Quick check: Fabasoft AG (AT0000785407) – Cheap EV/EBITDA 2.4 stock or value trap ?

From time to time, readers ask my about my opinion on certain stocks. First of all this is of course flattering, secondly it is also a good motivation to look at as many stocks as possible.

However, I am not an expert on all stocks in the universe, but nevertheless I want to share some of my thoughts from time to time on the blog.

Fabasoft

Fabasoft is a small Austrian software company which is active in Document management solutions, mostly for Government and Defence companies. Fabasoft was IPOed in the middle of the “Neuer Markt” boom in 1999.

According to Pat Dorsey, Software companies can be interesting “moat” business, also the business scales pretty well, meaning increasing sales incrrease profits over-proportionally.

For Fabasoft, this doesn’t really hold true. Although they managed a turn-around in 2011/2012 according to their annual report, they seem to swing from profit to loss like a pendulum from year to year. The loss in 2010/2011 was preceded by a profit in 2009/2010 and again a loss in 2008/2009. the same again for the preceeding 2 periods. Loss, profit, loss, profit.

Since 2000 this looks like this:

TRAIL_12M_EPS BOOK_VAL_PER_SH NI Margin
29.12.2000 -0.37 3.24 -21.35%
31.12.2001 -0.20 3.09 -12.11%
31.12.2002 -0.12 2.91 -6.14%
31.12.2003 0.41 3.31 12.90%
31.12.2004 0.53 3.80 13.21%
30.12.2005 0.34 3.92 7.57%
29.12.2006 -0.07 3.68 -1.98%
31.12.2007 0.09 3.80 2.36%
31.12.2008 -0.29 3.27 -7.35%
31.12.2009 0.45 3.45 10.02%
31.12.2010 -0.05 2.76 -2.03%
30.12.2011 0.15 2.91 3.35%

The stock chart shows that since 2005/2006 the stock is trading sideways:

Sales have remained more or less constant since at least 2006. What makes the stock attractive under EV metrics is the relatively large cash pile.

As of 31.03.2012, the company showed around 14 mn EUR in cash which, based on 5 mn shares, a shareprice of 3.75 EUR and roughly 2 mn EUR EBITDA results in an implied EV/EBITDA of around 2.4, which looks very cheap.

However, this is one of the cases where a simple EV/EBITDA calculation might be a bit misleading. On the liability side for instance, they show prepayments of around 7 mn EUR. One could discuss this now for some time if we have to deduct prepayments from EV, but the major point for me is the followng:

Fabasoft is not a Net-Net, the market cap is still higher (19 mn EUR) than net short term assets (13 mn EUR) as well as net equity (14 mn) and the business is not consistently profitable. We do not know what they do with the cash. They paid some dividends and bought back some shares in the past, but nothing regular.

So even if they pay out all the cash, one is still left with a business which over the cycle does not earn its cost of capital. At least for me that doesn’t sound very attractive. I would prefer companies like Installux, who have a profitable business AND low EV/EBITDAs, there are plenty of them out there.

Summary: Despite an optical low EV/EBITDA, I don’t think Fabasoft is a very attractive investment. Mainly because they couldn’t prove that their business is actally profitable ovewr a longer period of time. If one is sure about a lasting turn around, than it might be a good investment, but as I don’t really know the business, this would be too risky for me. Based on past performance, this could well be a typical value trap.

5 comments

  • I think we are about the reach new levels. New turnover level, new markets, higher profit. I think they know very well why they emitted Euro 3,5 Options to some of their key employes. I personally expect double digit share price by 2016, if not earlier.

    disclaimer: Since end of 2012 I invested in Fabasoft on an average share price of around of 3,3 and I plan to sell at or around the same small time window in 2016 when the options can be executed.

  • I fully agree with mmi! If Fabasoft continues to swing between profit and loss they might be back @2Euro very quick. The only story which could trigger a significant change (turnover + profitability) is their rather new business field foliocloud in which they invested several millions of Euro. Parts of Siemens and Daimler are new reference customers.

    However this story must be proven first! At the moment it is just a tiny Joker. Lets watch over the next few quarters!

  • Fabasoft was an incredible investment back in ’09, because it was worth less than the hard net cash on the stock exchange (cash minus all liabilities). I owned the stock, but unfortunately sold it with only a small gain. That was, when the stock traded below 2 Euros, if I remember it correctly, the bottom was below 1,50 Euro. Now it trades for around 4 Euro – of course, this is not so cheap as back then! There were some other stocks like this, like Magix, which fivefolded, or Viscom (which was not really a net-net, but came near that, but the company was not profitable) – and the most incredible thing is, that these companies were profitable!
    Nowadays, these stocks aren’t of much interest for me.

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