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Research: TMT
In Resilient in the downturn we highlighted how a strong showing from mVISE’s services business (+6% y-o-y) saw it deliver growth, margin uplift and cash flow in H1 despite the COVID-19 pandemic. However, this was partially offset by another shortfall in product sales, which were affected. Nevertheless, mVISE remains confident about its longer-term prospects here. This appears to be shared by the market; consensus sees sales growth accelerating to 15% in FY21 and the rating (c 18x FY21 EV/EBIT) stands at a premium to a pure-play service company.
Written by
mVISE |
Resilience and product growth?
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Software & comp services |
Deutsches Eigenkapitalforum 2020
29 October 2020 |
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In Resilient in the downturn we highlighted how a strong showing from mVISE’s services business (+6% y-o-y) saw it deliver growth, margin uplift and cash flow in H1 despite the COVID-19 pandemic. However, this was partially offset by another shortfall in product sales, which were affected. Nevertheless, mVISE remains confident about its longer-term prospects here. This appears to be shared by the market; consensus sees sales growth accelerating to 15% in FY21 and the rating (c 18x FY21 EV/EBIT) stands at a premium to a pure-play service company.
Resilient services business
The strong performance of the service business (97% of revenues) in Q1 (see Resuming its product-driven growth strategy?) continued into Q2 despite COVID-19. Longstanding client relationships and 60–70% exposure to telecom and utility sectors, which are experiencing minimal disruption, helped maintain activity levels. In a typically seasonally weaker period, this resumption in growth helped fuel a H120 expansion in EBITDA to €0.3m (a 3.1% margin) and free cash flow of €1.5m.
Products struggled again
Product sales, the expected driver of both growth and higher margins in the long term, were weak again (down 39% y-o-y to just €0.3m). While management states the elastic.io pipeline is at a record level and it has just closed an important deal, SaleSphere, which provides a sales platform to in-store and travelling sales teams, was particularly heavily hit by lockdown restrictions. Reflecting the wider economic uncertainty and last year’s miss, management acknowledges that predicting the timing of deal closure is difficult and it has withdrawn guidance. Consensus has lowered FY20 expectations for product revenues to just €0.9m. Implying just €0.6m in H2, this figure looks beatable. However, FY21 estimates imply total sales growth of 15%, a re-acceleration that appears to be largely driven by products.
Valuation: Product catalyst needed
mVISE’s share price lost a quarter of its value between May and September while consensus FY21 EPS halved. The price of €2.09 implies a consensus FY21 EV/EBIT multiple of 18x, a c 50% premium to the average of its nearest IT services peers. This rating appears based on growth in its high-margin product sales (software companies can command EV/EBIT multiples above 20x). A product-driven beat of consensus forecasts in H220 could significantly bolster conviction in longer-term prospects in our view, justifying both FY21 forecasts andThis report has been prepared and issued by Edison as part of a roadshow package for companies attending the Deutsches Eigenkapitalforum. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services. the rating.
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Edison estimates
Source: : Company data, Refinitiv (based on one estimate) |
EDISON QUICKVIEWS ARE NORMALLY ONE-OFF PUBLICATIONS WITH NO COMMITMENT TO WRITING ANY FOLLOW UP. QUICKVIEW NOTES USE CONSENSUS EARNINGS ESTIMATES.
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Research: TMT
Although COVID-19 continues to make signing new business challenging, Mensch und Maschine (M+M) has managed to report a small increase in revenue over the first nine months of FY20 (9M20). Combined with careful cost control, this has translated to a 20% increase in EBIT over the same period. While the FY20 EPS guidance range has been lowered slightly, the company is confident it can resume its growth trajectory in FY21.