Datron — Recovering after a challenging FY20

Datron (DB: DAR)

Currency in

Last close As at 30/01/2023

0.30 (2.61%)

Market capitalisation

48m

Research: Industrials

Datron — Recovering after a challenging FY20

Datron’s FY20 results were negatively affected by the market slowdown triggered by COVID-19 (sales down 22% y-o-y to €42.1m and EBIT down 45% y-o-y to €2.1m), but its performance has gradually recovered in Q420 and Q121 amid increasing economic activity. Management comfortably delivered its Q121 guidance but for now remains cautious with respect to full-year forecasts. Datron’s performance in 2021 should be assisted by improving demand in the German machine tools industry, which is expected to increase production by 6% y-o-y in FY21, according to the German Machine Tool Builders’ Association (VDW) data.

Milosz Papst

Written by

Milosz Papst

Director, Financials

Industrials

DATRON

Recovering after a challenging FY20

Industrials

Scale research report - Update

17 May 2021

Price

€8.85

Market cap

€35m

Share price graph

Share details

Code

DAR

Listing

Deutsche Börse Scale

Shares in issue

4.0m

Net cash at end-FY20

€12.5m

Business description

DATRON is a long-established provider of innovative CNC milling machines, dental milling machines, dosing machines and milling tools.

Bull

Improving order intake in Q420 and Q121.

Solid balance sheet.

Recurring income from aftersales has been increasing over recent years and helped mitigate market headwinds during the COVID-19 market slowdown.

Bear

Cyclical business, which could suffer from another COVID-19 induced downturn.

Cautious management guidance for 2021.

Small size relative to global market.

Analysts

Milosz Papst

+44 (0)20 3077 5700

Anna Dziadkowiec

+44 (0)20 3077 5700

Datron’s FY20 results were negatively affected by the market slowdown triggered by COVID-19 (sales down 22% y-o-y to €42.1m and EBIT down 45% y-o-y to €2.1m), but its performance has gradually recovered in Q420 and Q121 amid increasing economic activity. Management comfortably delivered its Q121 guidance but for now remains cautious with respect to full-year forecasts. Datron’s performance in 2021 should be assisted by improving demand in the German machine tools industry, which is expected to increase production by 6% y-o-y in FY21, according to the German Machine Tool Builders’ Association (VDW) data.

Q121 figures assisted by returning demand

Datron’s FY20 EPS declined to €0.37 from €0.70 in FY19 amid challenges posed by the COVID-19 pandemic. That said, the company outperformed the broader market of the German machine tools industry with respect to sales (down 22% yoy for Datron vs 31% for the market, according to VDW data) and order intake (down 20% and 30%, respectively), helped by a relatively high share of recurring income from aftersales compared to its competitors, according to management. Datron’s performance visibly improved in Q420 and good momentum continued in Q121, with sales at €11.4m (vs €11.7m in Q120), EBIT at €0.7m (€0.2m) and order intake at €12.1m (€12.2m), all slightly ahead of management guidance.

Cautious management guidance for FY21

For Q221, management guides to sales of €10.2–11.7m (vs €10.3m in Q220 and €13.8m in Q219) and EBIT of €100–700k (€187k and €1.3m). For the full year, Datron expects sales of €42.5–46.5m (vs €42.1m in FY20 and €53.8m in FY19), an EBIT margin of 2.5–6.0% (5.1% and 7.2%) and EPS of €0.20–0.50 (€0.37 and €0.70), with a stronger performance assumed in H221. These assumptions may look relatively conservative given that the EBIT margin was 5.1% in a weak FY20. Datron aims to expand its customer care segment (ie CNC/dental milling tools, aftersales and other), increase its international presence and further foster product innovations (R&D spending represented c 6% of total sales in FY20 vs 7.5% in FY19).

Valuation: Reflecting improving market sentiment

After a c 44% recovery of its share price since the all-time lows in mid-August 2020, Datron trades on an FY21e P/E of 22.1x and EV/EBITDA of 7.2x (vs the median 37.7x and 8.5x for its peers, respectively). Management has recommended paying a dividend of €0.05 per share from FY20 profits (vs €0.10 per share a year earlier).

Consensus estimates

Year
end

Revenue
(€m)

PBT

(€m)

EPS

(€)

DPS
(€)

P/E

(x)

Yield
(%)

12/19

53.8

3.9

0.7

0.10

12.6

1.1

12/20

42.1

2.1

0.4

0.05

23.9

0.6

12/21e

44.6

2.3

0.4

0.10

22.1

1.1

12/22e

51.3

2.8

0.5

0.15

18.4

1.7

Source: Datron, Refinitiv consensus (based on the estimates of one analyst)

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.

FY20 results affected by the COVID-19 pandemic

Datron’s revenues fell 22% y-o-y to €42.1m in FY20, while order intake was down 20% y-o-y at €42.4m, affected by a broader market slowdown. That said, the declines were visibly milder than for the German machine tools industry, which posted a 31% y-o-y contraction in sales and a 30% y-o-y reduction in order intake in the period, according to the VDW. Management highlights this was achieved thanks to a higher share of CNC/dental milling tools as well as aftersales and other services in Datron’s business (c 22% and 21% of its sales in FY20, respectively) compared to its competitors. We discuss the sales development in more detail below.

The EBIT margin stood at 5.1% in FY20 (vs 7.2% a year earlier), with the margin compression partially mitigated by a reduction of personnel costs amid shorter working hours (resulting in cost savings of c €3.2m) and lower bonuses as headcount was reduced slightly in the period (at 273 on average in FY20 vs 282 in FY19). Moreover, Datron reduced its other operating expenses by €1.6m to €6.9m in FY20, largely due to lower advertising and travel costs (down c €0.9m in FY20), external services costs (down c €0.3m) and delivery costs (down c €0.2m). EPS decreased to €0.37 in FY20 from €0.70 in FY19.

Exhibit 1: Financial performance

HGB figures in €000s unless otherwise stated

FY20

FY19

Change y-o-y

Revenue

42,133

53,785

-22%

o/w Datron machines (mainly CNC milling)

23,431

33,252

-30%

o/w CNC/Dental milling tools

9,463

10,251

-8%

o/w After sales and other

8,642

9,577

-10%

o/w Other*

597

705

-15%

Change in stocks

(418)

1,785

-123%

Other operating income

94

121

-22%

Material costs

(17,391)

(24,006)

-28%

Personnel costs

(14,199)

(18,016)

-21%

Other operating costs

(6,884)

(8,489)

-19%

Depreciation

(1,190)

(1,284)

-7%

EBIT

2,145

3,896

-45%

Profit before taxes

2,092

3,925

-47%

Income tax

(697)

(1,062)

-34%

Other taxes

(18)

(15)

25%

Net income

1,483

2,790

-47%

Minorities adjustment

(4.0)

39

-110%

Net income ex-minorities

1,479

2,829

-48%

EPS (€) – reported

0.37

0.70

-47%

Source: Datron accounts, Edison Investment Research. Note: *Other revenues as per BiLRUG (the German Accounting Directive Implementation Act)

Datron’s balance sheet remains solid, with a net cash position of €12.5m at end-FY20, including cash of €13.1m and a minor debt position of €0.6m. Management has recommended paying out a dividend of €0.05 per share, down from €0.10 per share a year earlier, which implies a dividend yield of 0.6%. Moreover, in April 2021, the company bought back 50k shares (or c 1.25% of its current share capital) at a price of €9.30 per share. Although the size of the buyback and dividend payout is moderate, we believe it shows management’s confidence in the company’s liquidity position. Interestingly, more than 80% of Datron’s employees hold shares in the company currently, according to management.

Recovering demand in Q420 and Q121

The company’s largest segment, Datron machines (c 56% of sales in FY20), was hit the hardest by the crisis, with sales down 30% y-o-y and order intake down 27% in FY20. The company posted the mildest decline in the customer care segment, which includes CNC/dental milling (sales and order intake down c 8% y-o-y) and aftersales and other (down 10% and 11%, respectively). Germany, Datron’s largest market (c 48% of sales in FY20), saw a 24% y-o-y decline in revenues in FY20. Elsewhere in the EU, Datron saw growth trends in Benelux, though these were more than offset by weak performances in Italy, Spain and France, and translated into a 25% fall in revenues in the period in this region. At the same time, Datron posted only a slight year-on-year decline in sales in the United States (the company’s second largest single market), which management notes was linked to the expansion of its contact network in this country, with new clients representing more than 50% of its US revenue in FY20.

Noteworthy, Datron’s book/bill ratio (excluding purely technical turnover items) reached 1.02 at end-FY20, compared to 1.00 at end-FY19, after it fell to 0.79 in Q220 (the weakest quarter in FY20, with order intake at €8.1m) and rebounded to 1.19 in Q420 (the strongest quarter in FY20, with order intake at €12.9m). The market recovery continued in Q121, with Datron’s performance in the period slightly ahead of management guidance released in February 2021. Consequently, its sales reached €11.4m (vs management guidance of €9.8–11.3m and €11.7m in Q120), order intake was at €12.1m (€10.5–12.0m and €12.2m, respectively), and EBIT stood at €712k (€50–650k and €153k, respectively) and EPS at €0.12 (vs €0.03 in Q120).

Exhibit 2: Datron’s sales, order intake and EBIT margin between Q120 and Q121

Source: Datron, Edison Investment Research

Management expects a stronger performance in H221

Management reaffirmed its full-year guidance for sales of €42.5–46.5m (vs €42.1m in FY20), EBIT margin at 2.5–6.0% (5.1%) and EPS of €0.20–0.50 (€0.37), with a stronger performance expected in H221. The midpoint of management guidance for revenue growth of c 6% is in line with the forecasted production growth in the German machine tools industry, as per VDW estimates released in February 2021. This may look conservative given the fact that the company has outperformed the broader German industrial companies in recent quarters based on the VDW data. We also note a relatively broad range of EBIT margin guided by the company compared with the FY20 figure of 5.1%. We understand that management guidance does not assume a rebound in investments by German industrial companies as they have remained cautious, as highlighted by management on an investor call held in February 2021. For Q221, management expects sales of €10.2–11.7m (vs €10.3m in Q220 and €13.8m in Q219) and EBIT of €100–700k (€187k and €1.3m), translating into an EBIT margin of c 3.7% at the midpoint of this guidance.

Datron’s focus in 2021 will be on industrial aluminium milling, scaling up the customer care segment (which could increase the percentage of recurring income further) and international expansion, including setting up a subsidiary in Singapore. Management also confirmed its medium-term plans to open a new production plant in Ober-Ramstadt, though its opening has been delayed until at least 2022. Management highlights that it has an attractive rental contract for the site and development costs incurred so far for this project were in a low six-digit euro range.

Valuation

We believe that Datron’s closest peers are Hermle and DMG Mori, though these are much larger companies as illustrated by their market capitalisation. Thus, we have supplemented our peer group with smaller companies engaged in the machinery industry, including Prima Industries and Biesse (both Italy based), Meier Tobler and Starrag Group (both based in Switzerland) and Nicolas Correa (Spain).

Datron is currently trading on an FY21e P/E multiple of 22.1x and an FY21e EV/EBITDA multiple of 7.2x, which compares with the peer group medians of 37.7x and 8.5x, respectively. We note that Refinitiv consensus on Datron is based on the estimates of one analyst.

Exhibit 3: Peer group comparison

Company name

Market cap local ccy (m)

P/E

EV/EBITDA

Dividend yield (%)

2020

2021e

2022e

2020

2021e

2022e

2020

2021e

2022e

DMG Mori

¥ 222,560

132.2

52.7

17.3

9.0

7.7

5.4

1.2

1.2

1.9

Hermle

€ 1,455

37.1

37.7

23.9

N/A

N/A

N/A

1.7

2.1

3.1

Biesse Spa

€ 701

112.0

39.2

24.0

14.3

10.0

7.8

0.7

1.4

1.6

Prima Industrie

€ 225

N/M

30.9

14.4

13.8

9.2

6.7

0.0

0.3

1.2

Meier Tobler

CHF 183

46.4

21.7

15.6

8.7

7.6

7.1

0.0

1.6

3.9

Starrag Group

CHF 140

N/M

278.7

16.6

13.6

12.8

6.2

0.0

0.0

2.4

Nicolas Correa

€ 63

10.5

10.1

9.4

7.3

6.6

6.0

3.3

3.3

3.4

Peer group median

46.4

37.7

16.6

11.3

8.5

6.4

0.7

1.4

2.4

Datron

€ 35

23.9

22.1

18.4

7.6

7.2

6.4

0.6

1.1

1.7

Premium/(discount)

(48%)

(41%)

11%

(32%)

(15%)

(1%)

(22%)

(18%)

(29%)

Source: Refinitiv data at 17 May 2021. Note: Refinitiv consensus for Datron is based on the estimates of one analyst.


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Schumannstrasse 34b

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Germany

London +44 (0)20 3077 5700

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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

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