Mensch & Maschine Software — Long-term growth targets unveiled

Mensch & Maschine Software (DB: MUM)

Last close As at 07/05/2024

56.60

−1.20 (−2.08%)

Market capitalisation

971m

More on this equity

Research: TMT

Mensch & Maschine Software — Long-term growth targets unveiled

Mensch und Maschine (M+M) saw business revert to pre-COVID trading patterns and a return to revenue growth in FY21. This translated to EPS growth of 13.1% and a dividend per share increase of 20%. The strategy of organic revenue growth combined with careful cost control supports management’s targets for a doubling in EPS over the next four to five years.

Katherine Thompson

Written by

Katherine Thompson

Director

TMT

Mensch und Maschine

Long-term growth targets unveiled

Software

Scale research report - Update

16 March 2022

Price

€54.3

Market cap

€921m

Share price graph

Share details

Code

MUM

Listing

Deutsche Börse Scale

Shares in issue

17.0m

Net cash* at end FY21
*Excludes leases

€8.2m

Business description

Mensch und Maschine Software (M+M) sells proprietary and Autodesk CAD/CAM software. It reports across two business lines: M+M Software (FY21: 32% of revenues, 62% of EBIT) and VAR (FY21: 68% of revenues, 38% of EBIT). The company has operations in Europe, the United States 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

+44 203 077 5730

Mensch und Maschine (M+M) saw business revert to pre-COVID trading patterns and a return to revenue growth in FY21. This translated to EPS growth of 13.1% and a dividend per share increase of 20%. The strategy of organic revenue growth combined with careful cost control supports management’s targets for a doubling in EPS over the next four to five years.

FY21: Another year of double-digit earnings growth

M+M reported robust results for FY21, with revenue growth of 9.1% y-o-y, EBIT growth of 11.8% and EPS growth of 13.1% y-o-y. We note that this follows a year when revenue declined 0.8% but EPS grew 12.5%. Trading has reverted to pre-COVID seasonality and both divisions reported growth. The Software division grew revenue 11.3% y-o-y (8.5% organic) and achieved an EBIT margin of 25.4% (up 0.1pp y-o-y). The VAR division grew revenue 8.1% y-o-y and expanded the EBIT margin by 0.3pp to 7.3%. Net debt reduced from €14.6m at the end of FY20 to €3.4m by the end of FY21 and, excluding leases, M+M had net cash of €8.2m at year-end. Founder and 45%-shareholder Adi Drotleff has stepped back from the CEO role but remains as managing director and chair of the supervisory board.

Outlook: Steady, profitable growth

The company has maintained its guidance for FY22, introduced guidance for FY23 and set targets for a doubling in revenue by FY28/29 and EPS by FY25/26. This implies a CAGR of 14.7–18.7% for EPS over this timeframe. Consensus forecasts are within the guidance range for FY22 and FY23.

Valuation: Reflects track record

The stock trades at a discount to peers on EV-based valuation metrics and at a small premium on a P/E basis. The stock is supported by a dividend yield approaching 3%, which is at the top end of its peer group. With strong performance through the pandemic (EPS growth in FY20 despite a small revenue decline) and the goal of doubling EPS by FY25/26, in our view the valuation reflects the company’s track record of profitable growth.

Consensus estimates

Year
end

Revenue
(€m)

PBT
(€m)

EPS
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/20

244.0

29.8

1.12

1.00

48.7

1.8

12/21

266.2

33.8

1.26

1.20

43.1

2.2

12/22e

294.8

39.5

1.46

1.40

37.2

2.6

12/23e

327.7

48.3

1.75

1.60

31.0

2.9

Source: Mensch und Maschine investor relations pages (as at 13 March)

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 FY21 results

Mensch und Maschine (M+M) reported a robust set of results for FY21. The company reported revenue growth of 9.1% y-o-y and, due to good cost control, this translated to operating profit growth of 11.8% and EPS growth of 13.1%. The company moved from a net debt position (before finance leases) to a net cash position by the end of the year and increased the dividend per share by 20% y-o-y. The company noted that seasonality in FY21 was more like FY19, reverting to pre-COVID patterns of trading.

Exhibit 1: FY21 results highlights

€m

FY21

FY20

y-o-y

Revenues

266.2

244.0

9.1%

Gross profit

138.4

128.0

8.2%

EBITDA

44.4

40.3

10.2%

Operating profit

34.7

31.0

11.8%

Net income after minority interest

21.3

18.7

13.9%

EPS (€)

1.26

1.12

13.1%

Net cash (excluding leases)/(net debt)

8.2

(3.2)

N/A

Dividend per share (€)

1.2

1.0

20.0%

Gross margin

52.0%

52.4%

-0.4%

EBITDA margin

16.7%

16.5%

0.2%

Operating margin

13.0%

12.7%

0.3%

Source: M+M

Divisional performance

The Software division grew revenue 11.3% y-o-y, after 0.7% growth in FY20. Compared to FY19, revenue was 12.1% higher. EBIT grew 11.6% y-o-y and the EBIT margin expanded by 0.1pp to 25.4%. The company noted that it acquired a Dutch OPEN MIND reseller at the start of FY21 for €2.6m. The acquired business contributed revenue of €2.16m and PBT of €0.62m, which implies divisional organic revenue growth of 8.5% y-o-y and EBIT growth of c 8.3% y-o-y in FY21.

The VAR division grew revenue 8.1% y-o-y after a 1.5% decline in FY20; growth versus FY19 was 6.5%. EBIT grew 12.1% y-o-y resulting in margin expansion of 0.3pp to 7.3%.

Exhibit 2: Divisional performance

€m

FY21

FY20

y-o-y

FY21

FY20

y-o-y

Revenue

EBIT

Software

84.2

75.6

11.3%

Software

21.4

19.1

11.6%

VAR

182.0

168.4

8.1%

VAR

13.3

11.9

12.1%

Total

266.2

244.0

9.1%

Total

34.7

31.0

11.8%

Gross profit

EBIT margin

Software

76.1

68.8

10.6%

Software

25.4%

25.3%

0.1%

VAR

62.3

59.1

5.4%

VAR

7.3%

7.1%

0.3%

Total

138.4

128.0

8.2%

Total

13.0%

12.7%

0.3%

Gross margin

Software

90.5%

91.1%

-0.6%

VAR

34.2%

35.1%

-0.9%

Total

52.0%

52.4%

-0.4%

Source: M+M

While 55% of gross profit was generated by the Software division and 45% by the VAR division, the company also provided further detail on how gross profit was distributed by vertical:

55% from manufacturing: this includes the Software division’s hyperMILL CAM software (c 40%) and the VAR division’s digitisation and training based on eXs, customX and PDM booster for a variety of manufacturing applications.

35% from architecture/construction/engineering (AEC): this includes the Software division’s DATAflor software for gardening/landscaping/earthworks and SOFiSTiK software for civil engineering, bridge, tunnel and building design, as well as the VAR division’s BIM booster solution and BIM Ready training for structural and civil engineering, building services and facilities management.

10% hybrid manufacturing and AEC: this includes MapEdit, eXs and customX solutions.

Management change

Adi Drotleff, founder of M+M and 45% shareholder, has stepped back from the CEO role with effect from the start of the year. This formalises his transition from the operational side of the business to a more strategic role. He continues to hold the role of managing director and chairman of the supervisory board. The company will be managed by the COO Christoph Aschenbrenner and CFO Markus Pech.

Outlook and estimates

The company outlined its targets in the short and longer term. The expectations for FY22 are unchanged; for FY23, the company has introduced targets for 20–30c growth in EPS and 15–25c growth in DPS. Management also expects to double revenue by FY28/29 and to double EPS more quickly, by FY25/26. This implies a revenue CAGR of 8.2–9.4% and an EPS CAGR of 14.7–18.7% within those timeframes.

Exhibit 3: Management guidance

FY22

FY23

FY25/26

FY28/29

Revenue

Growth 8-12% pa

>€500m

Gross profit

Growth 8-12% pa

EBIT

Growth 14-20% pa

EPS

+18–24c

+20–30c

>250c

Dividend per share (DPS)

+15–20c

+15–25c

Source: M+M

Prior to the full FY21 results being announced, consensus forecasts were in line with current company guidance.

Exhibit 4: Consensus forecasts

€m

FY22e

FY23e

Revenues

294.8

327.7

Revenue growth

10.8%

11.2%

EBITDA

50.4

59.4

EBITDA margin

17.1%

18.1%

EBIT

40.3

48.9

EBIT margin

13.7%

14.9%

EPS (€)

1.46

1.75

DPS (€)

1.40

1.60

Source: Company investor relations pages, as at 13 March (prior to publication of FY21 results)

Valuation

The stock is essentially flat over the last 12 months, having reached a peak of €68.5 in September before the market started shifting from growth to value stocks and the war in Ukraine further weighed on share prices. The shares trade at a discount to peers on EV-based valuation metrics and at a small premium 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 due to the VAR side of the business. The stock is supported by a dividend yield approaching 3%, which is at the top end of its peer group.

Exhibit 5: Peer valuation metrics

Company

Quoted

Share

Market

EV (m)

EV/Sales (x)

EV/EBIT (x)

P/E (x)

Div yield

EBIT margin

ccy

price

cap (m)

CY

NY

CY

NY

CY

NY

CY

NY

CY

NY

MENSCH UND MASCHINE*

EUR

54.3

921

913

3.1

2.8

22.6

18.7

37.2

31.0

2.6%

2.9%

13.7%

14.9%

AVEVA GROUP

GBp

2529

7,626

8,260

6.8

6.2

22.7

20.4

24.2

22.0

1.5%

1.6%

30.0%

30.6%

CENIT

EUR

11.5

96

79

0.5

0.5

9.7

8.8

20.3

14.9

3.9%

4.4%

5.0%

5.2%

NEMETSCHEK

EUR

73.6

8,558

8,471

11.2

10.0

45.9

39.3

59.2

51.0

0.5%

0.5%

24.5%

25.6%

AUTODESK

USD

192.3

42,303

43,167

8.5

7.4

23.4

19.4

28.4

23.5

0.0%

0.0%

36.2%

38.1%

DASSAULT SYSTEMES

EUR

41.6

55,807

56,335

10.5

9.5

34.4

30.9

42.3

38.5

0.4%

0.5%

30.5%

30.8%

HEXAGON

SEK

124.6

325,088

32,899

6.7

6.2

22.9

20.8

27.7

25.1

1.0%

1.2%

29.2%

29.8%

PTC

USD

103.9

12,156

13,300

6.9

6.2

19.2

17.5

24.0

20.6

0.0%

0.0%

36.0%

35.4%

Average

7.3

6.6

25.5

22.4

32.9

28.7

1.1%

1.2%

27.3%

27.9%

Median

6.9

6.2

22.9

20.4

27.7

23.5

0.5%

0.5%

30.0%

30.6%

Source: Refinitiv (as at 14 March). Note: *M+M forecasts are on a reported basis, whereas peer forecasts may contain adjustments for items such as share-based payments and exceptional items that result in higher EBIT margins and EPS.

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Frankfurt +49 (0)69 78 8076 960

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Germany

London +44 (0)20 3077 5700

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