mic — Rapidly building position in POS market

mic (DB: M3B)

Last close As at 11/04/2024

2.52

0.06 (2.44%)

Market capitalisation

47m

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Research: TMT

mic — Rapidly building position in POS market

mic’s reverse takeover of Pyramid Computer was finalised in June and the company has already announced plans for another large acquisition for further expansion in the point-of-sale (POS) market. Pro-forma revenues, including faytech’s contribution, are expected to amount to €100m in FY22, conditional on completion of this acquisition. Pyramid’s outlook for FY21 is for modest growth in revenues and EBIT, due to current economic conditions.

Johan van den Hooven

Written by

Johan van den Hooven

Analyst

TMT

mic

Rapidly building position in POS market

Technology

Scale research report - Update

5 August 2021

Price

€3.18

Market cap

€59m

Share price graph

Share details

Code

M3BG

Listing

Deutsche Börse Scale

Shares in issue

18.6m

Net cash at 31 December 2020

€6.6m

Business description

mic has transformed itself from a holding company into an operational company via the reverse takeover of Pyramid Computer. Pyramid is a specialist in automation solutions in the retail, hospitality and food retail sectors. The two investments in Securize and Smarteag will be divested.

Bull

Point-of-sale solutions is a high-growth market.

Room for expansion via acquisitions.

Ample room to enter new market segments.

Bear

Integration risk of fast pace of acquisition strategy.

Competitive market segment.

Risk of dilution from further acquisition financing.

Analyst

Johan van den Hooven

+44 (0)20 3077 5700

mic’s reverse takeover of Pyramid Computer was finalised in June and the company has already announced plans for another large acquisition for further expansion in the point-of-sale (POS) market. Pro-forma revenues, including faytech’s contribution, are expected to amount to €100m in FY22, conditional on completion of this acquisition. Pyramid’s outlook for FY21 is for modest growth in revenues and EBIT, due to current economic conditions.

Announcing its next acquisition in the POS market

mic has reported its H121 results, which do not yet include Pyramid. The net loss of mic of €1.95m was mainly related to the costs incurred for the Pyramid acquisition. For the 2021 full year, mic will publish consolidated results including Pyramid. On 29 July, the company announced the signing of a letter of intent to acquire faytech, a manufacturer of touch-screen devices for POS and industrial applications, to further strengthen its market position in this market segment. faytech’s annual revenues are €24.7m, with an EBIT margin slightly below Pyramid’s level. mic expects the faytech transaction to be signed by 1 October 2021.

Aiming for €100m in revenues in FY22

Pyramid’s outlook for FY21 is cautious, given the current uncertain market conditions: 0–9% revenue growth with a stable EBIT margin of 8.3%. Beyond FY21, the global market for digital kiosk solutions at the point of sale could return to projected growth rates of more than 10% per year on average over the next five to seven years, based on the expectations of market researchers. At the same time as the H121 results, mic provided guidance for Pyramid for FY22: revenues of €67–71m and an EBIT margin of at least 9%. Management expects pro-forma revenues of around €100m in FY22, conditional upon the completion of the acquisition of faytech (for which company revenue guidance is €30m in FY22e). Total pro-forma group EBIT would be €7.7–8.1m, or a margin of around 8%, excluding the estimated cost synergies of €1m.

Valuation: Discount to peers

Based on consensus estimates for mic (not including any contribution from faytech yet), the company’s valuation shows a discount to peers of 15–40% for both EV/sales and EV/EBITDA in FY21e. If the market is reassured by the successful execution of the company’s new strategy within the POS market, then the valuation could move more in line with peers.

Consensus estimates

Year
end

Revenues
(€m)

EBITDA
(€m)

Net profit
(€m)

EPS
(€)

PE
(x)

EV/EBITDA
(x)

12/19

0.8

(1.4)

(1.5)

(0.99)

N/A

N/A

12/20

0.6

N/A

(1.2)

(0.44)

N/A

N/A

12/21e

64.0

5.9

3.5

0.18

17.4

8.5

12/22e

75.2

7.9

4.7

0.25

12.7

5.9

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 H121 results

In June 2021, mic successfully finalised the acquisition of Pyramid Computer (Pyramid) via a reverse takeover procedure and transformed itself into an operational company instead of a holding company. mic now consists of Pyramid and the holdings in Securize IT Solutions and Smarteag, which are planned to be divested in due course and are not expected to have a major impact on results. mic management has previously expressed the expectation that the divestment of both Securize and Smarteag could realise cash of around €2.5–3.0m.

mic has only published individual financial statements, which have not yet included any results from Pyramid. Now that the acquisition of Pyramid has been finalised, mic will prepare and publish consolidated financial statements for the full fiscal year of 2021. mic reported a net loss of €1.95m in H121, mainly related to the costs incurred in relation to the acquisition of Pyramid (including advisory costs and the issuance of mic shares).

mic also provided an update on Pyramid. This company realised revenues of €25.3m until 27 July 2021 and has existing orders of €26.9m, which are expected to be realised before year-end. Comparison figures with last year were not provided, but management maintained its expectation of 0–9% growth in Pyramid revenues for FY21.

Following the Pyramid acquisition, which was largely paid in mic shares (for more details see our last update), mic’s equity jumped from €2.2m in H120 to €42.1m in H121. The equity ratio is a very healthy 88%, given the balance sheet total of €47.9m.

Transformed into a POS specialist

The takeover of Pyramid was announced in early November 2020 and finalised in June 2021 after several financing steps. Pyramid develops and produces hardware solutions for self-administration applications during the checkout process at the POS. The company’s digital kiosk technology enables end-customers to complete orders independently using touch screens. Pyramid has built and delivered more than 40,000 self-service terminals worldwide.

Pyramid is a specialist in automation solutions in the retail, hospitality and food retail sectors, with customers such as McDonald’s, Adidas and Lidl. The five largest customers represented 48% of FY20 revenues (the largest customer was 17.5%). In total, Pyramid has more than 100 customers.

Exhibit 1: Pyramid’s kiosk technologies – self-service stations

Source: mic

The total purchase price of Pyramid was €44m and it was paid via the issuance of more than 16m mic shares in total, with the current number of mic shares outstanding at 18.6m. The shareholders of Pyramid and management combined hold 49% of the shares of mic. Pyramid’s current CEO will remain the CEO of the company.

A positive outlook for 2021

In February 2021, mic provided guidance for Pyramid for FY21, taking into account the effect of the pandemic on market conditions. Revenues were estimated in the range of €58–63m, reflecting 0–9% growth compared to FY20 revenues of €57.7m. EBIT is expected to increase to €4.9–5.3m compared to €4.8m in FY20, reflecting a stable margin of around 8.3%. This forecast was reiterated on 27 July together with the H121 results. Revenues until 27 July 2021 were €25.3m and the existing orders that will be realised before year-end are €26.9m, which add up to a revenue level of €52.2m without taking into account any new orders in the remainder of the year. Pyramid's cash position has increased due to the positive results development and was €8.1m as of 27 July 2021 (€7.1m at year-end FY20).

Letter of intent for acquisition of faytech

On 29 July 2021, just two days after the publication of the H121 results of mic, the company announced the signing of a letter of intent to acquire faytech. mic expects the faytech transaction to be signed by 1 October 2021.

This could potentially be mic’s second acquisition after the reverse takeover of Pyramid. In March 2021, mic announced the proposed acquisition of Polygon, with annual revenues of €5m. However, in the faytech deal press release, management stated that the Polygon transaction is still being reviewed and negotiated, and may now become a lesser priority in the context of the planned faytech acquisition.

faytech is a manufacturer of touch-screen devices for POS and industrial applications with worldwide production capacities, mainly in China. Customers include Bosch, Continental, Dell, Honeywell, Komatsu, Qualcomm, Siemens and Unilever.

According to preliminary figures, faytech generated pro-forma sales of approximately €24.7m and EBIT of approximately €1.7m in FY20. According to mic, the company is to be transferred free of debt and non-operating assets. The base purchase price is €15.8m, of which €4.5m would be paid in cash and the remaining part via a capital increase at €3.30 per mic share (contribution in kind to the faytech management). In addition, an earnout component of a maximum of €7.1m is to be agreed for achieving targets set for the next three years and also to be paid in mic shares. Upon completion of the acquisition, Mr Arne Weber, founder of faytech, will become one of the largest shareholders of mic. The total potential purchase price reflects a maximum EV/sales multiple of 0.9x.

Heading to the €100m revenue level in FY22

At the same time as the publication of mic’s H121 results, management provided guidance for Pyramid for FY22. Revenues are expected in the range of €67–71m with an EBIT margin of at least 9%. Management expects pro forma revenues of around €100m in FY22, conditional upon completion of the acquisition of faytech (for which company revenue guidance is €30m in FY22e). Total pro-forma group EBIT would be €7.7–8.1m, at a margin of around 8%. mic expects total cost benefits from the combination of €1m.

According to the expectations of market researchers such as Mordor Intelligence, Allied Market Research and Market Analysis, the global market for digital kiosk solutions at the point of sale is expected to grow more than 10% per year on average over the next five to seven years. These estimates date from before the start of the pandemic, but we believe market growth rates might return to normal levels once the pandemic is behind us.

mic aims to outgrow the market by adding selective acquisitions in a fragmented global market. It also wants to enter new market segments, whereas currently the focus is mainly on food and beverages, hospitality and grocery retail. Potential new segments are healthcare, transportation, cinemas and hotels. Expansion into new geographical areas is another growth pillar for the company, building from its current base in Germany (58% of FY20 revenues), rest of Europe (30%) and rest of world (12%).

Valuation shows a discount to peers

Based on consensus estimates for mic (before any contribution from faytech), its valuation shows a discount to peers of 15–40% when looking at 2021e EV/sales and EV/EBITDA multiples. If we see successful execution of the company’s new strategy within the POS market, then the valuation could move more in line with peers.

Exhibit 2: Peer group comparison

Share price

Market cap

EV/sales (x)

EV/EBITDA (x)

P/E (x)

€m

2021e

2022e

2021e

2022e

2021e

2022e

Aures Technologies

28.80

115

1.1

0.9

8.3

6.8

18.1

13.8

Data Modul AG

58.00

204

0.8

0.7

8.6

6.8

22.5

18.2

NCR Corp

44.13

5,777

1.4

1.2

6.9

4.1

16.6

12.9

S&T AG

21.34

1,410

0.9

0.8

9.0

7.6

20.5

16.7

Vectron Systems AG

12.90

104

2.3

1.7

18.1

9.7

39.1

19.7

Average

1.3

1.1

10.2

7.0

23.4

16.3

mic AG / Pyramid

3.16

59.7

0.8

0.6

8.6

6.0

17.2

12.6

Premium/(discount)

-38%

-42%

-16%

-15%

-26%

-22%

Source: Refinitiv. Note: Prices at 30 July 2021.


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