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Mensch und Maschine (M+M) reported H119 revenue growth of 27% year-on-year, of which 20% was organic, and EPS growth of 27%. The Software business revenue growth of 34% benefited from the first-time consolidation of SOFiSTiK in addition to organic growth of 10%. The VAR business saw strong organic revenue growth in H1 resulting in EBIT margin expansion at a divisional and group level.
Mensch und Maschine Software |
VAR acceleration boosts profitability
Software |
Scale research report - Update
25 July 2019 |
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Mensch und Maschine (M+M) reported H119 revenue growth of 27% year-on-year, of which 20% was organic, and EPS growth of 27%. The Software business revenue growth of 34% benefited from the first-time consolidation of SOFiSTiK in addition to organic growth of 10%. The VAR business saw strong organic revenue growth in H1 resulting in EBIT margin expansion at a divisional and group level.
Software organic growth boosted by SOFiSTiK
The Software business reported 34.2% year-on-year revenue growth in H119 (Q1: +31.2%, Q2: +37.3%) of which 9.7% was organic growth and the remainder was the €6.9m contribution from the consolidation of SOFiSTiK (which made up 18% of H119 revenues). EBIT grew 28.8% year-on-year resulting in a margin of 24.6%, 1pp lower than in H118, mainly due to slightly lower margins in the original M+M Software business. The SOFiSTiK EBIT margin for H119 was 24.0% compared to 24.7% for the original M+M Software business.
VAR business performance accelerates
The VAR business reported H119 revenue growth of 24.4% year-on-year (Q1: +29.6%, Q2: +18.7%) and 52.4% growth in EBIT, resulting in margin expansion from 4.7% in H118 to 5.7% in H119. This is an acceleration in growth from FY18 (H1 +13.9%, H2 +21.0%). Management has raised guidance for FY19 group revenues (from €215–220m to €220–230m) with EPS and DPS guidance unchanged. Consensus forecasts reflect company guidance for FY19 and FY20.
Valuation: Reflects growth and strong execution
The stock has gained 26% over the last 12 months and 32% year-to-date. M+M is trading at a discount to its peer group on an EV/sales and EV/EBITDA basis, and on a P/E basis it trades at a discount in FY19 and in line in FY20. Its EBITDA profitability is lower than the peer group average, mainly due to the higher level of software reselling compared to peers. As the proportion of proprietary software sold increases, both through the growth of the Software business and through the development of software that works with Autodesk solutions within the VAR business, this margin should increase over time.
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Consensus estimates
Source: Analyst estimates as provided on Mensch und Maschine’s investor relations site. |
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 H119 results
Exhibit 1: H1 results highlights
€m |
H119 |
H118 |
y-o-y |
Revenues |
120.22 |
94.46 |
27.3% |
Gross profit |
64.12 |
52.39 |
22.4% |
EBITDA |
17.53 |
11.81 |
48.4% |
EBIT |
13.98 |
10.28 |
36.0% |
Net income after minority interest |
8.32 |
6.34 |
31.2% |
EPS (€) |
0.495 |
0.388 |
27.4% |
Net debt |
21.39 |
14.66 |
45.9% |
Source: Mensch und Maschine
Exhibit 2: Divisional results
€m |
H119 |
H118 |
y-o-y |
Revenues |
|||
Software |
37.5 |
28.0 |
34.2% |
VAR |
82.7 |
66.5 |
24.4% |
Total |
120.2 |
94.5 |
27.3% |
Gross profit |
|||
Software |
35.2 |
27.4 |
28.8% |
VAR |
28.9 |
25.0 |
15.4% |
Total |
64.1 |
52.4 |
22.4% |
Gross margin |
|||
Software |
93.9% |
97.8% |
-3.9% |
VAR |
34.9% |
37.6% |
-2.7% |
Total |
53.3% |
55.5% |
-2.1% |
EBITDA |
|||
Software |
11.4 |
7.9 |
43.8% |
VAR |
6.2 |
3.9 |
57.7% |
Total |
17.5 |
11.8 |
48.4% |
EBITDA margin |
|||
Software |
30.3% |
28.3% |
2.0% |
VAR |
7.5% |
5.9% |
1.6% |
Total |
14.6% |
12.5% |
2.1% |
EBIT |
|||
Software |
9.2 |
7.2 |
28.8% |
VAR |
4.8 |
3.1 |
52.4% |
Total |
14.0 |
10.3 |
36.0% |
EBIT margin |
|||
Software |
24.6% |
25.6% |
-1.0% |
VAR |
5.7% |
4.7% |
1.1% |
Total |
11.6% |
10.9% |
0.7% |
Source: Mensch und Maschine
M+M reported year-on-year revenue growth of 27.3% for H119 whereas EBIT increased 36.0% and net income after minority interest 31.2% over the same period. Reflecting dilution from the shares issued to acquire the majority stake in SOFiSTiK at the beginning of the year, diluted EPS increased 27.4% year-on-year. Net debt was significantly higher, with €6.2m of the €6.7m increase due to the application of IFRS 16 from the beginning of this year. As a reminder, M+M applied IFRS 16 from the beginning of FY19 and now focuses on EBIT rather than EBITDA as this incorporates the lease-related depreciation charges.
Based on the organic growth figures reported by M+M (revenues +20%, gross margin +12%, EBIT +20%), in H119 we calculate the split of organic and acquired Software results in Exhibit 3. The original M+M software business grew revenues 10% y-o-y while EBIT only increased 6% y-o-y, resulting in a small decline in the underlying EBIT margin. The acquired business (consolidated from 1 January 2019) contributed the remaining 24.5% growth in Software revenues y-o-y. We had assumed that SOFiSTiK would add c €10m revenues in FY19, but based on the revenues contributed in H119, we believe the contribution for the full year could be higher. We note that at the EBIT level, SOFiSTiK generates a similar level of profitability to the original M+M software business.
The VAR business saw revenue growth accelerate to 24.4% year-on-year (H118 +13.9%, H218 +21.0%) and EBIT growth of 52% year-on-year, with a 1.1pp increase in the EBIT margin year-on-year.
Exhibit 3: Organic and acquired financial results for the Software segment
€m |
H119 |
H118 |
y-o-y |
|
M+M revenues |
30.7 |
28.0 |
9.7% |
|
SOFiSTiK revenues |
6.9 |
0 |
N/A |
|
Total Software revenues |
37.5 |
28.0 |
34.2% |
|
M+M gross profit |
29.8 |
27.4 |
8.9% |
|
SOFiSTiK gross profit |
5.4 |
0 |
N/A |
|
Total Software gross profit |
35.2 |
27.4 |
28.8% |
|
M+M gross margin |
97.2% |
97.8% |
-0.7% |
|
SOFiSTiK gross margin |
79.3% |
N/A |
N/A |
|
Total Software gross margin |
93.9% |
97.8% |
-3.9% |
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M+M EBIT |
7.6 |
7.2 |
5.8% |
|
SOFiSTiK EBIT |
1.6 |
0 |
N/A |
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Total Software EBIT |
9.2 |
7.2 |
28.8% |
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M+M EBIT margin |
24.7% |
25.6% |
-0.9% |
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SOFiSTiK EBIT margin |
24.0% |
N/A |
N/A |
|
Total Software EBIT margin |
24.6% |
25.6% |
-1.0% |
|
Source: Edison Investment Research
Outlook and consensus forecasts
Management has increased guidance for FY19 revenues from €215–220m to €220–230m. All other guidance is unchanged (EBIT €24–26m, EPS €0.89–0.95, DPS €0.77–0.83). The table below summarises consensus forecasts; these are in line with company guidance.
Exhibit 4: Consensus forecasts
€m |
FY19e |
FY20e |
Revenues |
223.5 |
247.3 |
Revenue growth |
20.5% |
10.7% |
EBITDA |
32.6 |
36.4 |
EBITDA margin |
14.6% |
14.7% |
EBIT |
25.6 |
28.1 |
EBIT margin |
11.5% |
11.4% |
EPS |
0.92 |
1.02 |
DPS |
0.81 |
0.92 |
Source: Analyst notes on M+M website
Valuation
The stock has gained 26% over the last 12 months and 32% year-to-date. M+M is trading at a discount to its peer group on an EV/sales and EV/EBITDA basis, and on a P/E basis, it trades at a discount in FY19 and in line in FY20. Its EBITDA profitability is lower than the peer group average, mainly due to the higher level of software reselling compared to peers. As the proportion of proprietary software sales increases, both through the growth of the Software business and through the development of software that works with Autodesk solutions within the VAR business, this margin should increase over time.
Exhibit 5: Peer group valuation metrics
Company |
Quoted ccy |
Share price |
Market cap (m) |
EV (m – rep. ccy) |
EV/Sales |
EV/EBITDA |
P/E |
Div yield |
EBITDA margin |
|||||
CY |
NY |
CY |
NY |
CY |
NY |
CY |
NY |
CY |
NY |
|||||
Mensch und Maschine |
EUR |
33.7 |
567 |
588 |
2.6 |
2.4 |
18.1 |
16.2 |
36.8 |
33.2 |
2.4% |
2.7% |
14.6% |
14.7% |
Aveva Group |
GBp |
4002 |
6479 |
6,351 |
7.7 |
7.4 |
29.3 |
25.7 |
38.4 |
34.1 |
1.1% |
1.3% |
26.4% |
28.6% |
Cenit |
EUR |
12.7 |
106 |
80 |
0.5 |
0.4 |
5.0 |
4.5 |
15.2 |
13.1 |
5.5% |
6.3% |
9.3% |
9.7% |
Nemetschek |
EUR |
53.4 |
6192 |
6,284 |
11.3 |
10.0 |
40.0 |
34.8 |
64.8 |
54.8 |
0.6% |
0.7% |
28.3% |
28.6% |
RIB Software |
EUR |
17.1 |
885 |
669 |
3.7 |
3.2 |
14.5 |
12.2 |
48.9 |
37.2 |
1.2% |
1.3% |
25.5% |
25.9% |
Autodesk |
USD |
169.3 |
37,184 |
38,175 |
11.6 |
9.5 |
42.5 |
27.5 |
59.9 |
35.6 |
0.0% |
0.0% |
27.3% |
34.6% |
Dassault Systemes |
EUR |
135.9 |
35,907 |
33,897 |
8.6 |
7.9 |
24.4 |
21.7 |
38.7 |
35.0 |
0.5% |
0.6% |
35.2% |
36.3% |
Hexagon AB-B Shs |
SEK |
482.1 |
168,682 |
18,068 |
4.5 |
4.3 |
13.7 |
12.7 |
21.7 |
19.7 |
1.3% |
1.5% |
33.1% |
34.1% |
PTC |
USD |
88.0 |
10,123 |
10,542 |
8.0 |
7.1 |
28.8 |
22.3 |
49.2 |
34.3 |
0.0% |
0.0% |
27.8% |
31.8% |
Average |
7.0 |
6.2 |
24.8 |
20.2 |
39.6 |
32.6 |
1.3% |
1.5% |
26.6% |
28.7% |
||||
Median |
7.9 |
7.2 |
26.6 |
22.0 |
43.8 |
34.6 |
0.9% |
1.0% |
27.6% |
30.2% |
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Source: Refinitiv. Note: Prices at 22 July 2019.
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Studio, Findel’s main customer-facing business, has delivered steady sales growth of c 3% in the 16 weeks to 19 July, against a tough prior year comparative and in line with company expectations. Education also continues to make good progress, albeit in the early part of the key ‘back to school’ season, with customers increasingly ordering online. We leave our assumptions and forecast two-year EPS CAGR of 7.3% unchanged, ahead of Studio’s peak trading period. We value the shares at 423p, a significant premium to the current share price.