mic — Good progress with reverse takeover

mic (DB: M3B)

Last close As at 02/03/2024

2.52

0.06 (2.44%)

Market capitalisation

47m

More on this equity

Research: TMT

mic — Good progress with reverse takeover

mic’s reverse takeover target, Pyramid Computer, reported 5% revenue growth in FY20 despite the coronavirus pandemic, though with lower EBIT. The outlook for FY21 is for modest growth in revenues and EBIT due to the current economic conditions. Beyond FY21, we expect a return to double-digit growth, thereby benefiting from the positive market conditions for point-of-sale systems (POS). mic is making good progress with the acquisition of Pyramid with only one more hurdle, namely an equity issue of €10.9m, which mic expects to be finalised in May.

Johan van den Hooven

Written by

Johan van den Hooven

Analyst

TMT

mic

Good progress with reverse takeover

Technology

Scale research report - Update

15 March 2021

Price

€2.96

Market cap

€17m

Share price graph

Share details

Code

M3BG

Listing

Deutsche Börse Scale

Shares in issue

5.8m

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

Digital kiosk solutions is a high-growth market.

Room for expansion via acquisitions.

Ample room to enter new market segments.

Bear

Pyramid transaction is subject to full financing requirements.

Competitive market segment.

Risk of dilution from additional financing.

Analyst

Johan van den Hooven

+44 (0)20 3077 5700

mic’s reverse takeover target, Pyramid Computer, reported 5% revenue growth in FY20 despite the coronavirus pandemic, though with lower EBIT. The outlook for FY21 is for modest growth in revenues and EBIT due to the current economic conditions. Beyond FY21, we expect a return to double-digit growth, thereby benefiting from the positive market conditions for point-of-sale systems (POS). mic is making good progress with the acquisition of Pyramid with only one more hurdle, namely an equity issue of €10.9m, which mic expects to be finalised in May.

Good performance in 2020, positive outlook for 2021

mic’s reverse takeover target, Pyramid, reported 5% revenue growth to €57.7m although EBIT was lower due to the impact of COVID-19. Pyramid’s outlook for FY21 is cautious given the current uncertain market conditions: 0–9% revenue growth with a stable EBIT margin of 8.4%. Beyond FY21, the global market for digital kiosk solutions at the point of sale could return to projected growth rates in excess of 10% per year on average over the next five to seven years, based on the expectations of market researchers such as Mordor Intelligence, Allied Market Research and Market Analysis. mic aims to outgrow the market by adding selective acquisitions, new market segments and new geographies.

Taking the last hurdle to finance the Pyramid deal

The €44m financing of Pyramid, which will transform mic into an operational company, is a two-step process: the first consists of two equity issues and debt financing and the second an equity issue in-kind to the owners of Pyramid. For step one (52% of Pyramid), mic successfully finalised the first equity issue, raising €6.7m gross, and received €5m debt funding (plus €4m working capital funding), to be followed by a second equity issue in May that aims to raise €10.9m. If successful, step two is to acquire the remaining 48% of Pyramid via a share issue in-kind to the owners of Pyramid (expected in Q321). If both steps are finalised, the number of mic shares will increase to 18.9m (subject to market conditions).

Valuation: Discount to peers

Based on the assumption that mic will effectively own Pyramid, we use the EV of Pyramid for the purpose of our valuation. Based on consensus estimates for mic (which effectively are estimates for Pyramid), the valuation shows a discount to peers of 30–40% for both EV/sales and EV/EBITDA in FY21, which might reflect the uncertainty about the successful completion of the Pyramid acquisition. This discount might lessen or disappear once Pyramid has been fully acquired.

Historical financials

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

62.7

5.6

3.5

0.18

16.4

6.8

12/22e

72.5

7.4

4.7

0.24

12.3

5.1

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 FY20 results

mic is in the middle of financing the acquisition of Pyramid Computer, which it plans to finalise in Q321. Pyramid realised revenues of €57.7m in 2020, up 5% compared to 2019 and exceeding the company guidance of €55m provided at the time of the takeover announcement in November 2020. EBIT was €4.8m compared to the €5.5m achieved in 2019, although this was higher than the company’s guidance of €4.0m. Pyramid’s financial position clearly improved in 2020 with the company reporting net cash of €6m, versus net debt of €0.2m in 2019, and a solid equity ratio of 50%, up from 38% in 2019.

Exhibit 1: Pyramid Computer’s FY20 results

€m

FY19

FY20

% change

Revenues

54.8

57.7

5.4%

EBITDA

5.7

5.1

-10.4%

Depreciation

(0.2)

(0.3)

+20.2%

EBIT

5.5

4.8

-11.7%

EBIT margin (%)

10.0%

8.4%

Net profit

3.5

3.1

-13.2%

Source: mic

According to German accounting rules, mic does not have to fully consolidate its existing stakes in Securize IT Solutions and Smarteag, which it still plans to divest. In FY20, gross profit of €0.6m was mainly fuelled by consultancy fees from its subsidiaries. mic reported a net loss of €1.2m versus a net loss of €1.5m in 2019. The loss in 2020 was mainly due to costs related to the acquisition of Pyramid, such as the equity issue in November 2020. mic also wrote down €0.3m on receivables from the portfolio company 4industries (the equity was already written down to zero at the end of 2019).

Both Securize and Smarteag performed relatively well in 2020. mic holds 13.5% of Securize, which owns 100% of Diso, an IT service provider specialising in digital workstations for departments in large companies that have the highest requirements for security and flexibility. Diso reported FY20 revenues of €8.5m (+2%) and net profit of €0.2m (€0.1m in FY19). The stake in Securize is valued at the stock market value which was €0.5m at year-end 2020 (2019: €0.7m).

mic also owns 100% of Smarteag, which in turn owns 51% of fibrisTerre Systems, a designer and manufacturer of distributed fibre optic sensing solutions for simultaneous strain and temperature measurements. fibrisTerre reported FY20 revenues of more than €1.0m, up from €0.8m in 2019, and a profit of €0.1m (FY19: €0.02m). The value of Smarteag is still €1.0m on mic’s balance sheet, reflecting a loan granted to the company.

mic management still believes that the divestment of both Securize and Smarteag could realise cash of around €2.5–3.0m.

Due to the two equity issues in 2020, equity increased from €1.5m in 2019 to €8.0m at the end of 2020. The company also reported a tax reimbursement of about €0.3m, related to VAT refund claims for the years 2009–2019, which has been capitalised on the balance sheet. The company’s net cash position stood at €6.6m at the end of FY20 and will be utilised as part of the total payment for the acquisition of Pyramid.

Focus on finalising the Pyramid takeover

The takeover of Pyramid was announced in early November 2020. Pyramid develops and produces hardware solutions for self-administration applications during the checkout process at the point of sale. 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 2: Pyramid’s kiosk technologies – self-service stations

Source: mic

The total purchase price of €44m is planned to be financed via the following two steps, comprising €20m in cash (including the issuance of around 7m mic shares) and around 9m mic shares in kind.

Step one: the acquisition of 52% of Pyramid’s shares for €20m in cash and 2.2m mic shares to the owners of Pyramid. This step involves several actions to raise €20m in cash and started after the announcement of the acquisition in November 2020.

November 2020: Rights issue delivered €6.7m in gross proceeds via the placement of 3.36m mic shares at a price per share of €2.00.

December 2020: AGM approved all the financial steps needed for the takeover of Pyramid.

February 2021: mic received debt-based acquisition financing of €5m from UniCredit/HypoVereinsbank, which was conditional on the successful equity placement in November 2020. The financing also includes a working capital line of up to €4.0m for Pyramid and mic.

Q221: Planned second capital increase with the aim of raising proceeds of €10.9m (around 3.6m mic shares at an assumed share price of €3.00–3.50). The prospectus for this equity issue is currently under approval and is planned to be published in mid April, followed by the placement of the shares at the beginning of May 2021. mic shares have recently been trading at around €3.00, which might indicate a sufficient level for a successful placement.

Step two: 48% of the remaining Pyramid shares will be paid for by the issue of mic shares to the owners of Pyramid (estimated at around 6.8m at €3.00–3.50). This will happen after the first step has been successfully finalised, most likely in Q321.

Once the transaction has completed, the number of mic shares outstanding is projected to be 18.9m (subject to market conditions) and the shareholders of Pyramid and management combined will hold 49% of the shares of mic. Pyramid’s current CEO will remain the CEO of the company.

Positive outlook for 2021

At the time of the announcement of the acquisition of Pyramid, management stated that it expected growth to remain strong after 2020. In February 2021, mic provided guidance for the year, taking into account the effect of the pandemic on current market conditions. Revenues in 2021 are now estimated in the range of €58–63m, reflecting 0–9% growth. EBIT is expected to increase to €4.9–5.3m compared to the reported €4.8m in 2020, reflecting a stable margin. Net profit is estimated at €3.3–3.6m up from €3.1m in 2020.

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 in excess of 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 discount to peers

It is currently difficult to value mic as it is in the middle of financing the acquisition of Pyramid and there is another equity issue to come. Based on the assumption that mic will effectively own Pyramid, we take the EV of the reverse takeover target Pyramid, which is the acquisition price of €44m lowered by Pyramid’s net FY20 cash of €6m.

Based on consensus estimates for mic (which effectively reflect consensus estimates for Pyramid), the valuation shows a discount to peers of 30–40% when looking at 2021e EV/sales and EV/EBITDA multiples, with might reflect the uncertainty about the successful finalisation of the Pyramid acquisition. If the market is reassured by the successful completion of the acquisition, then the valuation could move more in line with peers.

Exhibit 3: 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

26.70

107

0.8

0.6

15.3

5.6

N/A

19.0

Data Modul AG

45.80

162

0.6

0.5

5.8

4.7

16.6

13.2

NCR Corp

36.95

4,813

1.1

0.7

6.9

4.1

14.6

11.4

S&T AG

22.18

1,466

1.1

0.9

10.4

8.7

27.2

21.6

Vectron Systems AG

13.05

105

2.7

1.6

N/A

11.4

N/A

30.3

Average

1.2

0.9

9.6

6.9

19.5

19.1

mic AG / Pyramid

2.96

17

0.8

0.6

6.8

5.1

16.4

12.3

Premium / (Discount)

-40%

-31%

-29%

-26%

-16%

-36%

Source: Refinitiv. Note: Prices at 15 March 2021.


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