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Arrowhead published an Equity Research Report on Hybrid Software Group PLC
September 29, 2022


Hybrid Software (EBR:HYSG) Research Update

September 29, 2022


  • Arrowhead is updating coverage on Hybrid Software Group with a fair value bracket of EUR 6.9 to EUR 7.3 (share price on September 29, 2022: EUR 4.3) based on blended valuation using Discounted Cash Flow (DCF) method (90% weightage) and relative valuation method (10% weightage)
  • Hybrid Software Group reported revenue of EUR 23.4 mn in H1 2022, compared with EUR 23.8 mn in H1 2021, a decrease of 1.4% year-on-year (YoY). The Printing Software and Enterprise Software divisions saw their revenues increase by 64.4% and 9.2%, respectively, on a YoY basis. Revenue from the Printhead Solutions segment declined by 56.1% YoY, mainly due to semiconductor shortages. The company overcame the shortages by redesigning a key circuit board (“PCC2”) using a more powerful chip, which led to a half-year revenue impact of c. EUR 4.1 mn. The company anticipates a quick recovery of this revenue in the second half of the year
  • Gross profit for H1 2022 was EUR 19.9 mn, with a margin of 84.7%, compared with EUR 19.7 mn in H1 2021, with a margin of 82.6%. EBITDA for H1 2022 stood at EUR 4.6 mn as compared with EUR 5.8 mn in H1 2021, a decrease of 20.5% YoY. The EBITDA margin for H1 2022 stood at 19.7%. With the investment in an additional workforce and with the launch of SmartDFE and its adoption by key inkjet original equipment manufacturers (OEMs), the company expects the EBITDA of the software business to improve in the near future. Net Profit for H1 2022 stood at EUR 0.4 mn as compared with EUR 2.5 mn in H1 2021. As of June 30, 2022, cash was at EUR 3.0 mn as compared with EUR 9.2 mn as of December 31, 2021. The cash balance has already improved to c. EUR 8.0 mn due to strong collections, a favorable working capital adjustment for the purchase of iC3D, and the sale of an old, unused asset (c. 69,000 IPv4 internet addresses) in July of c. EUR 3.3 mn.
  • Hybrid Software Group appointed Joachim Van Hemelen as the new CFO and company director with effect from September 01, 2022. Previously, Joachim Van Hemelen was the CFO of HYBRID Software since 2016
  • The company operates through its six subsidiaries – Global Graphics Software, HYBRID Software (HYBRID), Meteor Inkjet (Meteor), Xitron, ColorLogic and iC3D. The company plans to optimize the cost by reorganizing the business around 3-4 reporting segments instead of six individual operating companies, which will simplify the structure of operation, thereby tying up the business, which can provide synergies in the future
  • The company has further reduced the client concentration risk. In H1 2022, revenue contribution from the top 10 customers stood at 30.1%, compared with 39.5% in H1 2021. The five largest customers represented 24.8% (as compared with 33.4% in 2021) of the Group’s revenue, and the single-largest customer represented 8.4% (as compared with 18.0% in 2021) of the Group’s revenue
  • In the long term, Hybrid Software Group expects to reach a revenue of EUR 100.0 mn by FY 2026. Additionally, the company looks to achieve an EBITDA target of EUR 35.0 mn by FY 2026. The plan is to achieve the growth target through a contribution of c. 75% from organic growth and 25% from future acquisitions. The company has completed two acquisitions and is working on other merger & acquisition targets