Mensch und Maschine Software SE (DE:MUMG) provides CAD/CAM software to the industrial and construction sectors to support the digitisation of their design, manufacture and build processes. Group revenues have grown at a CAGR of 8.8% from 2012 to 2016, while EBITDA has grown at a CAGR of 101% over the same period. Focused on driving sales of its proprietary CAM software internationally and growing its share of Autodesk (NASDAQ:ADSK) CAD software sales in Europe, the company expects continued growth in margins, EPS and dividend payouts.
Strong earnings growth in FY16
Mensch und Maschine (M+M) recently reported FY16 results that confirm strong profit growth. Revenues grew 4.2% y-o-y, mainly driven by the Software business (+11.6% y-o-y) and EBITDA grew 23% to generate a group margin of 9.4%, up from 8.0% in FY15. The VAR business’s revenue growth was affected by the Autodesk transition to a subscription model, although this did not prevent the division from achieving a small improvement in EBITDA margins (4.2% vs 3.9% in FY15). EPS grew 67% y-o-y to €0.40, helped by lower amortisation and a reduction in the effective tax rate. The company announced a 40% increase in the dividend to €0.35.
Positive outlook
The company outlook is for continued growth in EBITDA and earnings and c 30% annual growth in dividends to FY20. It expects subdued performance in the VAR business in FY17 as all new licence sales will be on a subscription basis, but despite this, expects to add €1.7-2.7m to group EBITDA in FY17. From FY18, it expects growth to normalise and therefore a larger increase in EBITDA (€3-4m). Consensus forecasts reflect this outlook.
Valuation: Reflects recent strong performance
The stock has shown exceptional performance over the last two years, gaining 127% as the company has reported strong revenue and earnings growth. It now trades in line with peers on a P/E basis for FY17e, and at a discount on FY18e forecasts. After such a good run, we believe the stock may pause for breath until the impact of the Autodesk transition on profitability becomes clearer. However, evidence that the company is able to grow profitability through this transition should support further upside. The stock is supported by a dividend yield of more than 3%.
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