Nemetschek in the Wirecard check: everything clean at the disruptor of the construction industry?

Has Nemetschek (WKN: 645290) now taken the title of Germany's largest tech stock? If you understand tech as a software-driven and fast-growing business model, then the TecDAX stock is definitely one of the candidates. Reason enough to take a closer look at whether Nemetschek shares would be more deserving of this distinction than Wirecard (WKN: 747206).

Test 1: How does Nemetschek make its money??

Wirecard's business model has always been difficult for outsiders – and apparently many experts – to understand. In any case, the basis is the company's digital solutions that connect merchants, customers and banks. In rapid succession, new fintech initiatives have been rolled out and new partners brought in. Wirecard set out to turn the banking world and payments upside down.

4 "inflation-proof" stocks to buy today! No doubt, inflation is soaring. Investors are unsettled. Money that just sits in the bank loses value year after year. But where should you invest your money? Here are 4 stock favorites from The Motley Fool's editors that you can invest in as inflation rises. We have some of the most profitable stocks of this generation like Shopify (+ 6.878%), Tesla (+ 10.714%) or MercadoLibre (+ 10.291%) recommended early on. Hit these 4 stocks while you still can. Just enter your email address below and request this free report immediately. Request the free analysis now here.

Nemetschek has very similar plans for the construction industry, which is just as conservative as the established financial services providers: "For more than half a century, the Nemetschek Group has been successfully driving the digitalization of the AEC industry," is the claim, where AEC stands for architecture, civil engineering and construction. The "world-leading" group's software solutions cover everything from planning and design to project management and property support.

At the same time, collaboration between all parties is encouraged. A few days ago, a "paradigm shift in the construction industry" was announced. It is designed to enable seamless collaboration between architects, structural engineers and engineers.

As with Wirecard, Nemetschek is not short of grandiose promises. However, there is much to suggest that this is backed up with a lot of substance. Nemetschek software enjoys a high reputation in the industry and sets the standard in many cases, for example with regard to the keywords Open BIM and 5D planning. This is more reminiscent of SAP (WKN: 716460) than Wirecard, so there are no suspicions from this perspective.

Test 2: Do takeovers run cleanly?

An important element of Wirecard's breakneck expansion has consisted of acquiring competitors. With lots of advisors, bankers and lawyers holding their hands up on every deal and lots of money flowing, shareholders should always look closely.

At Nemetschek, keeping an eye out for attractive takeover targets is also part of daily business. Over the last few years, the group has grown at a rate of about 20%. Through acquisitions, the empire has grown to 16 brands. Most recently, in May, it was reported the acquisition of ADAPT, an American specialist in the design of concrete structures. In the previous year, two companies were integrated into the subsidiary Maxon Computer, enabling Nemetschek to vigorously expand its modeling and visualization expertise to the media and entertainment industry.

So Nemetschek is very active when it comes to acquisitions. The good thing is that the individual deals are almost always sensible additions to the portfolio and the prices paid seem reasonable. Just the purchase of Bluebeam for 100 million. US dollar in 2014 was considered "expensive" by some observers. However, according to the subsidiary, 1.9 million experts worldwide now use the software.

It sets the standard in the U.S. and a growing number of international markets for simple paperless collaboration between distributed construction project teams in real time. The software has currently been nominated as Construction Software of the Year by the Australian Industry Association and receives excellent marks on evaluation platforms.

I can't put my hand in the fire for every single deal, and with such a widely ramified corporation, it can never be ruled out that work is not being done completely cleanly somewhere. But all in all, everything speaks for me in favor of Nemetschek sticking to the rules and continuously creating value for its shareholders with its takeover strategy.

Test 3: Are there contradictions in the cash flows??

Inconsistencies in cash flows are alarm signals. The operating profit and the operating cash flows may well differ more strongly, depending on how the incoming payments develop in relation to the accrual of income and costs. Wirecard, for example, attracted attention by reporting solid profits but still never having enough cash on hand.

Consequently, an analysis of the cash flow overview from the last annual report could give us clues as to whether Nemetschek might also be working with tricks that make the figures look pretty or push down the tax burden. Similar to Wirecard, Nemetschek pays a measly dividend – compared to the share price, mind you. The increase to 28 euro cents for the last fiscal year means a return of just 0.4.

In addition, one can ponder why the depreciation and amortization of fixed assets in the last two years was about twice as high as the investments in property, plant and equipment. Or why the change in bank debt for acquisitions has been significantly more negative than actual spending on subsidiary acquisitions in each case.

The latter can be explained by the fact that at the same time had to pay off older loans. The increased depreciation and amortization, on the other hand, has to do firstly with the changeover to the new accounting standard IFRS 16 and secondly with purchase price allocations that occur over many years in the case of acquisitions – plausible to me.

It is also pleasing that the pre-tax result deviates only insignificantly from the operating cash flow from operating activities. This looks round.

Test 4: Can suspicious balance sheet items be detected??

It is equally interesting to take a critical look at the balance sheet, where assets and liabilities are compared in order to determine equity. As is well known, Wirecard managed to raise 1.9 billion. Creating euros out of nothing. Sometimes there is fraud behind such a thing and other times the valuation measures are simply interpreted a bit too benevolently to cover up problems or to exaggerate the success of management.

First I usually look at the debt. 188 million, the financial liabilities are. 557 million is relatively low for a highly profitable software company. euros in sales, especially as cash and cash equivalents amounted to 209 million euros. Euro make up. There is probably no need to worry.

More interesting are the intangible assets, including goodwill and rights of use. At the end of 2019, they totaled 519 million euros. euros, compared with 346 million. euros in the previous year. With total assets of 857 million. euros, these items account for a whopping 61. They also significantly exceed the reported equity of 349 million. euros. If these values were inflated, Nemetschek would perhaps have a problem.

To get to the bottom of this, we have to study the annual report. After all, such stocks have to be subjected to an annual impairment test. Nemetschek devotes several pages to this topic and the explanations seem transparent and comprehensible to me. There should not be much to burn.

Result: this is how clean the Nemetschek share appears

After I took Delivery Hero (WKN: A2E4K4) through the wringer a few days ago and came to a mixed conclusion, I have nothing substantial to criticize here. Nemetschek may be a fast-growing software group, but it is managed in a rock-solid manner. The market position is strong and the regular acquisitions contribute positively to earnings in most cases.

Whether the ambitious share price is justified is debatable, but Nemetschek shareholders certainly need not fear a disaster like that at Wirecard.

There is one company whose name is currently coming up very, very frequently among The Motley Fool analysts. It is THE top investment for us for the year 2022.

You could also benefit from this. To do this, you first have to know everything about this unique company. That is why we have now compiled a free special report that presents this company in detail.

Ralf Anders does not own any of the shares mentioned. The Motley Fool does not own any of the stocks mentioned above.