Beta Systems Software — FY22 guidance increased

Beta Systems Software (DB: BSS)

Last close As at 21/11/2024

38.40

−0.20 (−0.52%)

Market capitalisation

184m

More on this equity

Research: TMT

Beta Systems Software — FY22 guidance increased

Beta Systems, a software provider for data centre intelligence and identity access management, reported FY21 EBITDA in line with guidance and raised its FY22 guidance. This was partly driven by new client wins and higher sales at existing clients. As a niche player in a sector dominated by giants such as IBM and VMWare, Beta Systems trades at a 37% discount to peers on a guided FY22e EV/EBITDA basis. The discount has decreased from 54% in our last note due to a sharp rise in the share price.

Edwin de Jong

Written by

Edwin De Jong

Analyst

TMT

Beta Systems Software

FY22 guidance increased

Technology

Scale research report - Update

3 February 2022

Price

€41.5

Market cap

€199m

Share price graph

Share details

Code

BSS

Listing

Deutsche Börse Scale

Shares in issue

4.8m

Last reported net cash at end FY21, including €28m in deposits

€53.8m

Business description

Beta Systems Software provides data centre intelligence solutions that enable efficient and secure bulk processing of data and identity access management solutions. The company’s headquarters are in Berlin and it has sales and support offices in 13 markets globally. Approximately 65% of sales are derived in the DACH region.

Bull

Market leader in mainframe environments and DCI in Europe.

Strong order profile indicates life remains in the mainframe market.

Robust balance sheet.

Bear

Mature mainframe market backdrop.

Subscale IAM business.

High dependence on DACH region.

Analyst

Edwin de Jong

+44 (0) 20 3077 5700

Beta Systems, a software provider for data centre intelligence and identity access management, reported FY21 EBITDA in line with guidance and raised its FY22 guidance. This was partly driven by new client wins and higher sales at existing clients. As a niche player in a sector dominated by giants such as IBM and VMWare, Beta Systems trades at a 37% discount to peers on a guided FY22e EV/EBITDA basis. The discount has decreased from 54% in our last note due to a sharp rise in the share price.

FY21 revenues up 1%, EBITDA down 5%

Beta Systems’ FY21 revenues of €73.1m (+1.4% y-o-y) and EBITDA of €16.4m (down 4.7% y-o-y) were in line with management’s revised guided revenue range (€70–78m) and EBITDA guidance (€13–20.5m). A lower number of contract renewals at its largest division, Data Center Intelligence (DCI), led to muted revenue growth. The Identity Access Management (IAM) division, featuring the Garancy suite, grew in line with historic rates. Beta Systems’ lower FY21 EBITDA was largely caused by higher staff costs, mainly in Europe, driven by M&A and recruitment. EBIT decreased 7.7% to €11.1m and net income was down 11.9% to €8.1m. Operating cash flow, which is a better reflection of the business as it is less sensitive to contract renewals, was up 11.9% to €16.2m. Beta Systems’ financial position is very solid: net cash, including cash held at Deutsche Balaton, was stable at €53.8m (was €53.9m at H121).

Higher FY22 EBITDA guidance

Beta Systems has increased its EBITDA guidance for FY22, which already reflected a step up versus FY21 due to the anticipated increase in contract renewals. The new guidance is for EBITDA of €18–26m (previous indication €15–19m), with revenue guidance of €81–89m (FY21: €73.1m). We believe the higher guidance is in part driven by an increase in orders at a large DCI client and a major client win in the IAM division. The guidance implies year-on-year revenue growth of 10.8–21.8% and a 9.8–58.5% increase in EBITDA.

EV/EBITDA FY22e discount decreased

Beta Systems’ share price has increased 68% over the last year. Based on the higher market cap, stable net cash and an FY22e EBITDA based on guidance, the FY22e EV/EBITDA is 6.6x. At this multiple, Beta Group trades at a 37% discount to its much larger listed peers. The discount has decreased significantly compared to the 54% discount at the time of our previous note in June 2021. Beta Group is trading at a premium to peers based on FY21 P/E multiples.

Historical financials

Year
end

Revenue
(€m)

EBITDA
(€m)

PBT
(€m)

EPS
(€)

DPS
(€)

P/E
(x)

Yield
(%)

09/18

45.9

5.5

4.3

0.76

0

55.5

0.0

09/19

53.3

10.5

9.1

1.26

0.21

33.5

0.5

09/20

72.1

17.2

12.4

1.92

0.21

22.0

0.5

09/21

73.1

16.4

8.1

1.72

0.21

24.5

0.5

Source: Beta Systems

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.

Strong prospects for FY22

Beta Systems reported FY21 revenues of €73.1m (+1.4%) on 19 January, in line with the in August revised guided revenue range of €70–78m. The muted growth in revenue was a result of an anticipated decrease in revenues for its largest division, DCI, due to fewer multi-year contract renewals. DCI includes Data Center Solutions, Auconet (IT operations management) and Document Management (Proxess). The IAM division, which includes the Garancy product suite, grew in line with historic rates with a large new client signing up in October. This new framework contract will start to generate revenues from October this year and management expects it could generate significant revenues annually within a few years.

Beta Systems’ largest segment, maintenance revenues are recurring and up 1.6% to €34.8m. Licence revenues, which are also partly recurring because they include the licence part of rental contracts and because of the stickiness of the business, were down 0.9% to €18.3m as a result of the lower number of renewals. Services, which are more volatile, reported revenue growth of 6.7% to €19.3m.

The DACH region, which accounted for 53.8% of total revenues, showed 9% y-o-y revenue growth mostly driven by IAM, while the North America region showed the highest level of growth (+26% y-o-y), driven by an exceptional level of new business at a large client. Western Europe (down 16% y-o-y) and the rest of Europe (down 23% y-o-y) showed a slowdown, driven by the renewal cycle.

EBITDA was down 4.7% y-o-y at €16.4m in line with the guided range of €13.0–20.5m. EBITDA in North America increased, whereas in Western Europe and the rest of Europe it was down. Higher staff expenses, driven by the acquisitions of ATICS and Codelab and recruitment in the DACH region, led to a lower EBITDA margin of 22.4% (was 23.8%). EBIT decreased 7.7% to €11.1m and net income was down 11.9% to €8.1m.

Operating cash flow, which we believe is a better reflection of the business than EBITDA, as it is less sensitive to contract renewals, was up 11.9% to €16.2m. Beta Systems’ financial position remained strong with net cash, also reflecting the cash held at Deutsche Balaton, which was stable at €53.8m (H121 Є53.9m, FY20 €41.6m).

Exhibit 1: Financial summary

€m

2019

2020*

2021*

Change

2022e*

Year-end 30 September

IFRS

IFRS

IFRS

(%)

guidance

Revenue

53.3

72.1

73.1

1.4

81–89

o/w licence

13.6

18.4

18.3

-0.9

 

o/w maintenance

28.9

34.3

34.8

1.6

 

o/w services

9.6

18.1

19.3

6.7

 

o/w other sales

1.2

1.3

0.7

-44.8

 

EBITDA

10.5

17.2

16.4

-4.7

18–26

EBITDA margin

19.6%

23.8%

22.4%

 

 

Total opex

(44.7)

(60.0)

(62.0)

3.3

 

EBIT

8.5

12.0

11.1

-7.7

13–21

Profit before tax (as reported)

9.1

12.4

8.1

-34.8

 

Net income (as reported)

6.0

9.2

8.1

-11.9

 

EPS (as reported) (€)

1.26

1.92

1.72

-10.4

 

Operating cash flow

8.2

14.5

16.2

11.9

 

Source: Beta Systems accounts. Note: *FY20, FY21 and FY22 guidance and management guidance include IFRS 16.

Beta Systems expects to report a higher EBITDA in FY22 compared to last year (all things being equal), as the lower number of contract renewals at DCI is expected to reverse this year. With the FY20 results, Beta Systems already guided for €15–19m for FY22 EBITDA, but this has now been raised to €18–26m with revenues of €81–89m. The main drivers for the raised guidance are the start of a project with a major new customer in IAM and the significant improvement in the order book in the digitisation area. Beta Systems’ guidance implies revenue growth of 10.8–21.8% and EBITDA growth of 9.8–58.5%. FY22 EBIT guidance stands at €13–21m, up from €11.1m in FY21.

Expanding product portfolio into the cloud

The cooperation between IAM and Codelab, which was acquired in the previous year, was positive. Development activities were extended and led to functional enhancements in the IAM software solution Garancy. Beta Systems is actively working on cloud offerings for the Garancy suite.

In the DCI division, Beta Systems is investing in the modernisation and functional expansion of its product range, regardless of the infrastructure used, whether based on mainframe, open systems (Linux, Unix) or the cloud. Clients can increasingly automate their business processes and may realise cost benefits because applications no longer have to operate in the mainframe environment.

Beta Systems welcomed Mirko Minnich as a new board member on 1 October, as Armin Steiner left at his own request. He has many years of experience in agile software development and proven expertise in the development of cloud products and has taken Mr Steiner’s place on the board. The management board further consists of Andreas Huth and Gerald Schmedding. M&A has always been a prominent part of Beta Systems’ growth strategy supported by the strong balance sheet position (net cash was €53.8m at end-September 2021, including deposits but excluding IFRS 16-related leases). In the last year there has not been much activity on M&A other than the completed divestment of Lynet (€2.7m) and the add-on acquisition of ATICS for €0.2m.

Discount to global tech firms is decreasing

Beta Systems’ market cap has risen significantly in the last year, from €126m to €199m, albeit at very low trading volumes, with no more than a couple of hundred shares changing hands on a regular day. This is also partly driven by the limited free float just below 30% (the majority shareholder Deutsche Balaton controls around 70%).

Beta Systems is a small player in the data centre/mainframe space. The company’s closest peers were acquired in the last five years and are not listed: CA Technologies (acquired by Broadcom) and BMC Software (acquired by KKR). As a result, we compare Beta Systems to a set of global infrastructure software companies, including IBM, Cisco, VMWare and Citrix.

Compared to these larger-cap companies (as we are not aware of any similar size peers), Beta Systems trades at a discount of 37% on FY22 EV/guided EBITDA. This discount has decreased compared to our previous note when it was 54%. On FY21 P/E multiples, Beta Group trades at a premium, where it used to trade at a discount to peers.

Exhibit 2: Peer group comparison

Market cap

P/E (x)

EV/EBITDA (x)

Company

(local CCY m)

2020

2021e

2022e

2020

2021e

2022e

Cisco

US$234,541

17.3

17.3

16.2

12.0

12.1

11.4

IBM

US$120,620

15.5

13.5

13.7

10.7

9.2

10.0

VMware

US$54,286

20.7

18.3

17.9

14.2

12.2

11.7

HPE

US$20,863

11.9

8.4

7.9

7.1

5.7

5.5

Citrix

US$13,164

17.3

21.4

20.3

12.3

12.9

13.7

Juniper Networks

US$10,936

21.7

19.6

16.9

13.2

12.1

10.8

Peer average

 

17.4

16.4

15.5

11.6

10.7

10.5

Beta Systems

€199

14.9

24.5

N/A

10.0

8.9

6.6*

Premium/(discount)

 

-14%

49%

N/A

-14%

-17%

-37%

Source: Refinitiv. Note: Priced at 31 January 2022. Beta System numbers not calendarised. *Based on the mid-point of company EBITDA guidance.

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 £60,000 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 2022 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

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 £60,000 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 2022 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 Beta Systems Software

View All

Latest from the TMT sector

View All TMT content

Research: Healthcare

Ergomed — Healthy CRO segment rebound confirmed

Ergomed released its 2021 trading update. Total 2021 revenues are expected to be approximately £118.6m, up 37.3% y-o-y (our and the consensus estimate was £119.6m), despite continuing FX headwinds (at constant exchange rates, CER, the growth is expected to be 44.3%). Revenues in the CRO segment increased to £58.1m, up 85.6% (97.4% CER; our estimate was £56.0m) indicating a good rebound in the CRO services industry after it was affected by the COVID-19 pandemic in 2020. Revenues in the PrimeVigilance segment increased to £60.5m, up 9.8% (14.2% CER; our estimate was £63.6m). Ergomed expects adjusted EBITDA to be ‘ahead of current market expectations’. Our 2021 adjusted EBITDA stands at £24.0m, marginally above the consensus £23.4m. We therefore keep our estimates and valuation of £751m (1,536p/share) unchanged ahead of the full results.

Continue Reading

Subscribe to Edison

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

Sign up for free