MIC — Good for now

mic (DB: M3B)

Last close As at 21/11/2024

2.52

0.06 (2.44%)

Market capitalisation

47m

More on this equity

Research: TMT

MIC — Good for now

H118 results suggest continued progress in mic’s ‘remarkable change of course’ although, in the absence of management commentary/guidance, underlying performance and immediate financial prospects are necessarily hard to judge. Gross profit was c 20% ahead of H217, while EBT was broadly maintained year-on-year after adjusting for one-off restructuring gains, which flattered the comparative. Significantly, there was also further marked reduction in liabilities (€0.5m vs €0.8m at December 2017) thanks to efficiencies. Restructuring was last reported in July to be largely completed, with management confident that its portfolio focus on three business areas with good potential is ‘very much on track’.

Richard Finch

Written by

Richard Finch

Analyst, Consumer

TMT

mic

Good for now

Financials

Scale research report - Update

10 October 2018

Price

€0.49

Market cap

€8m

Share price graph

Share details

Code

M3BG

Listing

Deutsche Börse Scale

Shares in issue

15.3m

Equity ratio at June 2018

97%

Business description

mic is a diversified technology investment company focused on large-scale data handling, automated optical inspection systems for the automotive industry and acoustic and strain monitoring over fibre-optic networks. It holds majority stakes in companies through intermediate holding companies.

Bull

Prospects for new technology businesses.

Radical strategic refocus largely completed.

Sound finances.

Bear

Unproven business record.

Execution risk of acquisition strategy.

Risk of dilution from refinancing.

Analyst

Richard Finch

+44 (0)20 3077 5700

H118 results suggest continued progress in mic’s ‘remarkable change of course’ although, in the absence of management commentary/guidance, underlying performance and immediate financial prospects are necessarily hard to judge. Gross profit was c 20% ahead of H217, while EBT was broadly maintained year-on-year after adjusting for one-off restructuring gains, which flattered the comparative. Significantly, there was also further marked reduction in liabilities (€0.5m vs €0.8m at December 2017) thanks to efficiencies. Restructuring was last reported in July to be largely completed, with management confident that its portfolio focus on three business areas with good potential is ‘very much on track’.

H1 broadly positive

Interpretation of performance is curbed by scant management comment and no disclosure of individual business results. However, summary figures show resilient operating returns, as detailed on page 2, with improved finances (€0.25m cash and no bank debt), and are encouragingly free of write-downs, which dogged 2016 by more than halving the size of the balance sheet. As a measure of progress, comparison with H217 indicates further good headway with gross profit up by a fifth and labour costs, thanks to restructuring, down by a half. Management reference to steady like-for-like EBT suggests c €0.1m positive exceptional items in H118.

Management optimism

In the absence of financial guidance, we may rely only on management’s July comment that products and services are ‘selling well’ and that customers are ‘very satisfied’. The company regards 2017’s outturn as a turning point and is confident that it is now on a promising footing. Management has been further stabilised with the extension of the contract of the sole board member, Andreas Empl, until 2021. mic’s areas of focus are large-scale data retrieval (big data); digital factory and Industry 4.0, in particular automated optical inspection; and fibre-optic sensing.

Valuation: One for the long term

Given the scale of uncertainties about the refocusing, it is difficult to make firm assertions about mic’s valuation. Also, in terms of comparing the price with the NAV, full 2017 accounts will offer only a rudimentary guide to the value of operating companies, as publication is in line with HGB and thus at written-down cost price. mic does not pay a dividend, so earnings-based measures are of limited value.

Historical financials

Year
end

Net profit
(€m)

Total equity
(€m)

EPS
(€)

NAV/share
(€)

P/E
(x)

P/NAV
(%)

12/14

1.3

39.0

0.2

5.05

2.5

0.1

12/15

1.4

45.4

0.1

4.44

4.9

0.1

12/16

(29.7)

20.9*

(2.1)

1.51

N/A

0.3

12/17

0.1

21.9

N/M

1.47

N/A

0.3

Source: mic accounts. Note: *Including €5.1m from capital increase in progress at year-end.

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 H118 results

mic conducts its operations through distinct business units, each focused on a specific area of technology and application, and incorporated in discrete corporate entities: micData (large-scale data handling), Smarteag (fibre-optic infrastructure monitoring) and 4industries (industrial applications). One of these – micData – has a stock market quotation in its own right.

However, mic publishes accounts in line with German HGB solely for the parent company. While the presence of intermediate holding companies dilutes the impact of trading performance at the operating subsidiaries, general trends may be derived from the figures.

Exhibit 1: Financial summary

€m, HGB

H117

H217

FY17

H118

Income statement

Gross profit

0.92

0.42

1.34

0.50

Net profit

0.09

(0.01)

0.08

(0.04)

Balance sheet

Equity in related companies

7.5

5.4

5.3

Loans to related companies

10.7

10.0

10.4

Investments

0.7

0.7

2.2

Equity

20.9

21.9

22.3

Total assets

23.5

23.0

23.0

Source: mic accounts

Exhibit 2: Gross and net profit evolution (€m)

Source: mic accounts

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After reporting c €9m of adjusted EBITDA in H118, Mutares expects FY18 earnings to reach €20–30m. This should be assisted by successful turnarounds and organic growth of portfolio entities, beneficial M&A activity and the deconsolidation of Zanders and Artmadis, which are currently being liquidated. Management expects one or two additional transactions (either acquisitions or divestments) to be initiated and completed in the remainder of 2018, on top of the Knorr-Bremse deal which is already in progress. At the current share price of €9.54, Mutares is trading at a 40.5% discount to last reported NAV.

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