume from Q221 and has published its outlook for EPS and DPS growth in the short and medium term.

FY20: Profit growth despite small revenue decline

M+M reported record operating profit (+14% year-on-year) and record net income (+12% y-o-y) despite a small decline in group revenues. The Software business started to see the resumption of y-o-y growth from Q420, reporting 0.7% revenue growth for FY20 and EBIT growth of 10%. The VAR business declined 1.5% in FY20, whereas EBIT increased 21%. Net debt (excluding leases) reduced by 70% in the year as the company saw double-digit cash generation. The company announced a €1.0 dividend for FY20.

FY21: Resumption in growth expected from Q221

While the company expects trading in Q121 to improve on Q420, it expects a normal growth path to be resumed from Q221. In the medium term, it is targeting group revenue and gross margin growth of c 8–12% per year and an EBITDA margin of 20%, which compares to the 16.5% reported in FY20. It expects EPS of €1.25–1.35 for FY21 and for this to increase by c 18–24c pa from FY22, and DPS of €1.15–1.20 for FY21, increasing by c 15–20c pa from FY22. Consensus forecasts are at the lower end of the range.

Valuation: Trading in line

The stock trades at a discount to peers on EV-based valuation metrics and essentially in line on a P/E basis, in our view reflecting the fact that its 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.

Consensus estimates

Year
end

Revenue
(€m)

PBT
(€m)

EPS
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/19

245.9

26.3

0.99

0.85

56.5

1.5

12/20

244.0

29.8

1.12

1.00

50.2

1.8

12/21e

255.0

34.4

1.28

1.15

43.8

2.1

12/22e

282.4

40.8

1.52

1.30

36.8

2.3

Source: Company reports, analyst reports on M+M investor relations page.

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 FY20 results

Exhibit 1: FY20 results highlights

€m

FY19

FY20

y-o-y

Revenues

245.9

244.0

-0.8%

Gross profit

127.9

128.0

0.1%

EBITDA

36.5

40.3

10.3%

Operating profit

27.2

31.0

14.1%

Net income after minority interest

16.7

18.7

12.3%

EPS (€)

0.99

1.12

12.5%

Net debt (excludes lease liabilities)

10.5

3.2

-70.0%

Source: Mensch und Maschine

The company had already reported headline figures in February, so these results were in line with consensus estimates.

In FY20, the group saw a small revenue decline y-o-y; after a strong Q120, COVID-19 supressed demand for the remainder of the year, although the Software business did see a small uptick in revenues in Q420 (+1.6% y-o-y). Staff costs increased in the year as headcount was marginally higher, but reductions in other costs plus the use of furlough benefits combined to drive a 14.1% increase in operating profit y-o-y. This translated to a 12.5% increase in EPS. The company announced a €1.00 dividend for the year, in line with expectations.

Net debt reduced by 70% y-o-y to €3.2m. Cash flow from operations of €33.7m was boosted by a positive inflow from working capital of €1.5m. The company spent €5.9m on capex, €16.0m on dividends and paid down €5.3m of debt.

Divisional performance

The Software business saw 0.7% revenue growth in FY20, while gross profit declined by 1.2%. Software EBIT increased 10.2% y-o-y, with the margin expanding 2.2pp, mainly due to a reduction in other operating costs of 22.6% (reduced travel and marketing costs) more than offsetting a 2.7% increase in staff costs. The division saw strong revenue growth of 11% y-o-y in Q120 (see Exhibit 3) before a 9% decline in Q2. Revenues stabilised in Q320 before returning to modest growth in Q420.

The VAR business saw a 1.5% revenue decline in FY20 and a 1.6% increase in gross profit. As for the Software division, a 20.4% reduction in other operating costs resulted in a 21.1% increase in EBIT y-o-y and 1.3pp margin expansion. The division saw exceptional growth of 30% y-o-y in Q120, mainly due to customers taking advantage of Autodesk’s maintenance to subscription offer before it expired in May 2020, before three quarters of year-on-year declines as the pandemic made it harder to sign new business.

Exhibit 2: Divisional performance, FY19-20

€m

FY19

FY20

y-o-y

FY19

FY20

y-o-y

Revenues

EBIT

Software

75.1

75.6

0.7%

Software

17.4

19.1

10.2%

VAR

170.9

168.4

-1.5%

VAR

9.8

11.9

21.1%

Total

245.9

244.0

-0.8%

Total

27.2

31.0

14.1%

Gross profit

EBIT margin

Software

69.7

68.8

-1.2%

Software

23.1%

25.3%

2.2%

VAR

58.2

59.1

1.6%

VAR

5.7%

7.1%

1.3%

Total

127.9

128.0

0.1%

Total

11.1%

12.7%

1.7%

Gross margin

Software

92.8%

91.1%

-1.8%

VAR

34.1%

35.1%

1.1%

Total

52.0%

52.4%

0.4%

Source: Mensch und Maschine

Exhibit 3: Quarterly divisional revenues, FY20

€m

Y-o-y growth

Q120

Q220

Q320

Q420

Q120

Q220

Q320

Q420

Software

20.5

17.4

17.1

20.7

11.3%

-9.0%

-0.9%

1.6%

VAR

58.2

34.4

33.2

42.7

29.9%

-9.4%

-10.0%

-16.8%

Total

78.6

51.8

50.2

63.4

24.5%

-9.3%

-7.1%

-11.6%

Source: Mensch und Maschine

Outlook and consensus estimates

The company expects trading in Q121 to be better than Q420, but still below the record revenues reported in Q120. It expects to return to its normal growth mode from Q221 and to report EPS of €1.25–1.35 and a dividend of €1.15–1.20 for FY21. From FY22, management expects revenues and gross profit to increase by c 8–12% pa, with an incremental 18–24c of EPS and growth in the dividend of 15–20c each year. The company has a medium-term EBITDA margin target of 20%, compared to the 16.5% achieved in FY20.

The table below shows current consensus forecasts, which are towards the lower end of company guidance.

Exhibit 4: Consensus forecasts

€m

FY21e

FY22e

Revenues

255.0

282.4

Revenue growth

4.5%

10.7%

EBITDA

46.0

52.0

EBITDA margin

18.0%

18.4%

EBIT

35.4

41.5

EBIT margin

13.9%

14.7%

EPS

1.28

1.52

DPS

1.15

1.30

Source: Analyst reports on M+M investor relations page (as at 16 March)

Valuation

12 months ago, the stock was trading at €32.8, its COVID-19 induced low. The stock has gained 66% from that point but is down 6.5% year to date. The shares trade at a discount to peers on EV-based valuation metrics and essentially 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 5: Peer valuation metrics

Company

Quoted ccy

Share price

Market Cap

EV (rep ccy)

EV/Sales (x)

EV/EBIT (x)

P/E (x)

Div yield
(%)

EBIT margin
(%)

m

m

CY

NY

CY

NY

CY

NY

CY

NY

CY

NY

MENSCH UND MASCHINE SOFTWARE

EUR

56.0

943

946

3.7

3.3

26.8

22.5

43.8

36.8

2.1

2.3

13.9

14.9

AVEVA GROUP

GBp

3424

9892

9848

12.3

11.0

46.6

40.9

42.2

39.9

1.1

1.1

26.5

26.9

CENIT

EUR

13.6

114

99

0.6

0.6

20.4

12.3

38.0

22.8

2.2

2.9

3.1

4.9

NEMETSCHEK

EUR

51.7

5987

6087

9.4

8.5

41.8

35.1

53.0

45.0

0.7

0.7

22.5

24.1

RIB SOFTWARE

EUR

27.5

1435

1258

3.6

2.8

19.4

14.3

35.3

26.7

0.9

1.3

18.7

19.8

AUTODESK

USD

268.1

58955

58735

13.6

11.5

43.2

30.7

54.0

38.6

0.0

0.0

31.5

37.3

DASSAULT SYSTEMES

EUR

173.2

45878

47964

10.0

9.2

35.6

31.6

42.2

37.8

0.5

0.5

28.2

29.2

HEXAGON

SEK

763.4

269598

28799

7.1

6.7

26.0

24.1

31.1

29.0

0.9

1.0

27.3

27.8

PTC INC

USD

132.2

15441

16030

9.4

8.5

30.7

26.7

41.8

34.6

0.0

0.0

30.5

31.8

Average

8.3

7.3

32.9

27.0

40.5

33.7

0.8

0.9

23.5

25.2

Median

9.4

8.5

33.2

28.7

42.0

36.2

0.8

0.9

26.9

27.4

Source: Refinitv (as at 15 March)


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 Mensch & Maschine Software

View All

Latest from the TMT sector

View All TMT content

Research: TMT

1Spatial — Completes integration of GI

1Spatial has finalised the integration of its Geomap-Imagis (GI) acquisition. An agreed amendment to the terms of the consideration paid to GI’s founders will see them step down from the business. This should enable 1Spatial to run its European operations under one regional management structure and free up savings which can be reinvested to accelerate growth. 1Spatial’s recent trading statement and slew of contract wins highlight both the momentum in the business currently and the longer-term potential of the Location Master Data Management (LMDM) market. Completing this integration enables it to execute on that growth opportunity.

Continue Reading

Subscribe to Edison

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

Sign up for free