DVS TECHNOLOGY — FY21 margins expected to exceed FY19

DVS Technology (DB: DIS)

Last close As at 21/12/2024

17.00

0.00 (0.00%)

Market capitalisation

165m

More on this equity

Research: Industrials

DVS TECHNOLOGY — FY21 margins expected to exceed FY19

DVS TECHNOLOGY’s FY20 results were obviously affected by the coronavirus pandemic, with revenues declining by 26% to €194m. After an operating loss of €1.5m in the first half, the company reported positive EBIT of €4.3m for FY20, driven by the benefits of several cost measures taken in the first half, which included a reduction in staff numbers. FY21 guidance is for an 11% increase in revenues and a 180bp improvement in the EBIT margin to 3.9%. Future Mobility is becoming more important in the company’s revenue mix (37% of order intake in FY20) and we expect DVS TECHNOLOGY to benefit from the continuing market transformation towards e-mobility.

Johan van den Hooven

Written by

Johan van den Hooven

Analyst

Industrials

DVS TECHNOLOGY

FY21 margins expected to exceed FY19

Industrials

Scale research report - Update

13 July 2021

Price

€16.60

Market cap

€161m

Share price graph

Share details

Code

DIS

Listing

Deutsche Börse Scale

Shares in issue

9.7m

Net debt at 31 December 2020

€66m

Business description

Besides engineering and manufacturing machine tools, as well as grinding and honing tools, DVS TECHNOLOGY operates two production sites where automotive parts are machined in series production exclusively on DVS machines. The company has three business units: Machine Tools & Automation, Tools & Components and Production.

Bull

Strong market position.

Few strategic threats.

Growth in contract manufacturing and tooling.

Bear

Very low free float of 2%.

Several loss-making subsidiaries.

Development of traditional automotive industry.

Analyst

Johan van den Hooven

+44 (0)20 3077 5700

DVS TECHNOLOGY’s FY20 results were obviously affected by the coronavirus pandemic, with revenues declining by 26% to €194m. After an operating loss of €1.5m in the first half, the company reported positive EBIT of €4.3m for FY20, driven by the benefits of several cost measures taken in the first half, which included a reduction in staff numbers. FY21 guidance is for an 11% increase in revenues and a 180bp improvement in the EBIT margin to 3.9%. Future Mobility is becoming more important in the company’s revenue mix (37% of order intake in FY20) and we expect DVS TECHNOLOGY to benefit from the continuing market transformation towards e-mobility.

FY20 results show impact of the pandemic

DVS TECHNOLOGY’s FY20 results were affected by the coronavirus pandemic, with a 26% revenue decline. The second half showed minimal recovery compared to the first half with a revenue decline of 24% after the 28% decline in H120. The global machine tool market showed a decline of 20%, with a 35% decline in Germany (source: VDW, the German Machine Tool Builders' Association). The EBIT margin declined 150bp to 2.1%, which is a clear improvement after the loss in H120. Several measures taken after the start of the pandemic, including a reduction in staff numbers, contributed to this improvement.

Guidance for FY21 is for growth and margin recovery

Although order intake in 2020 was 16% lower y-o-y, management is relatively optimistic for 2021, expecting revenues to be 11% higher at €215m. This is below the level in 2019 and the company commented that it might take three to four years for the automotive sector to fully recover to pre-pandemic levels. The EBIT margin is anticipated to improve by 180bp to 3.9%, driven by further cost savings and operating leverage, and will thereby exceed the reported level of 3.6% in 2019.

E-mobility should drive long-term growth

The e-mobility segment is steadily becoming more important to the company and represented 37% of order intake in FY20, up from 34% in H120. DVS TECHNOLOGY will clearly benefit from the transformation towards e-mobility as it offers products and services for this segment in all of its three business areas (machines, tools and production). In the short term, however, uncertain market conditions and a slow recovery in the traditional automotive sector will influence its financial performance. The free float is only 2% and there are currently no consensus estimates available for DVS TECHNOLOGY.

Historical financials

Year
end

Revenue
(€m)

PBT
(€m)

EPS
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/17

246.9

13.6

0.75

0.25

22.1

1.5

12/18

264.0

14.6

0.89

0.25

18.7

1.5

12/19

261.6

5.1

0.56

0.00

29.6

N/A

12/20

193.8

(1.3)

(0.13)

0.00

N/A

N/A

Source: DVS TECHNOLOGY

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

DVS TECHNOLOGY consists of 15 operationally independent production companies in the machine tool and abrasives industry, as well as three international sales and service companies. DVS TECHNOLOGY is split into three divisions, as shown in Exhibit 1. DVS Machine Tools is involved in the production of high-precision machine tools and automation units and associated services (technical services, spare parts, overhauls/repairs), DVS Production consists of series production/system suppliers of automotive and commercial vehicle components on DVS machine tools, and DVS Tools & Components focuses on the customised development, production and distribution of tools and abrasives. Several smaller units are grouped in ‘Other’, which represented 4% of total revenues in FY20.

Geographically, home country Germany is still the largest revenue generator, representing 43% of total revenues in FY20 (see Exhibit 2). The company realises 25% of revenues in the rest of Europe, 24% in Asia and the remaining 8% in the US. In 2020, revenue declines were the largest in the rest of Europe and the US.

Exhibit 1: Revenues split by segment, FY20

Exhibit 2: Revenues split by geography, FY20

Source: DVS TECHNOLOGY

Source: DVS TECHNOLOGY

Exhibit 1: Revenues split by segment, FY20

Source: DVS TECHNOLOGY

Exhibit 2: Revenues split by geography, FY20

Source: DVS TECHNOLOGY

DVS TECHNOLOGY’s FY20 results were clearly affected by the coronavirus pandemic, with revenues declining by 26% to €194m after a decline of 28% in the first half. The decline was larger than company guidance at the time of the first half results, ie a decline of 19%. The global machine tool market showed a decline of around 20% in 2020, according to VDW, with a drop in production and turnover of 35% in the machining segment in Germany which is relevant for DVS TECHNOLOGY.

In order to mitigate the effects of the coronavirus pandemic, DVS TECHNOLOGY took extensive measures in H120 such as strengthening liquidity management with the focus on working capital (eg machine leasing expenses were suspended for three to six months), short-time working was introduced in Germany, and personnel and cost adjustments were made (the number of staff was reduced by 102 to 1,332 in 2020).

As a result of the lower revenues, EBITDA declined by 33% to €13.5m after a much stronger decline of 72% in the first half. This reflects an improvement in profitability in the second half. The results were supported by €2.5m by making use of Kurzarbeit (short-time working facility). The decline in FY20 EBITDA margin was 90bp y-o-y after the decline of 460bp in the first half. DVS TECHNOLGY (and other German companies) calculates the EBITDA margin on the basis of total operating income, which can be affected by swings in inventories and capitalised own work.

EBIT dropped by 56% to €4.3m after a loss of €1.5m in the first half. The EBIT margin declined by 150bp y-o-y to 2.1%. Both DVS Production South and DVS Production GmbH were restructured in 2020 and generated profits again after being loss-making in 2019. However, subsidiary Buderus (grinding technology) was again loss-making and reported a loss of €4.4m. This company represents around 10% of total revenues. Due to an improvement in incoming orders, DVS TECHNOLOGY expects higher revenues from Buderus in 2021 and a reduced loss before tax of €1m, followed by break-even in 2022.

DVS TECHNOLOGY reported a loss before tax of €1.3m, but this included a charge of €2.3m related to the sale of one of its associates (Heyligenstaedt Werkzeugmaschinen). Adjusted for this, pre-tax profit (PBT) would have been €1.0m, thereby exceeding company guidance of break-even at PBT level. The reported loss per share was €0.13 compared to a profit of €0.56 per share in FY19.

Exhibit 3: FY20 results DVS TECHNOLOGY

€m, HGB accounting

FY19

FY20

% change

Revenue

261.6

193.8

-26%

Change in inventory

(2.5)

(0.6)

Capitalised own work

3.7

4.9

Total operating income

262.8

198.1

-25%

Other income

3.7

6.4

70%

Total income

266.5

204.5

-23%

Cost of materials

(113.8)

(83.3)

-27%

Personnel costs

(85.9)

(73.0)

-15%

Other operating costs

(46.6)

(34.8)

-25%

EBITDA

20.2

13.5

-33%

EBITDA margin (based on total operating income)

7.7%

6.8%

Depreciation

(10.6)

(9.2)

-13%

EBIT reported

9.6

4.3

-56%

EBIT margin (based on total operating income)

3.6%

2.1%

Net interest

(4.5)

(5.6)

N/A

Profit before tax (PBT)

5.1

(1.3)

N/A

PBT margin (based on total operating income)

1.9%

-0.7%

Tax

(5.1)

(0.0)

N/A

Net profit

0.0

(1.3)

N/A

Minorities

5.4

(1.4)

N/A

EPS (€)

0.56

(0.13)

N/A

Source: DVS TECHNOLOGY, Edison Investment Research

Outlook

Order intake declined by 16% y-o-y in 2020 to €188m, resulting in an order book of €95m, which reflects a decline of 8% y-o-y. This level ensures capacity utilisation in the first half of 2021. Build-up of the order intake over the company’s three market segments is shown in Exhibit 4. The e-mobility segment is steadily becoming more important to the company and now represents 37% of total order intake, up from 34% in the first half (the company started to provide this figure in 2020 so no comparable figure is available for 2019). Automotive was hit hard in the first half of 2020 and its share of total revenues declined further from 31% in H120 to 28% in FY20. Non-automotive has remained stable as a percentage of total revenues. This segment includes for instance agriculture, energy (windmills) and aircraft engines.

Exhibit 4: Order intake by market segment

Percentage of total

H120

FY20

Future Mobility

34%

37%

Automotive

31%

28%

Non-automotive

35%

35%

Total order intake, %

100%

100%

Total order intake, €m

85.5

187.6

Source: DVS TECHNOLOGY

With regards to its guidance for 2021, management commented in its annual report that market conditions are still uncertain with the prolonged effect of the coronavirus pandemic and that it might take three to four years for the automotive market to fully recover to pre-corona levels.

VDW expects a modest rebound in the machine tool market in 2021 with an estimated 6% growth in production. DVS TECHNOLOGY anticipates an increase in revenues of 11% to €215m, which is still well below the level of €262m in 2019. Driven by the effects of cost savings and operating leverage, the EBIT margin is expected to improve by 180bp y-o-y to 3.9%, which exceeds the 3.6% reported in 2019.

Looking beyond the coronavirus crisis, management expects the transformation to e-mobility will continue to be of great importance. In all of its three business areas, DVS TECHNOLOGY offers products and services for e-mobility (machines, tools, production).

Financials

Despite lower results, DVS TECHNOLOGY reported cash flow from operations of €9.4m. Capex was well below the 2019 level due to the pandemic and for 2021 the company anticipates a modest level of capex of €5m, which compares to cash flow from investments of €4.9m in 2020. The equity ratio increased by 70bp y-o-y to 51.8% and net debt remained stable at €66m at the end of FY20.

Due to the decline in results, net debt/EBITDA increased from 3.3x in 2019 to 4.9x in 2020. Due to the severe impact of the pandemic, the company agreed with its banks that the financial covenants were partially suspended from the beginning of April 2020 to the end of June 2021, and a so-called covenant holiday period has been agreed. Management assumes that its current financial resources will be sufficient to meet its payment obligations.

Exhibit 5: DVS TECHNOLOGY Balance sheet

€m

FY19

FY20

Fixed assets

93

86

Current assets

151

150

Cash

9

10

Balance sheet total

253

246

Equity

129

127

Interest-bearing debt

77

76

Other liabilities

47

43

Equity ratio

51.1%

51.8%

Net debt

67

66

Net debt/EBITDA (x)

3.3

4.9

Source: DVS TECHNOLGY

DVS TECHNOLOGY’s shareholder base has not changed in recent years, with 98% currently in the hands of shareholders holding a stake of more than 5% each. The shareholder base remains dominated by the Rothenberger family, which remains on board as a long-term investor.

Exhibit 6: Shareholders DVS TECHNOLOGY

Shareholder

Stake

Rothenberger 4xS Vermögensverwaltung

65.8%

Günter Rothenberger Beteiligungen

17.6%

FWI Fritz Werner International

7.9%

Maschinenfabrik Heid

6.8%

Total of more than 5% stakes

98.1%

Free float

1.9%

Source: DVS TECHNOLOGY


General disclaimer and copyright

Any Information, data, analysis and opinions contained in this report do not constitute investment advice by Deutsche Börse AG or the Frankfurter Wertpapierbörse. Any investment decision should be solely based on a securities offering document or another document containing all information required to make such an investment decision, including risk factors. This report has been commissioned by Deutsche Börse AG and prepared and issued by Edison for publication globally.

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.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2021 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

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

More on DVS Technology

View All

Latest from the Industrials sector

View All Industrials content

Industrials

Carr’s Group — At an inflexion point

Solid State_resized

Industrials

Solid State — Interim results

Research: Industrials

Smiths News — 43-week trading update implies upgrades

Today’s 43-week trading update confirms that Smiths News’s demand is returning to normality, and this has been given a boost by sales of ‘one-shots’ as sporting events have returned. With trading expected to be ahead of market expectations, FY21 EBITDA could be c 4–5% higher than the current consensus of £46.8m. Trading beyond the current year has good visibility given that most of Smiths’ contracts are now in place until at least 2024. Net debt is expected to fall to 1.0x EBITDA by the end of FY23, and dividends are well covered and growing. The stock trades on a pre-upgrade forward P/E of 4.6x for FY22e, and yields 5.3% on FY22e DPS.

Continue Reading

Subscribe to Edison

Get access to the very latest content matched to your personal investment style.

Sign up for free