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Research: TMT
Mensch und Maschine has reported a respectable set of H120 results, with revenue growth of 8.5% and EPS growth of 19.0% y-o-y. Q2 suffered from weaker demand in both divisions due to COVID-19 disruption but good cost control minimised the impact at the net income level. Management is maintaining its EPS and dividend targets for FY20; we estimate that this could be achieved even if H2 revenues fall below H1.
Mensch und Maschine |
Maintaining FY20 profit target
Software |
Scale research report - Update
24 July 2020 |
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Mensch und Maschine has reported a respectable set of H120 results, with revenue growth of 8.5% and EPS growth of 19.0% y-o-y. Q2 suffered from weaker demand in both divisions due to COVID-19 disruption but good cost control minimised the impact at the net income level. Management is maintaining its EPS and dividend targets for FY20; we estimate that this could be achieved even if H2 revenues fall below H1.
Software business maintained profitability in Q2
The Software business saw 0.9% year-on-year revenue growth in H120 and generated an EBIT margin of 26.3% (+1.7pp y-o-y). This masks divergent performance on a quarterly basis: Q1 revenue growth of 11.3% was offset by a 9.0% decline in Q2. Despite the lower demand in Q2, the EBIT margin only dipped to 25.8% due to good cost control.
VAR business main driver of H2 revenue growth
The VAR business generated 11.9% y-o-y revenue growth in H120, with 29.9% growth in Q1 only partially offset by a 9.4% decline in Q2. The H1 EBIT margin of 7.3% (+1.6pp y-o-y) was made up of a 9.6% margin in Q1 dropping to 3.4% in Q2. Overall at the group level, net income increased 18.4% and EPS 19.0% y-o-y. Net debt was reduced by €14m h-o-h, resulting in a net cash position of €3.7m (excluding lease liabilities) at the end of H1.
Valuation: Stock has recovered from lows
Even taking into account issues arising from the restrictions as a result of COVID-19, the company expects to meet its guidance for 18–24% EPS growth in FY20, equating to an EPS range of €1.17–1.23. 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 recovered 62% from its low of €29.8 in March and is up 7% year-to-date; it trades at a discount to peers on all valuation metrics, with a dividend yield of c 2%.
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Consensus estimates
Source: Refinitiv |
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 H120 results
Mensch und Maschine (M+M) reported revenue growth of 8.5% y-o-y for H120. Due to good cost control, operating profit increased 19.6% and EPS increased 19.0% over the same period. The company noted that after strong revenue growth of 24.5% y-o-y in Q120, COVID-19 disruption resulted in a decline in Q220 revenue of 9.3% y-o-y. The company closed the period with a net debt position of €10m; excluding finance leases, it had a net cash position of €4m.
Exhibit 1: H120 results highlights
€m |
H119 |
H120 |
y-o-y |
Revenues |
120.22 |
130.38 |
8.5% |
Gross profit |
64.12 |
65.68 |
2.4% |
EBITDA |
17.53 |
21.21 |
21.0% |
Operating profit |
13.98 |
16.72 |
19.6% |
Net income after minority interest |
8.44 |
9.99 |
18.4% |
EPS (€) |
0.501 |
0.596 |
19.0% |
Net debt (including lease liabilities) |
21.39 |
10.04 |
-53.1% |
Source: Mensch und Maschine
Divisional performance
In the two following exhibits, we analyse the divisional performance on a half-yearly and quarterly basis.
Exhibit 2: Divisional performance
€m |
H119 |
H120 |
y-o-y |
||||
Revenues |
|||||||
Software |
37.5 |
37.9 |
0.9% |
||||
VAR |
82.7 |
92.5 |
11.9% |
||||
Total |
120.2 |
130.4 |
8.5% |
||||
Gross profit |
|||||||
Software |
35.2 |
34.7 |
-1.5% |
||||
VAR |
28.9 |
31.0 |
7.2% |
||||
Total |
64.1 |
65.7 |
2.4% |
||||
Gross margin |
|||||||
Software |
93.9% |
91.6% |
-2.3% |
||||
VAR |
34.9% |
33.5% |
-1.4% |
||||
Total |
53.3% |
50.4% |
-3.0% |
||||
EBITDA |
|||||||
Software |
11.4 |
12.4 |
9.0% |
||||
VAR |
6.2 |
8.8 |
43.0% |
||||
Total |
17.5 |
21.2 |
21.0% |
||||
EBITDA margin |
|||||||
Software |
30.3% |
32.7% |
2.4% |
||||
VAR |
7.5% |
9.5% |
2.1% |
||||
Total |
14.6% |
16.3% |
1.7% |
||||
EBIT |
|||||||
Software |
9.2 |
10.0 |
7.8% |
||||
VAR |
4.8 |
6.8 |
42.5% |
||||
Total |
14.0 |
16.7 |
19.6% |
||||
EBIT margin |
|||||||
Software |
24.6% |
26.3% |
1.7% |
||||
VAR |
5.7% |
7.3% |
1.6% |
||||
Total |
11.6% |
12.8% |
1.2% |
||||
Source: Mensch und Maschine
Exhibit 3: Quarterly performance
€m |
Q120 |
Q220 |
Change (year-on-year) |
|
Q120 |
Q220 |
|||
Revenue |
||||
Software |
20.5 |
17.4 |
11.3% |
-9.0% |
VAR |
58.2 |
34.4 |
29.9% |
-9.4% |
Total |
78.6 |
51.8 |
24.5% |
-9.3% |
EBIT |
||||
Software |
5.47 |
4.48 |
14.2% |
0.9% |
VAR |
5.61 |
1.16 |
66.3% |
-15.8% |
Total |
11.08 |
5.64 |
35.8% |
-3.0% |
EBIT margin |
||||
Software |
26.7% |
25.8% |
0.7% |
2.5% |
VAR |
9.6% |
3.4% |
2.1% |
-0.3% |
Total |
14.1% |
10.9% |
1.2% |
0.7% |
Source: Mensch und Maschine
Software business revenue was essentially flat year-on-year for H120; this masks the strong rate of growth in Q120 (+11.3%) offset by a 9.0% decline in Q220 as COVID-19 made it harder to sign new business sales. While the Software gross margin declined by 2.3pp y-o-y in H120, EBIT grew 7.8% resulting in a 1.7pp increase in the EBIT margin to 26.3%. This was particularly evident in Q220 where EBIT increased 0.9% y-o-y despite a 9% revenue decline.
The VAR business saw H120 revenue growth of 11.9% y-o-y, with 29.9% growth in Q120 partially offset by a 9.4% decline in Q220. VAR EBIT increased 42.5% y-o-y in H120, expanding the EBIT margin by 1.6pp to 7.3%. On a quarterly basis, in Q120 EBIT grew 66.3% and the margin expanded 2.1pp to 9.6%. In Q220, the revenue decline resulted in a 15.8% decrease in EBIT and a 0.3pp decline in the margin to 3.4%.
Outlook and consensus estimates
Despite the weaker demand experienced in Q220, the company believes that as long there is a modest improvement in demand in H2, it should meet its targets for FY20 (EPS of €1.17–1.23 and a dividend of €1.00–1.05). Management noted that the emphasis would be on achieving the profitability target for FY20 with less focus on revenue and gross profit.
Having reported EPS of €0.6 in H120, M+M will need to generate roughly the same level of net income in H2 to reach the target. As M+M managed to reduce its cost base in Q2 (we estimate that operating expenses declined 13% q-o-q), we expect the company to maintain this focus during H2, which means that it should be able to generate the desired level of net income on lower revenues than in H1.
Consensus forecasts (which have not yet changed post results) are just below the bottom of the EPS target range for FY20 while the dividend forecast is within the range. This assumes that H220 revenues increase 9.5% compared to H120 while EBIT decreases 10% h-o-h.
Exhibit 4: Consensus forecasts
€m |
FY20e |
FY21e |
Revenues |
273.2 |
303.4 |
Revenue growth |
11.1% |
11.1% |
EBITDA |
41.4 |
47.6 |
EBITDA margin |
15.1% |
15.7% |
EBIT |
31.7 |
38.4 |
EBIT margin |
11.6% |
12.7% |
EPS (€) |
1.16 |
1.42 |
DPS (€) |
1.01 |
1.20 |
Source: Refinitiv (as at 23 July)
Valuation
The stock 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 5: Peer financial metrics and valuation multiples
Company |
Quoted Ccy |
Share price |
Market cap m |
EV (rep ccy) m |
EV/sales |
EV/EBIT |
P/E |
Div yield |
EBIT margin |
|||||
CY |
NY |
CY |
NY |
CY |
NY |
CY |
NY |
CY |
NY |
|||||
MENSCH UND MASCHINE |
€ |
48.2 |
806 |
802 |
2.9 |
2.6 |
26.3 |
20.9 |
41.4 |
33.9 |
2.1% |
2.5% |
11.2% |
12.7% |
AVEVA GROUP |
GBp |
4215 |
6,806 |
6,761 |
8.5 |
7.9 |
32.5 |
28.1 |
41.2 |
35.8 |
1.1% |
1.2% |
26.2% |
28.2% |
CENIT |
€ |
9.7 |
81 |
68 |
0.5 |
0.4 |
31.6 |
9.4 |
58.8 |
23.4 |
4.4% |
4.4% |
1.5% |
4.5% |
NEMETSCHEK |
€ |
65.0 |
7,474 |
7,641 |
13.1 |
11.5 |
64.4 |
49.9 |
79.4 |
61.2 |
0.5% |
0.6% |
20.3% |
23.1% |
RIB SOFTWARE |
€ |
25.5 |
1,323 |
1,233 |
4.5 |
3.8 |
40.8 |
26.2 |
51.8 |
36.3 |
0.7% |
0.9% |
11.0% |
14.6% |
AUTODESK |
US$ |
240.7 |
52,769 |
52,938 |
14.2 |
12.0 |
50.0 |
36.5 |
63.7 |
44.9 |
0.0% |
0.0% |
28.4% |
32.8% |
DASSAULT SYSTEMES |
€ |
159.9 |
42,101 |
44,680 |
9.8 |
8.9 |
35.5 |
30.3 |
43.4 |
37.6 |
0.5% |
0.5% |
27.6% |
29.4% |
HEXAGON |
SEK |
585.0 |
205,305 |
22,183 |
6.0 |
5.6 |
25.9 |
21.4 |
29.9 |
25.2 |
0.9% |
1.1% |
23.2% |
26.0% |
PTC |
US$ |
83.8 |
9,699 |
10,468 |
7.4 |
6.7 |
26.8 |
22.7 |
36.5 |
29.8 |
0.0% |
0.0% |
27.5% |
29.4% |
Average |
8.0 |
7.1 |
38.4 |
28.1 |
48.7 |
35.6 |
1.0% |
1.1% |
20.7% |
23.5% |
||||
Median |
7.9 |
7.3 |
34.0 |
27.1 |
47.6 |
36.1 |
0.6% |
0.8% |
24.7% |
27.1% |
||||
Source: Refinitiv. Note: Priced at 23 July.
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Research: Healthcare
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