mic — Reverse takeover potential

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 — Reverse takeover potential

mic is considering a reverse acquisition to shift from a holding company to an operational company. The FY19 results showed an improvement in gross profit, lower net loss and a virtually debt-free position. In April 2020, mic raised €0.9m and, together with potential new capital of €6.5m (already authorised by the shareholders at the AGM), this offers a decent war chest for potential takeover candidates. The book value of the current two holdings was c €2m in FY19 and combined with the current net cash position of €0.9m this implies a value per share of €1.17.

Johan van den Hooven

Written by

Johan van den Hooven

Analyst

TMT

mic

Reverse takeover potential

Financials

Scale research report - Update

9 July 2020

Price

€1.19

Market cap

€3m

Share price graph

Share details

Code

M3BG

Listing

Deutsche Börse Scale

Shares in issue

2.45m

Last reported net cash at 3 April 2020

€0.9m

Business description

As an active investor with a long-term investment horizon, mic invests in medium-sized companies in the growth markets of big data, Industry 4.0, infrastructure and energy management, the Internet of Things (IoT) and digitalisation as a supplement to its disruptive technologies.

Bull

Prospects for new technology businesses.

Radical strategic refocus in progress.

Newly raised €0.9m and debt-free balance sheet.

Bear

Unproven business record.

Execution risk of acquisition strategy.

Risk of dilution from refinancing.

Analyst

Johan van den Hooven

+44 (0)20 3077 5700

mic is considering a reverse acquisition to shift from a holding company to an operational company. The FY19 results showed an improvement in gross profit, lower net loss and a virtually debt-free position. In April 2020, mic raised €0.9m and, together with potential new capital of €6.5m (already authorised by the shareholders at the AGM), this offers a decent war chest for potential takeover candidates. The book value of the current two holdings was c €2m in FY19 and combined with the current net cash position of €0.9m this implies a value per share of €1.17.

Reorganisation finalised in FY19

In FY19, mic finalised its reorganisation, which started in 2017. After the decision in December 2019 to divest subsidiary 4Industries, which mic no longer sees as having growth potential, it only has two holdings: Securize IT Solutions and Smarteag. In FY19, mic generated gross profit of €0.8m, up from €0.1m last year. Due to additional write downs of assets, mic reported a net loss of €1.5m vs a loss of €4.9m last year.

Focus on reverse takeover

After its reorganisation over the past few years, mic’s new strategy aims at shifting from a holding company to a cash-generating operational one. The current focus is therefore on a reverse takeover. Management is targeting a company with revenues of €20–30m, an EBITDA margin of around 15% and growth potential of 20–30% pa. The targeted company could be active in big data, Industry 4.0, infrastructure and energy management, IoT and digitalisation. mic raised €0.9m in April 2020 and has potential access to new equity of c €6.5m, already authorised by the shareholders at the AGM. Management also expects a cash inflow of €1m related to the legal dispute with previous management and a tax reimbursement. The combined amount puts mic in a good position for a reverse takeover.

Valuation: Difficult to value future activities

It is currently difficult to estimate mic’s potential value as it is considering a reverse takeover whereby the type/nature of company that will be created is unknown, and the current holdings could be up for sale. The reported book value of the current holdings is around €2m and, combined with the net cash of €0.9m, implies a value of €1.17/share. Management expects potential income from legal disputes and tax reimbursement of €1m later in 2020, reflecting €0.41/share.

Historical financials

Year
end

Gross profit
(€m)

EBIT
(€m)

Net profit
(€m)

Equity
(€m)

EPS
(€)

DPS
(€)

12/16

(1.3)

(3.6)

(6.2)

7.2

(0.60)

0.00

12/17

1.3

0.5

(0.6)

7.6

(0.06)

0.00

12/18

0.1

(1.7)

(4.9)

3.1

(0.33)

0.00

12/19

0.8

0.0

(1.5)

1.5

(0.10)

0.00

Source: mic

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 2019 results

In 2019, mic finalised its restructuring process, which it initiated in 2017. Net loss was €1.5m compared to a loss of €4.9m in 2018. The largest component of the 2019 loss was the amortisation of assets for €1.45m. These write downs were related to the sale of 4Industries and mic’s remaining patents. The results were in line with the preliminary results published on 19 March 2020.

Both gross profit and EBIT improved in 2019, driven by exits and selling Securize shares. mic does not publish the results of its two participations as it does not have to fully consolidate these stakes according to HGB rules. Exhibit 2 below shows the company’s organisational structure.

Exhibit 1: mic 2019 results

€m

FY18

FY19

Gross profit

0.1

0.8

EBIT

(1.7)

0.0

Write downs/other adjustments

(3.9)

(1.5)

Net profit

(4.9)

(1.5)

Source: mic

Strategy focused on reverse takeover

mic currently has two holdings: Securize IT Solutions and Smarteag. It holds 17% in Securize IT Solutions, which owns 100% of Diso. mic owns 100% of Smarteag, which owns 51% of fibrisTerre Systems. In December 2019, mic decided to divest its holding in 4Industries, since management sees no growth prospects and no strategic fit with this company and its subsidiary. As the anticipated selling price is below the book value, mic took a write down of around €1.1m on its stake in 4Industries.

Exhibit 2: mic current holdings

Source: mic, Edison Investment Research

Securize IT Solutions was formerly known as micData. In November 2019, it increased its stake in Diso from 58% to 100%, for an amount of €1.16m reflecting a total value of the company of €2.75m. Diso is an IT service provider specialising in digital workstations for departments in large companies that have the highest requirements for security and flexibility. The focus is on German and Swiss companies, eg Thyssenkrupp and Axon Lab. Diso’s preliminary FY19 results showed slightly lower revenues of €8.5m, with more than 50% growth in cloud computing revenues and slightly higher net profit of c €0.1m.
Smarteag focuses on sensor technology, in particular in the field of monitoring and managing physical infrastructure such as pipelines, railway lines, bridges and tunnels. Subsidiary fibrisTerre is a Berlin-based designer and manufacturer of distributed fibre optic sensing solutions for simultaneous strain and temperature measurements. In December 2019, mic provided an update on fibrisTerre’s plans for an IPO in Australia, for the reason to sell the company. After a failed attempt at an IPO on Australia’s first stock exchange, ASX, fibrisTerre is now preparing for a listing on the second stock exchange, NSX. It was aiming for the second half of 2020, but this now seems unrealistic in the current coronavirus environment. A potential alternative is a private equity sale and management is currently examining various options.

Management’s current focus is on value-accretive strategic decisions by looking for a medium-sized company to be acquired via a reverse takeover. The target could be a company with revenue of €20–30m, deriving a 15% EBITDA margin and annual growth of 20–30%. mic is looking at several possibilities and is focusing on growth markets such as big data, Industry 4.0, infrastructure and energy management, the Internet of Things (IoT) and digitalisation.

Management stays on board for another four years

The current CEO, Andreas Empl, started at mic in 2017 and was appointed as CEO in 2018, leading the company through a lengthy reorganisation process. In early April 2020, his appointment was extended to 1 April 2024. Mr Empl is the only member of mic’s management team. mic’s holding costs have been drastically lowered in recent years and are currently c €250k, including the CEO’s salary.

The company’s operating expenses could decrease further over the next few years, as the CEO has agreed to partly reinvest his future salary in mic shares. In addition, the supervisory board members agreed to receive up to 50% of their renumeration for 2020 in mic shares.

Financials

Looking at mic’s remaining assets, the loans and receivables related to its wholly owned subsidiary Smarteag remained unchanged at €1.3m in 2019. The book value of Securize IT Solutions was €0.66m, up from €0.51m in 2018 after a small acquisition.

Exhibit 3: mic’s balance sheet 2017–19

Source: mic, Edison Investment Research


Due to several write downs over the past few years, equity has declined from €7.6m in 2017 to €1.5m at the end of 2019. At the end of 2019, shareholders approved a capital reduction at the ratio of 10:1, which was executed early 2020. In April 2020, mic raised new equity through the issue of 915,240 shares at a price of €1.05 per share. The capital increase was 100% subscribed, around 63% via indirect subscription rights and the remaining 37% via private placement. Equity was strengthened by €0.9m and mic is currently debt free with a cash position of just under €1m.

mic is involved in legal procedures with the previous management and also expects tax reimbursements. According to management, these two items combined could deliver up to €1m in cash, potentially bringing mic’s total cash position to €2m. The company also has access to new equity of around €6.5m (already authorised by the shareholders), offering more room for acquisitions.

Valuation

It is currently rather difficult to value mic as the company is transforming into an operational company rather than a holding company. Future activities are currently unknown, and the current participations could well be sold after finalising the reverse takeover.

The audited book value of the current two holdings is around €2m. If we add the €0.9m in cash, we arrive at a value of c €2.9m. This reflects a value per share of €1.17. According to management, legal disputes with the previous management and tax reimbursements could deliver another €1m in cash later in 2020, or €0.41 per share.

Exhibit 4: Book value of mic holdings

€m

Value

Last reported balance sheet value Smarteag

1.3

Last reported balance sheet value Securize IT Solutions

0.7

Net cash position post equity raise

0.9

Total book value, plus cash position

2.9

Source: mic


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

1,185 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 mic

View All

Latest from the TMT sector

View All TMT content

Research: Healthcare

Pixium Vision — €7.3m capital increase completed

Pixium on 6 July reported that it has raised €7.3m through its shareholder rights offering initiative. The subscription rate was >94% and 14.68m new shares have been issued on 8 July at a subscription price of €0.50/share, resulting in €7.3m in gross proceeds. This financing round should enable Pixium to start the PRIMAvera pivotal study on Prima, which we expect will begin recruitment in H121. We estimate Pixium’s cash on hand should now extend its cash runway into Q421. Our enterprise value of €105.9m is unchanged but our equity value per share (inclusive of net cash) decreases to €2.73 (from €3.95 previously) as the cash proceeds from the offering are offset by a ~54% increase in shares outstanding.

Continue Reading

Subscribe to Edison

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

Sign up for free