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Research: TMT
mic is considering a reverse acquisition to shift from a holding company to an operational company. The FY19 results showed an improvement in gross profit, lower net loss and a virtually debt-free position. In April 2020, mic raised €0.9m and, together with potential new capital of €6.5m (already authorised by the shareholders at the AGM), this offers a decent war chest for potential takeover candidates. The book value of the current two holdings was c €2m in FY19 and combined with the current net cash position of €0.9m this implies a value per share of €1.17.
mic |
Reverse takeover potential
Financials |
Scale research report - Update
9 July 2020 |
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mic is considering a reverse acquisition to shift from a holding company to an operational company. The FY19 results showed an improvement in gross profit, lower net loss and a virtually debt-free position. In April 2020, mic raised €0.9m and, together with potential new capital of €6.5m (already authorised by the shareholders at the AGM), this offers a decent war chest for potential takeover candidates. The book value of the current two holdings was c €2m in FY19 and combined with the current net cash position of €0.9m this implies a value per share of €1.17.
Reorganisation finalised in FY19
In FY19, mic finalised its reorganisation, which started in 2017. After the decision in December 2019 to divest subsidiary 4Industries, which mic no longer sees as having growth potential, it only has two holdings: Securize IT Solutions and Smarteag. In FY19, mic generated gross profit of €0.8m, up from €0.1m last year. Due to additional write downs of assets, mic reported a net loss of €1.5m vs a loss of €4.9m last year.
Focus on reverse takeover
After its reorganisation over the past few years, mic’s new strategy aims at shifting from a holding company to a cash-generating operational one. The current focus is therefore on a reverse takeover. Management is targeting a company with revenues of €20–30m, an EBITDA margin of around 15% and growth potential of 20–30% pa. The targeted company could be active in big data, Industry 4.0, infrastructure and energy management, IoT and digitalisation. mic raised €0.9m in April 2020 and has potential access to new equity of c €6.5m, already authorised by the shareholders at the AGM. Management also expects a cash inflow of €1m related to the legal dispute with previous management and a tax reimbursement. The combined amount puts mic in a good position for a reverse takeover.
Valuation: Difficult to value future activities
It is currently difficult to estimate mic’s potential value as it is considering a reverse takeover whereby the type/nature of company that will be created is unknown, and the current holdings could be up for sale. The reported book value of the current holdings is around €2m and, combined with the net cash of €0.9m, implies a value of €1.17/share. Management expects potential income from legal disputes and tax reimbursement of €1m later in 2020, reflecting €0.41/share.
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Historical financials
Source: mic |
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 2019 results
In 2019, mic finalised its restructuring process, which it initiated in 2017. Net loss was €1.5m compared to a loss of €4.9m in 2018. The largest component of the 2019 loss was the amortisation of assets for €1.45m. These write downs were related to the sale of 4Industries and mic’s remaining patents. The results were in line with the preliminary results published on 19 March 2020.
Both gross profit and EBIT improved in 2019, driven by exits and selling Securize shares. mic does not publish the results of its two participations as it does not have to fully consolidate these stakes according to HGB rules. Exhibit 2 below shows the company’s organisational structure.
Exhibit 1: mic 2019 results
€m |
FY18 |
FY19 |
Gross profit |
0.1 |
0.8 |
EBIT |
(1.7) |
0.0 |
Write downs/other adjustments |
(3.9) |
(1.5) |
Net profit |
(4.9) |
(1.5) |
Source: mic
Strategy focused on reverse takeover
mic currently has two holdings: Securize IT Solutions and Smarteag. It holds 17% in Securize IT Solutions, which owns 100% of Diso. mic owns 100% of Smarteag, which owns 51% of fibrisTerre Systems. In December 2019, mic decided to divest its holding in 4Industries, since management sees no growth prospects and no strategic fit with this company and its subsidiary. As the anticipated selling price is below the book value, mic took a write down of around €1.1m on its stake in 4Industries.
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Exhibit 2: mic current holdings |
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Source: mic, Edison Investment Research |
Securize IT Solutions was formerly known as micData. In November 2019, it increased its stake in Diso from 58% to 100%, for an amount of €1.16m reflecting a total value of the company of €2.75m. Diso is an IT service provider specialising in digital workstations for departments in large companies that have the highest requirements for security and flexibility. The focus is on German and Swiss companies, eg Thyssenkrupp and Axon Lab. Diso’s preliminary FY19 results showed slightly lower revenues of €8.5m, with more than 50% growth in cloud computing revenues and slightly higher net profit of c €0.1m.
Smarteag focuses on sensor technology, in particular in the field of monitoring and managing physical infrastructure such as pipelines, railway lines, bridges and tunnels. Subsidiary fibrisTerre is a Berlin-based designer and manufacturer of distributed fibre optic sensing solutions for simultaneous strain and temperature measurements. In December 2019, mic provided an update on fibrisTerre’s plans for an IPO in Australia, for the reason to sell the company. After a failed attempt at an IPO on Australia’s first stock exchange, ASX, fibrisTerre is now preparing for a listing on the second stock exchange, NSX. It was aiming for the second half of 2020, but this now seems unrealistic in the current coronavirus environment. A potential alternative is a private equity sale and management is currently examining various options.
Management’s current focus is on value-accretive strategic decisions by looking for a medium-sized company to be acquired via a reverse takeover. The target could be a company with revenue of €20–30m, deriving a 15% EBITDA margin and annual growth of 20–30%. mic is looking at several possibilities and is focusing on growth markets such as big data, Industry 4.0, infrastructure and energy management, the Internet of Things (IoT) and digitalisation.
Management stays on board for another four years
The current CEO, Andreas Empl, started at mic in 2017 and was appointed as CEO in 2018, leading the company through a lengthy reorganisation process. In early April 2020, his appointment was extended to 1 April 2024. Mr Empl is the only member of mic’s management team. mic’s holding costs have been drastically lowered in recent years and are currently c €250k, including the CEO’s salary.
The company’s operating expenses could decrease further over the next few years, as the CEO has agreed to partly reinvest his future salary in mic shares. In addition, the supervisory board members agreed to receive up to 50% of their renumeration for 2020 in mic shares.
Financials
Looking at mic’s remaining assets, the loans and receivables related to its wholly owned subsidiary Smarteag remained unchanged at €1.3m in 2019. The book value of Securize IT Solutions was €0.66m, up from €0.51m in 2018 after a small acquisition.
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Exhibit 3: mic’s balance sheet 2017–19 |
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Source: mic, Edison Investment Research |
Due to several write downs over the past few years, equity has declined from €7.6m in 2017 to €1.5m at the end of 2019. At the end of 2019, shareholders approved a capital reduction at the ratio of 10:1, which was executed early 2020. In April 2020, mic raised new equity through the issue of 915,240 shares at a price of €1.05 per share. The capital increase was 100% subscribed, around 63% via indirect subscription rights and the remaining 37% via private placement. Equity was strengthened by €0.9m and mic is currently debt free with a cash position of just under €1m.
mic is involved in legal procedures with the previous management and also expects tax reimbursements. According to management, these two items combined could deliver up to €1m in cash, potentially bringing mic’s total cash position to €2m. The company also has access to new equity of around €6.5m (already authorised by the shareholders), offering more room for acquisitions.
Valuation
It is currently rather difficult to value mic as the company is transforming into an operational company rather than a holding company. Future activities are currently unknown, and the current participations could well be sold after finalising the reverse takeover.
The audited book value of the current two holdings is around €2m. If we add the €0.9m in cash, we arrive at a value of c €2.9m. This reflects a value per share of €1.17. According to management, legal disputes with the previous management and tax reimbursements could deliver another €1m in cash later in 2020, or €0.41 per share.
Exhibit 4: Book value of mic holdings
€m |
Value |
Last reported balance sheet value Smarteag |
1.3 |
Last reported balance sheet value Securize IT Solutions |
0.7 |
Net cash position post equity raise |
0.9 |
Total book value, plus cash position |
2.9 |
Source: mic
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Research: Healthcare
Pixium on 6 July reported that it has raised €7.3m through its shareholder rights offering initiative. The subscription rate was >94% and 14.68m new shares have been issued on 8 July at a subscription price of €0.50/share, resulting in €7.3m in gross proceeds. This financing round should enable Pixium to start the PRIMAvera pivotal study on Prima, which we expect will begin recruitment in H121. We estimate Pixium’s cash on hand should now extend its cash runway into Q421. Our enterprise value of €105.9m is unchanged but our equity value per share (inclusive of net cash) decreases to €2.73 (from €3.95 previously) as the cash proceeds from the offering are offset by a ~54% increase in shares outstanding.