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Arrowhead published an Equity Research Report on Hybrid Software Group PLC
May 2, 2023


Hybrid Software (EBR: HYSG) Research Update


  • Arrowhead is updating its coverage on Hybrid Software Group with a fair value bracket of EUR 6.9 to EUR 7.3 (share price on May 02, 2023: EUR 4.7) based on blended valuation using Discounted Cash Flow (DCF) method (80% weightage) and relative valuation method (20% weightage).
  • HYSG reported revenue of EUR 46.7 mn compared with EUR 48.6 mn in FY 2021, registering a year-on-year (YoY) decline of 3.3%. The decline was primarily attributed to the global shortage of semiconductor chips, because of which one of the company’s subsidiaries, i.e., Meteor Inkjet’s, revenue fell short of projections by more than EUR 4.0 mn during the period. However, Meteor Inkjet was able to redesign a critical circuit board using a chip that was more widely available, but the lost first-half revenue was not fully recovered in 2022.
  • Gross profit for FY 2022 amounted to EUR 39.3 mn, compared with EUR 40.1 mn in FY 2021, while the gross profit margin for the entire year stood at 84.2% (FY 2021: 82.5%), primarily due to the higher mix of software-related sales during the year, notably higher margin sales to end users by HYBRID Software. EBITDA for FY 2022 stood at EUR 10.9 mn compared with EUR 12.2 mn in FY 2021. The EBITDA margin for FY 2022 stood at 23% compared with 25% in FY 2021. As a result, operating profit (including other income of c. EUR 3.3 mn) stood at 2.2 mn compared with EUR 4.8 mn in FY 2021. The company reported a net profit of c. EUR 1.3 mn in FY 2022, compared with EUR 4.9 mn in the corresponding period in the previous year.
  • The company has further reduced its dependence on a limited number of customers in FY 2022. The 10 largest customers of the group contributed 29.9% of total revenue in FY 2022, which was 42.3% in FY 2021. The 5 largest customers in FY 2022 contributed 24.5% of the company’s revenue, which was 35.1% in FY 2021. The single-largest customer represented 9.8% (FY 2021: 13.9%) of the company’s revenue, with no customer representing more than 10% or more of total revenue compared with 1 customer totaling EUR 6.74 mn in the Printhead Solutions segment in FY 2021.
  • Recently, the company acquired the intellectual property of Quadraxis Technology (“Quadraxis”) for EUR 75k, a French company that pioneered technology in 3D scanning and image processing, thereby resulting in strengthening Hybrid Software Group’s offering of 3D and additive manufacturing solutions. The company plans to integrate Quadraxis software into its extensive portfolio, which includes other 3D applications such as iC3D and Met3D.
  • The company expects short-term headwinds in most worldwide markets, with a recovery starting in the second half of 2023. It strategically decided to support its end-user customers’ businesses by not increasing its prices for software or maintenance in 2023. Also, the company plans to expand its focus on Software-as-a-Service-based production workflows, allowing customers to significantly reduce IT spending and capital investment. Furthermore, the company is experiencing healthy levels of demand from China as the semiconductor chip shortage receded gradually in FY 2023. As a result, the company also expects a strong rebound in sales from Meteor in 2023.
  • ColorLogic GmbH, part of Hybrid Software Group, bagged the 2023 Barbieri Excellence Award for Innovation and Research, which recognizes organizations that have demonstrated excellence in color measurement, customer experience, operational business results, digital print integration, and customer advocacy. The award is a testament to the company’s ongoing commitment to innovation and research in color management. The company recently announced the release of ColorAnt 9, an advanced color measurement and correction tool that could create, analyze and optimize measurement data.
  • Xitron, a subsidiary of Hybrid Software Group and the developer of Harlequin-based Navigator Raster Image Processor (RIP) and workflow products for commercial, flexo, screen, digital, and high-speed inkjet printing, has announced its collaboration with Ultimate TechnoGraphics. The collaboration will allow its Ultimate Impostrip® software to be the imposition option incorporated into Xitron’s popular Navigator Workflow.
  • Meteor Inkjet, on November 29, 2022, was granted a US patent for “Inkjet nozzle status detection” (US Patent No. 11,504,966) by the US Patent and Trademark Office, which covered a system and method for determining, in real-time, the operational status of a nozzle in a piezoelectric industrial inkjet printhead.
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