Mensch und Maschine — Growth in profits despite tough year

Mensch & Maschine Software (DB: MUM)

Last close As at 20/11/2024

56.60

−1.20 (−2.08%)

Market capitalisation

971m

More on this equity

Research: TMT

Mensch und Maschine — Growth in profits despite tough year

Mensch und Maschine (M+M) reported 12.5% growth in EPS despite a 0.8% decline in revenues in FY20. Reduced spend on travel and events combined with selective use of furlough benefits more than offset the decline in demand during Q2–Q4. The company expects its normal growth trajectory to resume from Q221 and has published its outlook for EPS and DPS growth in the short and medium term.

Katherine Thompson

Written by

Katherine Thompson

Director

TMT

Mensch und Maschine

Growth in profits despite tough year

Software

Scale research report - Update

18 March 2021

Price

€56.0

Market cap

€943m

Share price graph

Share details

Code

MUM

Listing

Deutsche Börse Scale

Shares in issue

16.8m

Last reported net debt as at end FY20*
*
Excludes lease liabilities

€3.2m

Business description

Mensch und Maschine Software (M+M) sells proprietary and Autodesk CAD/CAM software. It reports across two business lines: M+M Software (FY20 31% of revenues, 62% of EBIT) and VAR (FY20 69% of revenues, 38% of EBIT). The company has operations in Europe, the US and Asia-Pacific.

Bull

Largest European Autodesk value-added reseller.

High-margin, internally developed software.

Loyal workforce.

Bear

Reliant on Autodesk’s technology development and channel strategy.

Management owns more than 50% of the company.

Large exposure to DACH economies.

Analyst

Katherine Thompson

+44 (0)20 3077 5730

Mensch und Maschine (M+M) reported 12.5% growth in EPS despite a 0.8% decline in revenues in FY20. Reduced spend on travel and events combined with selective use of furlough benefits more than offset the decline in demand during Q2–Q4. The company expects its normal growth trajectory to resume from Q221 and has published its outlook for EPS and DPS growth in the short and medium term.

FY20: Profit growth despite small revenue decline

M+M reported record operating profit (+14% year-on-year) and record net income (+12% y-o-y) despite a small decline in group revenues. The Software business started to see the resumption of y-o-y growth from Q420, reporting 0.7% revenue growth for FY20 and EBIT growth of 10%. The VAR business declined 1.5% in FY20, whereas EBIT increased 21%. Net debt (excluding leases) reduced by 70% in the year as the company saw double-digit cash generation. The company announced a €1.0 dividend for FY20.

FY21: Resumption in growth expected from Q221

While the company expects trading in Q121 to improve on Q420, it expects a normal growth path to be resumed from Q221. In the medium term, it is targeting group revenue and gross margin growth of c 8–12% per year and an EBITDA margin of 20%, which compares to the 16.5% reported in FY20. It expects EPS of €1.25–1.35 for FY21 and for this to increase by c 18–24c pa from FY22, and DPS of €1.15–1.20 for FY21, increasing by c 15–20c pa from FY22. Consensus forecasts are at the lower end of the range.

Valuation: Trading in line

The stock trades at a discount to peers on EV-based valuation metrics and essentially in line on a P/E basis, in our view reflecting the fact that its operating margins are at the lower end of its peer group. The stock is supported by a dividend yield of c 2%, which is at the top end of its peer group.

Consensus estimates

Year
end

Revenue
(€m)

PBT
(€m)

EPS
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/19

245.9

26.3

0.99

0.85

56.5

1.5

12/20

244.0

29.8

1.12

1.00

50.2

1.8

12/21e

255.0

34.4

1.28

1.15

43.8

2.1

12/22e

282.4

40.8

1.52

1.30

36.8

2.3

Source: Company reports, analyst reports on M+M investor relations page.

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

Exhibit 1: FY20 results highlights

€m

FY19

FY20

y-o-y

Revenues

245.9

244.0

-0.8%

Gross profit

127.9

128.0

0.1%

EBITDA

36.5

40.3

10.3%

Operating profit

27.2

31.0

14.1%

Net income after minority interest

16.7

18.7

12.3%

EPS (€)

0.99

1.12

12.5%

Net debt (excludes lease liabilities)

10.5

3.2

-70.0%

Source: Mensch und Maschine

The company had already reported headline figures in February, so these results were in line with consensus estimates.

In FY20, the group saw a small revenue decline y-o-y; after a strong Q120, COVID-19 supressed demand for the remainder of the year, although the Software business did see a small uptick in revenues in Q420 (+1.6% y-o-y). Staff costs increased in the year as headcount was marginally higher, but reductions in other costs plus the use of furlough benefits combined to drive a 14.1% increase in operating profit y-o-y. This translated to a 12.5% increase in EPS. The company announced a €1.00 dividend for the year, in line with expectations.

Net debt reduced by 70% y-o-y to €3.2m. Cash flow from operations of €33.7m was boosted by a positive inflow from working capital of €1.5m. The company spent €5.9m on capex, €16.0m on dividends and paid down €5.3m of debt.

Divisional performance

The Software business saw 0.7% revenue growth in FY20, while gross profit declined by 1.2%. Software EBIT increased 10.2% y-o-y, with the margin expanding 2.2pp, mainly due to a reduction in other operating costs of 22.6% (reduced travel and marketing costs) more than offsetting a 2.7% increase in staff costs. The division saw strong revenue growth of 11% y-o-y in Q120 (see Exhibit 3) before a 9% decline in Q2. Revenues stabilised in Q320 before returning to modest growth in Q420.

The VAR business saw a 1.5% revenue decline in FY20 and a 1.6% increase in gross profit. As for the Software division, a 20.4% reduction in other operating costs resulted in a 21.1% increase in EBIT y-o-y and 1.3pp margin expansion. The division saw exceptional growth of 30% y-o-y in Q120, mainly due to customers taking advantage of Autodesk’s maintenance to subscription offer before it expired in May 2020, before three quarters of year-on-year declines as the pandemic made it harder to sign new business.

Exhibit 2: Divisional performance, FY19-20

€m

FY19

FY20

y-o-y

FY19

FY20

y-o-y

Revenues

EBIT

Software

75.1

75.6

0.7%

Software

17.4

19.1

10.2%

VAR

170.9

168.4

-1.5%

VAR

9.8

11.9

21.1%

Total

245.9

244.0

-0.8%

Total

27.2

31.0

14.1%

Gross profit

EBIT margin

Software

69.7

68.8

-1.2%

Software

23.1%

25.3%

2.2%

VAR

58.2

59.1

1.6%

VAR

5.7%

7.1%

1.3%

Total

127.9

128.0

0.1%

Total

11.1%

12.7%

1.7%

Gross margin

Software

92.8%

91.1%

-1.8%

VAR

34.1%

35.1%

1.1%

Total

52.0%

52.4%

0.4%

Source: Mensch und Maschine

Exhibit 3: Quarterly divisional revenues, FY20

€m

Y-o-y growth

Q120

Q220

Q320

Q420

Q120

Q220

Q320

Q420

Software

20.5

17.4

17.1

20.7

11.3%

-9.0%

-0.9%

1.6%

VAR

58.2

34.4

33.2

42.7

29.9%

-9.4%

-10.0%

-16.8%

Total

78.6

51.8

50.2

63.4

24.5%

-9.3%

-7.1%

-11.6%

Source: Mensch und Maschine

Outlook and consensus estimates

The company expects trading in Q121 to be better than Q420, but still below the record revenues reported in Q120. It expects to return to its normal growth mode from Q221 and to report EPS of €1.25–1.35 and a dividend of €1.15–1.20 for FY21. From FY22, management expects revenues and gross profit to increase by c 8–12% pa, with an incremental 18–24c of EPS and growth in the dividend of 15–20c each year. The company has a medium-term EBITDA margin target of 20%, compared to the 16.5% achieved in FY20.

The table below shows current consensus forecasts, which are towards the lower end of company guidance.

Exhibit 4: Consensus forecasts

€m

FY21e

FY22e

Revenues

255.0

282.4

Revenue growth

4.5%

10.7%

EBITDA

46.0

52.0

EBITDA margin

18.0%

18.4%

EBIT

35.4

41.5

EBIT margin

13.9%

14.7%

EPS

1.28

1.52

DPS

1.15

1.30

Source: Analyst reports on M+M investor relations page (as at 16 March)

Valuation

12 months ago, the stock was trading at €32.8, its COVID-19 induced low. The stock has gained 66% from that point but is down 6.5% year to date. The shares trade at a discount to peers on EV-based valuation metrics and essentially in line on a P/E basis, in our view reflecting the fact that the company’s operating margins are at the lower end of its peer group. The stock is supported by a dividend yield of c 2%, which is at the top end of its peer group.

Exhibit 5: Peer valuation metrics

Company

Quoted ccy

Share price

Market Cap

EV (rep ccy)

EV/Sales (x)

EV/EBIT (x)

P/E (x)

Div yield
(%)

EBIT margin
(%)

m

m

CY

NY

CY

NY

CY

NY

CY

NY

CY

NY

MENSCH UND MASCHINE SOFTWARE

EUR

56.0

943

946

3.7

3.3

26.8

22.5

43.8

36.8

2.1

2.3

13.9

14.9

AVEVA GROUP

GBp

3424

9892

9848

12.3

11.0

46.6

40.9

42.2

39.9

1.1

1.1

26.5

26.9

CENIT

EUR

13.6

114

99

0.6

0.6

20.4

12.3

38.0

22.8

2.2

2.9

3.1

4.9

NEMETSCHEK

EUR

51.7

5987

6087

9.4

8.5

41.8

35.1

53.0

45.0

0.7

0.7

22.5

24.1

RIB SOFTWARE

EUR

27.5

1435

1258

3.6

2.8

19.4

14.3

35.3

26.7

0.9

1.3

18.7

19.8

AUTODESK

USD

268.1

58955

58735

13.6

11.5

43.2

30.7

54.0

38.6

0.0

0.0

31.5

37.3

DASSAULT SYSTEMES

EUR

173.2

45878

47964

10.0

9.2

35.6

31.6

42.2

37.8

0.5

0.5

28.2

29.2

HEXAGON

SEK

763.4

269598

28799

7.1

6.7

26.0

24.1

31.1

29.0

0.9

1.0

27.3

27.8

PTC INC

USD

132.2

15441

16030

9.4

8.5

30.7

26.7

41.8

34.6

0.0

0.0

30.5

31.8

Average

8.3

7.3

32.9

27.0

40.5

33.7

0.8

0.9

23.5

25.2

Median

9.4

8.5

33.2

28.7

42.0

36.2

0.8

0.9

26.9

27.4

Source: Refinitv (as at 15 March)


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