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Research: TMT
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.
Mensch und Maschine |
Growth in profits despite tough year
Software |
Scale research report - Update
18 March 2021 |
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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.
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Consensus estimates
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 |
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Median |
9.4 |
8.5 |
33.2 |
28.7 |
42.0 |
36.2 |
0.8 |
0.9 |
26.9 |
27.4 |
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Source: Refinitv (as at 15 March)
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Research: TMT
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