• United Mobility Technology (UMT) is a holding company, currently comprising of four business units with a particular focus on mobile software solutions and the digitization of ‘analog’ processes;
• UMT has grown revenues from €1.5m in 2016 to c. €45m in 2022 (pro-forma MEXS for 2H 2022). During the same period, ebitda has grown from <€1m in 2016 to c. €12m;
• Despite the strong growth, UMT’s market capitalization is hovering at historically lows, roughly €10m. The company has negligible debt and a net cash & cash equivalents balance of c. €16m (2022e pro-forma MEXS, acquired for €13m in cash in July). As such, the company is currently trading at a negative enterprise value. At these levels, UMT is trading at a roughly 80% FCFE yield;
• There are reasons for UMT to be cheap compared to its potential, but today’s opportunity is mainly the consequence of the brutal bear market that wrecked havoc in the (German) micro-cap space and pressured the share price from c. €9 to <€2 over 2022. Meanwhile UMT continued to generate good amounts of cash; 
• Despite the very low market capitalization and insiders owning roughly 85% of shares outstanding, liquidity is ok-ish, with average daily value traded between €20-50k and higher on good days (though has been trending lower over the past few months).

History seems to be repeating with UMT. In the fourth quarter of 2018, an environment of economic uncertainty strongly pressured stock markets, particularly in the micro-cap space. During this period, UMT’s share price declined rapidly to <€2 per share, before rebounding to €10 during 2019. A similar set-up appears today, where a rising interest rate environment, Europe’s energy related woes, pressure on consumers wallets from inflation, a looming recession and a listing on a German stock exchange have massively pressured UMT’s share price. As a result, similar to 4Q 2018 / 2019, UMT’s share price breached €2. However, today the company is drastically different and more mature. UMT is not a one-product company anymore, has healthy cash flow generation and a very strong balance sheet. Just as important, founder and long-term CEO Albert Wahl – the main reason of UMT’s undervaluation (imo) – recently stepped down, igniting hope for a better future with respect to shareholder communication. I believe not much is needed for the share price to snap back to the €8-12 range. Should the company (finally) start to communicate properly and initiate a shareholder friendly capital return policy, UMT’s valuation would have tremendous upward potential, beyond a return to the historical range.

Background

In short, UMT is a holding company currently consisting of four businesses: An asset management business, Buchberger (a construction equipment rental company), UMS (UMT’s legacy software business) and MEXS, UMT’s latest acquisition. UMT is very cash flow generative and has a strategy of acquiring and managing companies which either have strong synergies with UMS’ operations or a great potential to be digitized and subsequently scaled. But in order to understand UMT today and the events over the past few years which have led to today’s iteration of UMT (and a big reason of today’s low valuation), it is necessary to first take a step back and look at the company’s history, which will provide some context. 

UMT listed in 2011 via a reverse listing out of a portfolio of investment companies of Albert Wahl. Since its listing, Albert Wahl has been the company’s main shareholder (he still owns all his shares) and, until recently, the CEO. In some sense, UMT over the past decade has been a reflection of Albert Wahl’s character: Entrepreneurial, opportunistic and – important to the thesis – a very poor communicator. More on this later.

UMT was spun-out of a basket of tech-related (venture capital) investments. Out of this basket of investments, one investment stood out as very promising – UMT’s software platform focused on mobile payment solutions. Given the rapid growth of smartphones, the addressable market for mobile payments and loyalty programs related solutions seemed large. So Albert Wahl decided to focus all efforts on the mobile payment opportunity. UMT developed and operated mobile payment and loyalty platform solutions and offered its products and services to customers on a white label basis. 

Early success came in 2015 when UMT won its largest customer, Payback, a large loyalty and bonus program owned by American Express. Payback is well-known in Germany and has over 30 million subs. In 2016, UMT integrated payment functionalities into the Payback-app introducing Payback Pay. In the years thereafter UMT continued to expand its offering via Payback to many large merchants connected with Payback. 

However, despite a very promising start and successful product (Payback is still using UMT’s technology today), UMT has not been able to replicate this success and scale off this base. UMT initially offered its services to Payback on an exclusive basis, which hampered growth with new clients. The company was able to renegotiate its contract in 2019, a few months before the covid-pandemic, in order to be able to provide its services to customers on a white label basis. These activities are now part of UMS, UMT’s internal software department. Furthermore, even though UMT was very early in providing mobile payment related solutions, the German consumer proved to be very resilient to cash. While the adoption of mobile payments in the Nordics has grown rapidly, adoption was much slower than expected/hoped in Germany, a country with a strong bias towards hard currency. This is still the case today, with relatively low adoption rates in Germany compared to other developed countries. 

In addition, competition in the markets of mobile payment and loyalty programs grew rapidly, particularly with the entry of the likes of Apple Pay. Recognizing the increasingly crowded market, UMT developed Loyal, a meta-app which could aggregate different mobile payment solutions and loyalty programs. Loyal was successfully launched in 2019, but the necessary effort and customer acquisition costs turned out to be very large. This further discouraged UMT, particularly since its experience with Payback, where the company put a lot of effort to provide a good product, but growth eventually disappointed.

After the disappointment with Payback UMT was left with a good software stack focussed on mobile payment and loyalty solutions and the bitter experience of putting all eggs in one basket and eventually fail. This experience led UMT to regroup and rethink its offering and road to market. UMT decided it needed to diversify its client base in order to reduce the risks inherent in being a one-product company. In addition, the company also wanted to be in control of the entire value chain, not just the product. As a result, UMT decided to adopt a buy-and-build strategy, focusing on acquiring companies where large synergies could be achieved with its legacy software business. In addition, it would look for new ‘analog’ verticals with an inherent potential to improve the digital footprint of these companies and to scale the business once digitised. This all led to the realignment to a ‘Technology House’, as UMT calls it – basically an operating company consisting of various relatively diversified businesses, where synergies could be generated with UMS and with the potential to subsequently scale via bolt-on acquisitions.

Now one of the most important parts of the story. At this stage (2019), UMT was generating relatively healthy cash flows. The implementation of Payback Pay and onboarding of associated merchants was completed and adoption was growing (albeit at a very disappointing pace). The investments for Payback Pay and the Loyal app (most of them capitalized on the balance sheet) were done and ebitda approximated cash flow. In addition, UMS was still working some (relatively small) projects. I estimate UMT was now generating approximately €12m revenues and €4m free cash flow. This was not bad, but not close enough to implement the intended buy-and-build strategy. Management has always been conservative towards debt (as in, not willing to take on any debt at all) and raising equity was not an option; the market strongly corrected in the last quarter of 2018 and German small- and micro-cap stocks took a big hit, decimating UMT’s share price. 

This is when UMT established its asset management business. Besides managing UMT, Albert Wahl has been (and still is) a special advisor to a very large (and very private) family office, tasked with the responsibility to allocate and oversee part of the family’s funds to various asset managers. In order to speed up the intended transition to a ‘Technology House’, Albert Wahl agreed with the family office that part of the funds he was overseeing would be managed by UMT (roughly €400m), for which it would charge a 2.5% management fee, accruing to UMT. 

Given the very private nature of the family office, Albert Wahl has never been at liberty to publicly discuss any business related to the facility office. Furthermore, it is important to note that this has been the main reason why Albert Wahl recently left UMT; the advisory role demanded increasingly more time and he felt he could no longer do both (rightly so). Albert Wahl remains the largest shareholder of UMT, holding c. 80% of shares.  

UMT today

After establishing the asset management business, UMT performed two acquisitions, one in 2021 related to the rental of construction equipment (Buchberger) and another in July 2022 related to a cloud-based messaging platform for enterprises (MEXS). This brings us to UMT in its current form, consisting of four business verticals:

• An asset management business. As explained, do not expect detailed information regarding this segment (UMT has a confidentiality agreement with the family office). We have no idea how these funds are invested and how the investments are performing. Nonetheless, this segment a big cash flow generator at the moment. What we do know is that the AuM were roughly €400m, for which UMT charges a 2.5% management fee for a 10 year period. The contract started in 2H 2020, so it will run until 2030. There is also a carry component, but I’m unaware of any details. It is best to exclude any performance fees in the valuation;
• United Mobile Services (UMS). This is UMT’s internal software development business, focussed on mobile applications. This segment is responsible for a.o. the Payback contract and the digitisation of processes of the acquired businesses. UMS should be the main source of the synergies with the company’s acquired operations. An example is the digitization of Buchberger, which includes developing and launching the Buchberger rental equipment web store and the recent launch of a ‘smart rental’ app focussed on the construction sector; see here for recent company communication comments regarding this new initiative. UMS is launching the latter nationwide and is currently working on attracting partners;
• Buchberger Group. This business relates to renting out equipment for the construction sector. The acquisition of Buchberger was the first in UMT’s buy-and-build strategy. It was also a reason of much skepticism towards the company (given the poor communication of UMT’s strategic pivot). UMT was attracted by Buchberger’s extremely ‘analog’ profile, i.e. there was no web-shop and all business was conducted off-line. In addition, UMT liked the scalability of the business: the market is very fragmented with many peers operating with similar analog profiles. This creates the possibility to perform add-on acquisitions which should be relatively easily to integrate on the same (digital) platform. Furthermore, UMT has launched the previously mentioned smart rental app related to construction equipment.
  
  Buchberger was in acquired in early 2021 for €23.5m. The transaction was fully paid in shares, 100% issued to Albert Wahl, the old CEO (~2.9m new shares at €8 per share). Following this deal, Albert Wahl controlled c. 80% of UMT. The Buchberger acquisition was structured as an asset deal and retroactively incorporated in the 2020 annual report. This is important, as it clouds the UMT’s underlying strong free cash flow generation in 2020.
  
  Also important to note is that UMT has been having some issues lately with Buchberger’s previous owners. According to the company, Buchberger had a great 2021 and relatively ok 2022 marked by the digitisation efforts starting to bear fruit. However, in 2H 2022 a dispute arose with Buchberger’s previous owners. Exact details of the nature of the dispute have not been released, though the previous owners managed to force Buchberger to withhold financials results for the first half of 2022. As a consequence, UMT’s financial results for 1H 2022 include estimates of Buchberger’s result. UMT has been pursuing legal action, which had the initial result of the court ordering Buchberger to provide UMT with the financial accounts. We can expect the 2022 annual report to include Buchberger’s results (generally  released somewhere in May). See here and here for company comments on the situation; 
• MEXS Group. MEXS is the company’s most recent acquisition. The company offers a messaging platform for enterprises (similar to MS Teams) which can easily be integrated with existing ERP systems. MEXS has been working on several new functionalities which are currently being tested on site at a few large (potential) clients. See here and here for more information.
  
  MEXS was acquired for €13m in cash, the first deal of UMT to be fully financed with generated cash flow. The deal includes an earn-out component of which the details have not been disclosed. MEXS is expecting to achieve €16m revenues between 1H 2021 and 1H 2022 and is targeting a 20% bit margin over the medium-term. According to UMT, MEXS already has few large clients lined up; should these clients be onboarded, revenues could scale rapidly. Furthermore, Thomas Teufel, MEXS’ previous shareholder, is now part of UMT’s management team. 

As a result of all the above, UMT has grown revenues from €1.5m in 2016 to c. €45m in 2022 (pro-forma estimate including MEXS for 2H 2022). During the same period, edited has grown from <€1m in 2016 to c. €12m in 2022. 

I strongly suggest to read UMT’s latest shareholder letter (December 2022) for a quick update on the company.

Reasons why the stock is so cheap

The main reason for UMT’s low valuation (besides the classic ‘small, not followed / covered’) is the current market weakness. Rapidly rising interest rates (from deeply negative levels in Germany), Europe’s energy related woes, pressure on consumers wallets from inflation, a looming recession and a listing on a German stock exchange have strongly impacted German micro-caps. As a consequence, UMT’s share price derated from c. €9 beginning of 2022 to c. €1.85 today, despite an overall relatively strong year operationally. Though the news of the dispute regarding Buchberger is a negative, UMT has continued to generate a healthy level of cash, and acquired MEXS for €13m in cash from its own balance sheet – a strong indicator of UMT’s underlying cash flow generation potential. In addition, news of Albert Wahl stepping down as CEO initially sent the share price 50% higher, which brings me to the next point.

Notwithstanding the recent derating, UMT has traded at relatively low valuations for long periods (taking into account the small size and lower liquidity). This was mainly due to the company not being able to properly market the investment case. UMT has been historically bad at communicating,  a trait mainly attributable to Albert Wahl. The company does not have a proper CFO and IR role and the latter function was performed rather poorly by the (very busy) CEO. Despite Albert Wahl being fundamental to the company, mainly in the transition to a holding company, he has been the source of cloudy, messy and confusing communication. I believe his unstructured method of communicating has not been intentional, but rather a function of (unfortunate) character traits. Consequently, there has been a strong inability to translate UMT’s strategy and growth potential to investors and to properly tie it to the financials.

Another reason of the relatively poor communication is simply unprofessionalism. The company never quite took the time to figure out how to translate and best present the company’s strategy and operations into a coherent story to investors. As an example, when presenting financial results, UMT regularly refers to its two business units ‘Commerce and Consulting’ and ‘Technology and Software’. However, not once did UMT provide a split of revenues and earnings according to this segmentation.

As a consequence of poor communication, investors have been unable to understand and follow the company’s transition from a one-product company focussed on Payback to an operating business focussed on the digitisation of (mobile) processes of acquired operations. And we know that unclear, confusing news is often treated as bad news, particularly with micro-caps.

An important question to answer: Why does Albert Wahl not take UMT private? The reasons are three-fold: Taking the company private (and perhaps relisting it in a couple of years) would definitely make a lot of value accrete to him, though it will not be life-changing; Albert Wahl is a very wealthy individual and it would have no impact on its lifestyle. A second and more important reason is that during the exciting years of the Payback Pay opportunity, lots of friends and family invested in UMT as well. Pretty much all of them have lost money until now. Taking UMT private (at a much lower level) would be ‘unfair’. A third reason is the intend to use UMT in its current form to arbitrage the opportunity between private and public company valuations, something which Albert Wahl believes has great potential in the long run and better matches his new role as (full-time) special advisor.

Why are things different this time

It is important to understand that UMT will continue to trade below potential (relative to intrinsic value) until company communication consistently improves and more light is shed on the company’s operations. In addition, a discount will continue to be applied to the companies secretive asset under management operations. Until the cash flows from this unit as % of total become small, some skepticism will remain. Lastly, UMT’s track record on capital allocation is still very short and the company will have to prove itself it is indeed able to identify, acquire and integrate good targets.

Nonetheless, Albert Wahl resigned in October and a new management team was formed (the old UMS COO is now CEO and a MEXS’ founder and former shareholder has been added to the board). As mentioned, the share price jumped 50% after the news, an indication that the market was aware that Albert Wahl’s less than ideal communication skills were a detriment to the company. A new management is a good start and the hope is now that communication will improve. Albert Wahl will remain tied to the company as main shareholder in an advisory role; this could be meaningful to UMT given his strong network.

In addition, compared to UMT’s last derating in 4Q 2018, the company’s financials are now vastly better. UMT has strong cash flow generation and the balance sheet is extremely solid. I estimate UMT’s net cash and cash equivalent balance of c. €16m for YE 2022 (compared to a market cap of < €10m), including the purchase consideration of MEXS. 

UMT remains very much undiscovered stock. I believe that shedding more light on this company and, ideally, someone taking a more active role (mainly on capital allocation) should push the company to improve disclosures and initiate shareholder friendly cash distribution policy (via dividends).

Valuation

UMT’s valuation depends a lot on what the company will do over the next few years in terms of capital allocation and implementing shareholder friendly policies. However, I believe that given the current valuation levels it is of little use to make explicit financial forecasts for all segments. There isn’t sufficient information to make sensible forecasts and, more importantly, the gap to ‘fair value’ is so large at the moment (imo) that assessing the status quo should suffice to show the stock’s potential. Keep in mind that this is very much a back-of-the-envelope exercise, but it will suffice at this stage:

• The asset management business. As mentioned, this is a 10 year contract on €400m with a 2.5% management fee. Just to be conservative, lets assume €300m (the markets went down and we don’t know how much is invested and on what AuM the fee is charged) * 2.5% = € 7.5m p.a. This should drop to the bottom line at high margins. Over another eight years (including 2023) this is €60m;
• UMS. Revenues and earnings from this vertical stem from the Payback contract (recently renewed), some other smaller contracts singed for UMS’ white label services as well as the relatively new digitisation initiatives and the launch of the smart rental app. Given that some of the new initiatives include inter-company revenues and other are still too early to be meaningful, I’ll only take UMS’ legacy operations into account. We do not have recent details, but we know that 2019 revenues (before Buchberger and the AuM business) were c. €13m and ebitda €4.5m. I’ll assume €5m ebitda for 2022, given management’s indication that earnings attributable to UMS’ legacy operations have continued to grow;
• Buchberger Group. Taking the most recent figures, Buchberger generated €20m revenues (2020) and €3.5m ebitda. UMT indicated continued growth over 2021 and 2022, but lets be conservative and assume steady revenues and €1m ebitda, taking into account higher investments from digitization initiatives;
• MEXS. As mentioned, MEXS is targeting €16m revenues over 2H 2022 and 1H 2023 and an operating margin of 20% over the medium-term. I’ll assume MEXS to be ebitda neutral over 2023 (I have no idea, but it does not matter much at the moment).

This back-of-the-envelope estimates give us c. €45m revenues and roughly €12m ebitda for 2022 (pro-forma the acquisition of MEXS for 2H 2022). In addition, UMT will continue to generate cash. As mentioned, including MEXS’ purchase price of €13m, I estimate a net cash & cash equivalents position of roughly €16m for year-end 2022, including an unwinding of c. €6m working capital in 2H (which are mostly management fees receivable). Assuming no ebitda growth and 70% free cash flow conversion, we can add €8m cash each year on this position. (As a side note, given negative interest rates on deposits, over the past few years UMT opted to keep its cash in money market funds to avoid paying negative interest).

I’ll leave it up to you to take all the premium/discounts you want on the above, but keep in mind that we are giving the company zero credit for a lot of initiatives, i.c. the reinvestment of cash, continued growth of Payback Pay and Buchberger, the smart rental app (+ white-label offering), growth of MEXS. 

Based on these (rather conservative) estimates, I see three scenarios for UMT’s share price:

• The base case: A medium-term expectation of a snap-back to the levels of the past few years, hence €8-12 or >5x the current share price (mid-range). As previously mentioned, UMT’s share price performance over 2022 has been heavily penalised by the current economic uncertainty and a listing on a German exchange, all the while the company has continued to grow and generate cash. Though no imminent catalyst, very little is needed for the company’s share price to snap to the upside, like it did in 2019. At a share price of €10, €16m net cash balance and €12m ebitda (~2022e levels), UMT trades at c. 3x ev/ebitda – very undemanding given the strong balance sheet and all that is happening under the surface;
• The bear case: The macro-environment deteriorates (particularly in Germany), markets remain in turmoil and nobody will continue to touch the shares. UMT might not be able to improve its communication and bad capital allocation is a large risk. Given the sizable cash balance, UMT might do something less than ideal such as a value destructive acquisition. There’s no reason the shares can go any lower, particularly in pico-cap space, though keep in in that at €1.85, UMT is trading at a free cash flow to equity yield of c. 80%;
• The bull case: The new management continues to improve communication, MEXS grows as guided, Buchberger returns back on track, markets stabilise and uncertainty recedes. UMT’s valuation starts to move toward intrinsic value. Looking out a few years into 2024, UMT should be able to grow ebitda organically to roughly €15-20m and its net cash position to c. >€30m (excluding add-on acquisitions, which will happen). Assuming a more normalised multiple of 7x ev/ebitda gives us a share price of ~€30, or >15x the current share price. 

In short, UMT is a deeply misunderstood, very little followed, rapidly growing company with a net cash & cash equivalents balance of roughly 150% its current market cap. In addition, the company is almost earning its entire market capitalization in cash each year. A lot of things can and will go wrong and growth will not be a straight line, but the company will continue to earn a good amount of cash, do add-on acquisitions and grow operating earnings and its balance sheet. I do not (yet) have an opinion on the new management team, though it is difficult to imagine a deterioration in company communication given the low base. At €1.85, a LOT of bad news is priced in and the risk/reward is currently highly skewed to the upside, in my opinion. The share price will be volatile, but at some point something will give and UMT will start to attract a lot more attention.

Finally, a short warning. Please remember UMT is a €10m pico-cap. If you’ve never ventured this far down the market cap spectrum, thread carefully. Like all pico-caps, volatility will be high and things can go nowhere for a long time. Nothing can happen for a long time and years can happen in a few short moments. Also, if UMT derated from €50m to €10m, it could just as easily go down to €5m or less on no news

A call to activism

I believe that the current circumstances warrant (more) shareholder activism towards the company. Unfortunately I do not have the possibility to play a more activist role with UMT. Despite the low market capitalization, daily volume traded is relatively high for a pico-cap, and one could easily amass a few % in the company over a few days / week.  

If I could be more active, I would push the company to do the following:

• Implement a stable dividend policy. With 5.3m shares outstanding, a €0.50 dividend would cost the company c. €2.7m – easily covered by the annual cash flow generation. A €0.50 divided would imply a roughly 30% dividend yield at current levels (buy-backs are not an option as that would be detrimental to the company’s limited float);
• Improve communication, starting with hiring a seasoned IR. UMT should provide more, regular shareholder contact moments, such a calls, and add a proper investor deck to its website; 
• Improve its reporting, mainly the revenue and earnings segmentation (off the current ‘Commerce and Consulting’ and ‘Technology and Software’ and more tailored to the various verticals). In addition, UMT should start to prepare to uplist from the Basic Board (to my knowledge, the lowest level of listing possible on the Frankfurt Stock Exchange) and implement IFRS accounting standards (compared to the current German local GAAP).

I believe that the implementation of these policies and procedures would greatly improve transparency and increase confidence, along with the share price. If anyone reading this is interested in taking a more active role to strive to unlock the inherent value of UMT, feel free to reach out.