Mensch und Maschine SE

Transcription

1 Research Update Better than expected Rating: Buy (unchanged) Price: 8,109 Euro Price target: 9.50 Euro Analyst: Dr. Adam Jakubowski sc-consult GmbH, Alter Steinweg 46, Münster Please take notice of the disclaimer at the end of the document! Phone: +49 (0) Telefax: +49 (0) Internet:

2 Recent development In the third quarter, M+M has continued the positive trend from the previous quarters and has noticeably improved both sales and the operating result. This positive development is owed mainly to the VAR business, which more than doubled its EBITDA contribution, although in the previous year its EBITDA was boosted by a last- time contribution from the sale of the distribution business. Basic data Based in: Wessling Sector: CAD/CAM software Headcount: 734 Accounting: IFRS ISIN: DE Price: Euro Market segment: Entry Standard / m:access Number of shares: 16.5 m Market Cap: m Euro Enterprise Value: m Euro Free float: 46.0 % Price high/low (12 M): / 5.88 Euro Ø turnover (12 M): 55,700 Euro Over the first nine months M+M has generated sales of EUR m and an EBITDA of EUR 8.9 m, causing the management to raise its forecast for the whole year considerably. Although our estimates had already been above company guidance, we raised them as well and expect now sales of EUR m and an EBITDA of EUR 12.8 m. On this basis, we see the fair value of the M+M share at EUR Combined with a continuously convincing overall picture, this justifies the confirmation of our former rating, which is thus unchanged buy. FY ends: e 2016e 2017e Sales (m Euro) EBIT (m Euro) Net profit EpS Dividend per share Sales growth -38.0% 5.9% 11.3% 13.0% 9.0% 9.0% Profit growth -46.8% -27.7% 42.1% 19.1% 71.1% 35.1% PSR PER PCR EV / EBIT Dividend yield 2.5% 2.5% 2.5% 2.8% 3.1% 3.8% Jüngste Geschäftsentwicklung Seite 2

3 Increasing dynamics In the third quarter, M+M continued the positive development and increased sales by 17.4 percent year-on-year. The CAD-software specialist was thus able to further improve the already high dynamics of the first half-year (+15.2 percent), owing especially to the contribution of the VAR segment. The latter improved its sales by 20.9 percent over the summer months, after 16.4 and 18.9 percent in the first and second quarter, even though the positive currency effect of the Swiss Franc appreciation, which had substantially contributed to the growth of sales in the spring, had lost its impact in the third quarter. Business figures Q3 14 Q3 15 change Sales % VAR business % Software % EBITDA % VAR business % Software % EBITDA margin 5.8% 6.6% EBIT % VAR business Software % EBIT margin 2.7% 3.6% Pre-tax result % Pre-tax margin 1.6% 2.5% Net profit % Net margin 1.0% 0.6% Big leap in earnings Gross profit of the VAR business increased even more than its sales in the third quarter (+26.7 percent). At group level, on the other hand, the belowaverage performance of the software sector had a dampening effect and the rise of the group s gross profit stayed at 16.8 percent slightly below sales growth. But seeing that the growth of the most important cost types was substantially lower, the company was able to convert the rise in gross profit into a soaring leap in earnings. Although last year s earnings had profited from the last purchase price installment from the sale of the distribution business, the EBITDA for the third quarter increased year-on year by nearly a third to EUR 2.5 m, and the contribution of the VAR business has even more than doubled from EUR 0.5 m to EUR 1.2 m. Amortization on purchase price allocation (PPA) staying at the same level, the EBIT rose by 57 percent to EUR 1.4 m and the pre-tax result even by 83.5 percent to EUR 0.9 m. Due to a negative tax effect expected for 2015 from the lacking tax deduction eligibility of the PPA amortization costs, the third quarter s net profit was at EUR 0.2 m by 30.8 percent lower than in the previous year. Purely operating EBITDA increases by 72 percent Owing to the strong figures of the third quarter, the cumulated nine-month figures are very convincing as well. In the January to September period, sales and gross profit increased by 15.9 and 14.4 percent respectively, and the EBITDA improved by nearly 20 percent to EUR 8.9 m, equaling an EBITDA margin of 7.5 percent (last year: 7.2 percent). Adjusted by last year s contribution from the sale of the distribution business, the EBITDA increased by 72 percent. A further improved employee productivity is the key factor here: while the headcount rose by only 2.8 percent and the average personnel costs by 6.7 percent, the sales per employee increased by 12.7 percent. Since amortization growth was only below average as well and the negative financial result was even noticeably reduced from EUR -1.2 m to -0.7 m, the pre-tax result increased by 52.9 percent to EUR 5.0 m. Due to the aforementioned tax effect, the net profit growth by 33.8 percent to EUR 2.8 m was below that level. Jüngste Geschäftsentwicklung Seite 3

4 Business figures 9M 14 9M 15 change Sales % VAR business % Software % EBITDA % VAR business % Software % EBITDA margin 7.2% 7.5% EBIT % VAR business % Software % EBIT margin 4.3% 4.8% Pre-tax result % Pre-tax margin 3.2% 4.2% Net profit % Net margin 2.0% 2.3% Very strong cash flows The favourable business development made itself felt in a significant increase of the operating cash flows. After M+M had been able to show an operating cash surplus of EUR 11.5 m already at the half-year mark, the figure has now increased even further to nearly EUR 15 m. Thus, after nine months, the operating cash flows are 91 percent above last-year s figures, which is mainly due to the reduction of inventories and receivables. Deducting the outflows from investing activities (EUR 4.1 m), this results in a free cash flows of EUR 10.9 m. After debt repayments and dividend payment, cash and cash equivalents rose overall by EUR 5 m to EUR 11.5 m compared to December 2014, and the net financial debt was at the same time reduced to EUR 21.8 m. This corresponds to a relation of 1.7 to the expected EBITDA. Due to the good business performance and the capital increase from exercised staff stock options, the equity ratio increased as well to 38.1 percent. Forecasts raised Just like we had already expected after the half-year figures, M+M has now raised its forecasts for The Bavarians now expect sales of at least EUR 155 m instead of EUR 150 m, and the target corridor for the EBITDA was at the same time raised by EUR 1 m to EUR m. Only with regard to EPS, the management is still cautious and, referring to the tax effect and the greater number of shares, expects only a figure roughly at last year s level. Estimates increased Although our estimates have already been above M+M s expectations, reacting to the good ninemonths figures we have modified our assessments as well. With regard to sales, we calculate now with EUR m instead of EUR 154 m. For the fourth quarter this would mean sales of EUR 38.9 m and thus a five-percent growth year-on-year. Leaving the assumptions with regard to margins unchanged, we now expect for 2015 an EBITDA amounting to EUR 12.8 m (until now: EUR 12.4 m) and thus an increase of the EBITDA margin to 8.1 percent (2014: 7.8 percent). Moreover, we have adapted the estimates regarding this year s development of working capital to the favourable figures of the first nine months, thus raising the free cash flows assumed for 2015 to EUR 7 m. Leaving the assumptions with regard to growth dynamics and the margins in subsequent years unchanged, these adjustments lead to an upward shift in the sales and result curves over the whole estimation period. The following table contains an overview over the data upon which our estimation is based; in addition, a detailed presentation of the model business development until 2022 is to be found in the tables in the Annex. Subsequently, we assume an unchanged EBIT margin of 6.2 percent. Recent development Seite 4

5 million Euro Sales Sales growth 9.0% 9.0% 8.0% 8.0% 7.5% 7.0% 7.0% EBIT margin 5.4% 7.4% 8.6% 9.8% 10.9% 11.5% 12.1% 12.4% EBIT Tax rate 39.0% 32.0% 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% Adjusted tax payments NOPAT Depreciation & Amortization Increase long-term accruals Others Gross operating cash flows Increase Net Working Capital Investments in fixed assets Free cash flow SMC estimation model Price target: EUR 9.50 per share In our favourite scenario (perpetual growth 1.0 percent, WACC 7.7 percent), these assumptions add up to a new fair value of EUR m. Converted to the number of shares of 16.5 m (increased due to the exercise of stock options), this corresponds to a fair value per share of EUR 9.51, from which we derive a new price target of EUR 9.50 (until now: EUR 8.90). Despite the very satisfactory performance, we still see a further potential for the M+M share of about 17 percent. The estimation risk remains unchanged at three out of six possible points. Sensitivity analysis perpetual cash flows growth WACC 2,0% 1,5% 1,0% 0,5% 0,0% 6,7% ,2% ,7% ,2% ,7% Sensitivity analysis When the input parameters are varied for the sensitivity analysis (WACC between 6.7 and 8.7 percent, perpetual growth between 0 and 2 percent), the fair value fluctuates between EUR 8.05 and EUR per share. Recent development Seite 5

6 Conclusion Mensch und Maschine was again able to present very convincing figures for the third quarter. At a high sales growth, the specialist for CAD/CAM software achieved an above-average improvement in profits and has thus continued the trend from the previous quarters. This is all the more remarkable because the year-on-year comparison of the profit is still distorted by the last purchase price installment from the sale of the distribution business that was collected last year. The M+M management has reacted to the good figures by raising this year s sales and earnings forecast, and we have adjusted our estimates as well. On this basis, we now see the fair value of the M+M share at EUR 9.50, roughly 17 percent above the current market price. Although the positive sales and, above all, earnings development has of course a positive impact on our estimates for this year, we see its significance mainly in the growing visibility of the mid-term increase in margin announced and pursued by M+M. With the margin situation improving from quarter to quarter (especially in the VAR segment), M+M is beginning to reap the benefits of the strategic change that began in 2009 and was completed in There is still a long way to go to reach the perspective margin level, but the company is on the right track. Against the background of the convincing strategy and the positive current development we see our assessment of the company confirmed and renew our rating buy. Conclusion Seite 6

7 Annex I: Balance sheet and P&L estimation Balance sheet estimation m Euro ASSETS I. Total non-current assets Intangible assets Tangible assets II. Total current assets LIABILITIES I. Equity II. Accruals III. Liabilities 1. Long-term liabilities Short-term liabilities TOTAL P&L estimation m Euro Sales Gross profit EBITDA EBIT EBT EAT (before minority) EAT ) EPS Annex I: Balance sheet and P&L estimation Seite 7

8 Annex II: Cash flows estimation and key figures Cash flows estimation m Euro CF operating CF from investments CF financing Liquidity beginning of year Liquidity end of year Key figures Percent Sales growth 11.3% 13.0% 9.0% 9.0% 8.0% 8.0% 7.5% 7.0% 7.0% Gross margin 53.3% 54.1% 54.3% 54.5% 54.7% 54.7% 54.7% 54.7% 54.7% EBITDA margin 7.8% 8.1% 9.3% 10.4% 11.6% 12.5% 13.0% 13.6% 13.8% EBIT margin 4.8% 5.4% 7.4% 8.6% 9.8% 10.9% 11.5% 12.1% 12.4% EBT margin 4.0% 4.8% 6.8% 8.1% 9.4% 10.6% 11.3% 12.0% 12.4% Net margin (after minorities) 2.7% 2.8% 4.4% 5.4% 6.3% 7.1% 7.6% 8.1% 8.3% Annex II: Cash flows estimation and key figures Seite 8

9 Disclaimer Editor sc-consult GmbH Phone: +49 (0) Alter Steinweg 46 Telefax: +49 (0) Münster Internet: Responsible analyst Dr. Adam Jakubowski Charts The charts were made with Tai-Pan ( Disclaimer Legal disclosures ( 34b Abs. 1 WpHG and FinAnV) The company responsible for the preparation of the financial analysis is sc-consult GmbH based in Münster, currently represented by its managing directors Dr. Adam Jakubowski and Holger Steffen, Dipl.-Kfm. The sc-consult GmbH is subject to supervision and regulation by Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht), Lurgiallee 12, D Frankfurt and Graurheindorfer Strasse 108, D Bonn. I) Conflicts of interests Conflicts of interests which can arise during the preparation of a financial analysis are presented in detail below: 1) sc-consult GmbH has prepared this report against payment on behalf of the company 2) sc-consult GmbH has prepared this report against payment on behalf of a third party 3) sc-consult GmbH has submitted this report to the customer/ the company before publishing 4) The report has been changed as regards content where valid objections arose on the part of the customer/ the company. 5) sc-consult GmbH maintains business relationships other than research with the analyzed company (e.g. investor-relations services) Disclaimer Seite 9

10 6) sc-consult GmbH or persons involved in the preparation of the report hold the shares of the company or derivatives directly related 7) sc-consult GmbH has included the company s shares in a virtual portfolio managed by sc-consult GmbH Following conflicts of interests occurred in this report: 1), 3), 4) Within the framework of compliance regulations, sc-consult GmbH has established structures and processes for the identification and disclosure of conflicts of interests. The responsible compliance representative is currently managing director Dipl.-Kfm. Holger Steffen ( holger.steffen@sc-consult.com) II) Preparation and updating The present financial analysis was prepared by: Dr. Adam Jakubowski For the preparation of its financial analyses the sc-consult GmbH uses a five-tier rating scheme with regard to price expectation in the next twelve months. Additionally, estimation risk is quantified on a scale from 1 (low) to 6 (high). The ratings are as follows: Strong Buy We expect an increase in price for the analyzed financial instrument by at least 10 percent. We assess the estimation risk as below average (1 to 2 points). Buy We expect an increase in price for the analyzed financial instrument by at least 10 percent. We assess the estimation risk as average (3 to 4 points). Speculative We expect an increase in price for the analyzed financial instrument by at least 10 percent. We assess the estimation risk as above average (5 to 6 points). Buy Hold We expect that the price of the analyzed financial instrument will remain stable (between -10 and +10 percent). The forecast risk (1 to 6 points) has no further impact on the rating. Sell We expect that the price of the analyzed financial instrument will drop by at least 10 percent. The forecast risk (1 to 6 points) has no further impact on the rating. The expected change in price refers to the current share price of the analyzed company. This price and any other share prices used in this analysis are XETRA closing prices as of the last trading day before publication. If the share is not traded on XETRA, the closing price of another public stock exchange is used with a separate note to that effect. The price targets published within the assessment are calculated with common methods of financial mathematics, especially with the DCF (discounted cash flow) method, the sum of the parts valuation and a peer group analysis. The valuation methods are affected by economic framework conditions, especially by the development of the interest rates. The rating resulting from these methods reflects current expectations and can change anytime subject to company-specific or economic changes. In the past 24 months, sc-consult GmbH has published the following financial analyses for the company: Disclaimer Seite 10

11 Date Rating Target price Conflict of interest August 12th, 2015 Buy ), 3), 4) In the course of the next twelve months, sc-consult GmbH will presumably prepare the following financial analyses for the company: Three updates The publishing dates for the financial analyses are not yet fixed at the present moment. Exclusion of liability Publisher of this report is sc-consult GmbH. The publisher does not represent that the information and data contained herein is accurate, complete and correct and does not take the responsibility for it. This report has been prepared under compliance of the German capital market rules and is therefore exclusively destined for German market participants; foreign capital market rules were not considered and are in no way relevant. Furthermore, this report is only for the reader s independent and autonomous information and does not constitute or form part of an offer or invitation to purchase or sale of the discussed share. Neither this publication nor any part of it form the basis for any contract or commitment whatsoever with respect to an offering or otherwise. Investing in shares, bonds or options always involves a risk. If necessary, seek professional advice. This report has been prepared using sources believed to be reliable and accurate. However, the publisher does not represent that the information and data contained herein is accurate, complete and correct and does not take the responsibility for it. The opinions and projections contained in this document are entirely the personal opinions of the author at a specific time, and are subject to change at any time without prior notice. Neither the author nor publisher accept any responsibility whatsoever for any loss however arising from any use of this report or its contents. By accepting this document, you agree to being bound by the foregoing instructions. Copyright The copyright for all articles and statistics is held by sc-consult GmbH, Münster. All rights reserved. Reprint, inclusion in online services and Internet and duplication on data carriers only by prior written consent. Disclaimer Seite 11