Nemetschek Earnings: Strong Performance Largely Expected; Shares Overvalued

Narrow-moat Nemetschek NEM delivered solid results in the third quarter. While the company beat the FactSet consensus on revenue and EBITDA and raised 2023 guidance, we surmise this was broadly in line with market expectations as shares traded flat on the day. We are currently updating our model for the latest developments but do not anticipate a material change to our EUR 54 fair value estimate. At current levels, the shares look moderately overvalued.

Guidance for 2023 revenue was increased and the EBITDA margin was specified. Nemetschek now expects constant-currency revenue growth to be 6%-8% compared with 4%-6% previously. Furthermore, the EBITDA margin is now expected to be “at the upper end” of the previously communicated range of 28%-30%. Prior to the quarter, we were forecasting revenue growth of 5% and an EBITDA margin of 28% for 2023.

The market response to the third-quarter beat may have been muted due to some temporary effects. Specifically, in addition to favorable operational developments, strong growth in the third quarter was attributed to catch-up effects from the second quarter as well as one-off effects in the design and build segments. The design and build segments both benefited from stronger-than-planned license sales.

Overall, the company’s strategy of shifting the distribution model to subscription and software-as-a-service from perpetual licenses is progressing well. Third-quarter subscription/SaaS constant-currency revenue growth was 49% and constant-currency annual recurring revenue growth was 25%. Furthermore, recurring revenue as a percentage of total revenue increased to 75% from 65% last year and the EBITDA margin was a healthy 32.5%.