47,8% discount for Fabasoft - worth a buy?

Imagine a small company owning strong brands losing nearly 50% of its value due to EPS decreases that it has announced recently. Imagine this being Fabasoft, one of the best reputed companies in the digitalization field in Austria. Should we make use of this strong decline?

With an innovative portfolio of products and services, Fabasoft contributes to simplifying, accelerating and improving the quality of document and process management in all business areas. Data protection and data security always have top priority. This is why they are one of the leading European software manufacturers and cloud service providers and have enjoyed the trust of numerous multinational companies and public sector organizations since its foundation in 1988.

The majority stockholders are as follows:

  • 42,9% Fallmann & Bauernfeind Privatstiftung
  • 36.9% Float
  • 4,2% Invesco Advisers, Inc.
  • 4.0% Axxion SA (Luxembourg)
  • 3.6% Danske Bank A/S (Investment Management)

And this leads us to the first important conclusion: Fabasoft is an owner-operated company. Fabasoft's CEO, Professor Fallmann, is also the majority owner of the company's shares. This should enable the company to act in a long-term manner and in a visionary way instead of being driven by short-term issues and problems. 

In its 9M report from 31 Dec, 2021, the company had the following geographical revenue breakdown:

  • 55% Austria
  • 35% Germany
  • 4% Switzerland

Fabasoft managed to double its revenues from 27.6 EURm in 2016 to 55.9 EURm in 2021 (MRQ). Net income even quadrupled from 2.3 EURm to 8.8 EURm. 

Despite this strong growth figures, Fabasoft succeeded in growing its business without depending on external financing. The company has always shown (steadily growing) net cash peaking at 43 EURm in 2021. However, this is not followed by high equity ratios. Fabasoft currently has an equity ratio of around 55%.

Another exceptional fact about Fabasoft's balance sheet is its cash position. The company had 58.5 EURm in cash of total assets of 76.6 EURm in 2020. So the company holds more than 60%(!) of its assets in cash. High cash ratios mean great possibility and probability of near-term cash usage. They could 

  • acquire companies
  • pay dividends
  • buyback shares
  • found new plants or
  • found new business segments.

As we could see throughout the last years, Fabasoft used high ratios of its cash position for dividend payouts. In 2020, Fabasoft paid dividends of 7.2 EURm. In percent, this is 3.4% as of April 11. For a tech company, dividends payouts at such high rates are rare. Due to its heavy 48% discount, Fabasoft increased its dividend yield immensely, nearly doubling it. Since 2016, Fabasoft has increased its dividend payout from 2.1 EURm to 7.2 EURm, nearly quadrupling it. 

The company's current valuation figures are (still) pretty high. Despite its decreasing EPS, Fabasoft managed to increase revenue throughout the last 9 months. Although this may appear as a strong signal, it is not. In case of a growth stock that attracts high shareholder interest, growth is too low. Fabasoft needs to either increase its efforts to grow or it will consolidate (even further).

What we like about this stock is its healthiness. During times in which we face rising interest rates and higher insecurity due to inflation, shortness and energy price hikes, companies like Fabasoft especially show their fundamental strength: with net cash, impressing cash ratios and high dividend payouts this stock remains interesting. 

What we do not like about Fabasoft is its valuation. We currently deal with valuation figures shown below:


P/S                              4,9

P/E                            30,6

P/B                              6,9

P/OCF                       12,8

P/FCF                        16,4    

OCF margin              38,1%

FCF margin              29,9%

D/E                              0,14

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