DVS TECHNOLOGY — Recovery in H220 will deliver FY20 break-even

DVS Technology (DB: DIS)

Last close As at 20/12/2024

17.00

0.00 (0.00%)

Market capitalisation

165m

More on this equity

Research: Industrials

DVS TECHNOLOGY — Recovery in H220 will deliver FY20 break-even

DVS TECHNOLOGY’s H120 results were affected by a lower order book at the start of the year and the coronavirus pandemic, leading to a 28% decline in revenues to €90m and a loss before tax of €3.1m. Due to improved market conditions since then and cost-saving measures implemented since May 2020, management expects stronger results in H220 vs H120. FY20 guidance is for a decline in revenues of 19% and a break-even result before tax. Longer term, DVS TECHNOLOGY is well positioned to benefit from the market’s continued transformation towards e-mobility as it has exposure to e-mobility products in all of its divisions.

Johan van den Hooven

Written by

Johan van den Hooven

Analyst

Industrials

DVS TECHNOLOGY

Recovery in H220 will deliver FY20 break-even

Industrials

Scale research report - Update

7 October 2020

Price

€16.40

Market cap

€159m

Share price graph

Share details

Code

DIS

Listing

Deutsche Börse Scale

Shares in issue

9.7m

Last reported net debt at 30 June 2020

€79m

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 is organised around three business units: Machine Tools & Automation, Tools & Components and Production.

Bull

Strong market position.

Few strategic threats.

Growth in contract manufacturing and tooling business.

Bear

Very low free float of 2%.

Several loss-making subsidiaries.

Development of the automotive industry.

Analyst

Johan van den Hooven

+44 (0)20 3077 5700

DVS TECHNOLOGY’s H120 results were affected by a lower order book at the start of the year and the coronavirus pandemic, leading to a 28% decline in revenues to €90m and a loss before tax of €3.1m. Due to improved market conditions since then and cost-saving measures implemented since May 2020, management expects stronger results in H220 vs H120. FY20 guidance is for a decline in revenues of 19% and a break-even result before tax. Longer term, DVS TECHNOLOGY is well positioned to benefit from the market’s continued transformation towards e-mobility as it has exposure to e-mobility products in all of its divisions.

H120 results show a loss before tax

DVS TECHNOLOGY’s H120 performance was affected by the coronavirus pandemic, resulting in a 28% decline in revenues, which is broadly in line with market trends (source: VDW, the German Machine Tool Builders' Association). The company reported a loss before tax of €3.1m (vs profit before tax of €4.7m in H119) and a net loss of €2.8m (net profit of €2.6m). It also took extensive cost-cutting measures that have been effective since May 2020, with the full effect to be seen in the second half.

Guidance for FY20 is a break-even pre-tax result

At the beginning of 2020, DVS TECHNOLOGY was not very optimistic given a 27% lower order book at year-end FY19 compared to FY18. This situation was exacerbated by the coronavirus pandemic, resulting in declines of 20–40% in order intake. Now that the markets in general are recovering, management reports a gradual ramp-up in production. This should result in a better performance in H220 compared to the first half. For FY20, the company expects a revenue decline of around 19% and a break-even at the pre-tax profit line after a loss of €3.1m in H120.

Gradual transformation to e-mobility

In its outlook statement, management commented on the continued market transformation to e-mobility and DVS TECHNOLOGY’s exposure to e-mobility products in all three of its divisions. Looking at the order intake in H120, e-mobility showed a much better performance compared to the company’s automotive and non-automotive segments. Despite the coronavirus crisis, e-mobility reported a stable order intake while automotive showed a drop of 50%. In the longer term, the company will benefit from the e-mobility trend, but in the short term uncertain market conditions in automotive will influence its financial performance.

Historical financials

Year
end

Revenue
(€m)

PBT
(€m)

EPS
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/16

218.4

8.4

0.52

0.20

18.4

1.2

12/17

246.9

13.6

0.75

0.25

21.9

1.5

12/18

264.0

14.6

0.89

0.25

18.4

1.5

12/19

261.6

5.3

0.00

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 H120 results

In H120, the coronavirus pandemic had a significant effect on DVS TECHNOLOGY’s results. As a result, H120 revenues declined by 28% to €90m. The reduction in revenues was 23% in Q120 and a more pronounced 34% in Q220. These percentages are broadly in line with market trends. According to VDW, overall order intake in the machining segment was 30% lower in Q120, while production was down 23%. These percentages were -38% and -32% respectively in Q220.

Since the beginning of the coronavirus pandemic, DVS TECHNOLOGY has taken extensive measures such as liquidity management, short time working, suspension of leasing instalments, personnel and cost adjustments. These measures have been fully effective since May 2020.

Despite these measures, H120 EBITDA dropped 72% to €3.1m, reflecting a margin decline of 520bp. We base our margin calculation on revenues, whereas DVS TECHNOLGY (and other German companies) calculates the EBITDA margin on the base of total operating income, which, however, can be influenced by swings in inventories and (non-recurring) other operating income.

The company reported an EBIT loss of €1.5m compared to a profit of €6.0m in H119. The loss at pre-tax level was €3.1m with a loss of €1.0m in the first quarter and a wider loss of €2.2m in the second quarter, due to the larger revenue decline. The loss per share was €0.31 compared to a profit of €0.13 per share in H119.

Exhibit 1: H120 results DVS TECHNOLOGY

Year-end December (€m), HGB accounting

H119

H120

% change

Revenue

125.7

89.9

-28%

Change in inventory

9.8

3.1

Other operating income

1.9

0.2

Total operating income

137.5

93.3

-32%

Other income

1.4

2.2

60%

Total income

138.9

95.5

-31%

Cost of materials

(63.3)

(38.5)

-39%

Personnel costs

(43.6)

(37.2)

-15%

Other operating costs

(21.1)

(16.8)

-21%

EBITDA

10.8

3.1

-72%

EBITDA margin (based on revenue)

8.6%

3.4%

Depreciation

(4.8)

(4.6)

-4%

EBIT reported

6.0

(1.5)

N/A

EBIT margin (based on revenue)

4.8%

-1.7%

Net interest

(1.3)

(1.6)

N/A

Profit before tax

4.7

(3.1)

N/A

PBT margin

3.8%

-3.5%

Tax

(2.0)

0.4

N/A

Net profit

2.6

(2.8)

N/A

Minorities

(1.4)

(0.2)

N/A

EPS (€)

0.13

(0.31)

N/A

Source: DVS TECHNOLOGY, Edison Investment Research

DVS TECHNOLOGY’s subsidiaries are grouped in three divisions (see Exhibit 2): Machine Tools (61% of H120 revenues), Production (18%) and Tools & Components (19%). Several smaller units are grouped in ‘Other’, which represented 2% of total revenues.

The largest geography remains Germany, which represented 38% of total revenues in H120 (see Exhibit 3). Growth in the different regions showed large differences in H120, with Germany and Europe reporting revenue declines slightly higher than the group average of 28%, the US showing a decrease of around 45%, while revenues in Asia remained stable.

Exhibit 2: Revenues split by segment, H120

Exhibit 3: Revenues split by geography, H120

Source: DVS TECHNOLOGY

Source: DVS TECHNOLOGY

Exhibit 2: Revenues split by segment, H120

Source: DVS TECHNOLOGY

Exhibit 3: Revenues split by geography, H120

Source: DVS TECHNOLOGY

Outlook

At the beginning of the year, management had expected revenues in 2020 to be 7% lower at €245m and the EBIT margin, driven by cost savings, to rise to 4.4%, up from 2.8% in 2019. Guidance for pre-tax profit was €7m.

Since then, markets have contracted sharply due to the effect of the coronavirus pandemic. This has seriously affected DVS TECHNOLOGY’s performance, in particular in the automotive segment. Looking at order intake, the company faced a decline of 32% in orders in H120, with a decline of 22% in the first quarter and a larger decline of 42% in the second quarter. The decline in order intake in products (80% of total order intake) was larger at 35% compared to the order intake in services (20% of total order intake), which showed a decline of 20%.

DVS TECHNOLOGY focuses on increasing the number of products for the e-mobility segment. Order intake by market segment as a percentage of the total is shown in Exhibit 4 below 4. Orders for Future Mobility have increased strongly to 34% of the total in H120, which reflects a broadly stable order intake compared to H119. Automotive has declined to 31% of the total, which reflects a drop of around 50% in orders. Non-automotive comprises for instance agriculture, energy (windmills) and aircraft engines.

Exhibit 4: Order intake by market segment

% of total

H119

H120

Future Mobility

23%

34%

Automotive

45%

31%

Non-automotive

32%

35%

Total order intake, %

100%

100%

Total order intake, €m

125.9

85.5

Source: DVS TECHNOLOGY

At the time of the FY19 results at the end of June, management refrained from providing any guidance for FY20 due to prevailing market and economic uncertainties, in particular in the automotive sector. In its H120 report, management stated that reliable forecasts are not possible at the moment and it is working on internal expectations using a three-month horizon. However, it does expect an improvement in business performance as of Q320, due to the further ramp-up of production and the effects of the measures taken in the first half, such as further staff reductions and short time work. Due to improved market conditions and cost-saving measures, DVS TECHNOLOGY anticipates a decline of 19% in revenues and a break-even result at pre-tax level by the end of the year.

Looking beyond the coronavirus crisis, management expects that the transformation towards 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

The lower results in H120 also had an effect on the company’s financial position with the equity ratio declining to 49% compared to 51% in FY19. Net debt increased to €79.3m compared to €67.4m at year-end 2019. Overall, a negative cash flow from operating activities of €8.0m was generated in the reporting period. Capex amounted to €1.5m and is at significant lower levels compared to €4.4m in H119. In May 2020, management expected a capex level of €5m for FY20 compared to €9.8m in FY19 against the backdrop of deteriorated market conditions.

Management assumes that its current financial resources will be sufficient to meet its payment obligations.

Exhibit 5: Balance sheet

Source: DVS TECHNOLOGY

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

Exhibit 6: Shareholders DVS TECHNOLOGY

Shareholder

Stake

Rothenberger 4xS Vermögensverwaltung GmbH

65.8%

Günter Rothenberger Beteiligungen GmbH

17.6%

FWI Fritz Werner International GmbH

7.9%

Maschinenfabrik Heid AG

6.8%

Total of >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 2020 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: Investment Companies

Witan Investment Trust — Evolution towards a more global portfolio

Witan Investment Trust (WTAN) has employed a multi-manager strategy since 2004. Investment director James Hart says the trust gives a balanced exposure to equities across regions and sectors. He suggests ‘the type of companies identified by the managers should provide good long-term prospects for shareholders, especially in the current environment, plus there is currently a wide discount to asset value’. WTAN offers a range of strategies not generally available to the retail investor, with c 25% of the portfolio in specialist areas including emerging markets, climate change and biotechnology. Hart argues the trust ‘brings something different’ and is a more rounded approach to global equity market opportunities.

Continue Reading

Subscribe to Edison

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

Sign up for free