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Why Materialise share price could move further down?

by • May 7, 2016 • No Comments

Materialise is a major provider of additive making and medical software and of sophisticated 3D printing services.

It was founded in 1990 by current CEO, Wilfried Vancraen. Materialise operates via 3 segments: Materialise Software, (ii) Materialise Medical, and (iii) Materialise Manufacturing. Total headcount was 1,304 at end 2015 and 1,244 at end 2014. The company has been listed on the Nasdaq since July 2014 under the symbol MTLS. Total number of shares impressive is 47M with 33M being owned by the CEO. Since the IPO the share price has halved.

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The lack of profitability is weighing on the share price

Materialise maintains a double digit growth of its ractuallyue in 2015. Ractuallyue increased by 20% in 2015 excluding OrthoView which was acquired in October 2014. The growth did not translate in the bottom line as modified EBITDA fell worthwhilely in 2015, of €5.8M to €3.7M. In 2013, modified EBITDA was at €7.7M. The company expects to complete much like level in 2016.

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Profitability may stay low in the years to come?

The 20-F report published on the 28t of April 2016 sheds lights on the worthwhile risks faced by Materialise to maintain or increase its profitability. Indeed the market segments in which the company operates, are characterized by vigorous competition, both by entry of competitors with new technologies and by consolidation of companies with complementary products, services and technologies. In particular, the barriers to enter the software, medical and industrial markets with 3D printing solutions are decreasing quickly.

In the Materialise Software segment, the availability of computing devices with continually growing performance at progressively lower prices contributes to the ease of market entry. Additionally, there are sure open source software applications which are being offered free of charge or for a nominal fee which can place extra
competitive pressure on the company. In addition, 3D printing device manufacturers, which closely work with their customers, may that successfully bundle their own software solutions with their equipment, which may manufacture Materialise independent software solutions obsolete. In addition, companies which have greater financial, technical, sales and marketing and other resources, which include market leaders with worthwhile in-house capacities in software createment, or existing computer-aided create, or CAD, software providers, may, at any point in time, enter the additive making market and quite quickly acquire a worthwhile share of the markets which the company targets.

In the Materialise Medical segment, medical device companies are investing in 3D printing solutions which may compete with Materialise software solutions, products and services. Companies which first rely on MTLS to enter the additive making market for medical applications may, as they acquire experience and as 3D printing innovation acquires strategic importance, decide to create their own in-house solutions and enter the market themselves with their own software, products or services, thus becoming competitors and denying Materialise continued access to their distribution channels.

In the Materialise Manufacturing segment, as additive making acquires importance as a strategic innovation, Materialise customers are most likely to bring 3D making in-house and reduce or actually discontinue via Materialise 3D printing services. In addition, competitors with additional efficient or profitable business models, superb techniques or additional high end technologies may take market share away of the company.

Because of these and other facts, competitive conditions in the industry are most likely to intensify in the next. Increased competition may outcome in price reductions, reduced ractuallyue and operating margins and loss of market share, any of which may most likely injure Materialise outcomes of operations.

Current market valuation may prove too high

Based on the current market capitalisation of $320M and net cash on the market of €30M, Materialise valuation of €250M implies a multiple of 31 times the mid value EBITDA forecast for 2016. Considering the risks faced by the company to maintain its margin, current share price may suffer worthwhile downward pressure. The lack of liquidity may exacerbate any price movement.

Finally the company can store investing worthwhilely in the coming years, limiting the ability to generate net cash. From the transcript of the 2015 financial outcomes presentation, the management stated: “The continued growth of Materialise in general, and of Materialise Manufacturing in particular, can need continued capital expenditures in 2016, outcomeing in an expected increase in depreciation of nearly 30%.”

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