Over the past six years, my investment philosophy has undergone a minor shift: to get the annual performance of my diversified retirement portfolio, which I started in 2017, a bit above the current level of appr. 11% p.a., I have slightly moved away from “Blue Chip” dividend aristocrats like Johnson & Johnson, Altria, Pepsi, and Procter & Gamble, even though I am still holding my current shares.
My logic is straightforward: if I am merely looking for market performance, I can invest in a global ETF and save myself the labor-intensive process of stock-picking (even if I do enjoy it as a hobby).
Furthermore, I am at a stage in my life where I (i) don’t need the growing amount of dividends, and (ii) can weather volatile market phases. This gives me the opportunity to invest in more volatile but higher-growth companies.
Consequently, my focus shifted toward smaller companies with more volatility but also higher growth potential.
My criteria were clear: they had to pay a dividend and demonstrate consistent growth in both earnings and payouts. Mensch und Maschine Software SE (MuM) quickly became a high-conviction play for me. Between March 2022 and September 2025, I built my position through more than 30 separate tranches.
Operationally, the company ran like clockwork. Management met or exceeded forecasts with mathematical precision. Between FY 2014 and 2023, adjusted earnings per share (adj. EPS) rose from €0.24 to €1.72, while the dividend per share climbed from €0.20 to €1.40 over the same period, corresponding to a CAGR of around 24% for both EPS and dividends.
What also appealed to me was the lack of flashy marketing. The company’s main website looks like a relic from the nineties; only Berkshire Hathaway’s site appears more antiquated.
And as you may know from earlier articles, I like if things are kept simple.
However, following the preliminary figures for FY 2025 released in February 2026 (and for me, as early as mid-2025), I realized that I no longer fully stand behind the company or its management.
This loss of confidence led me to pause my savings plans in September 2025. And now, after MuM published the preliminary FY 2025 numbers, I even view the company as a potential sale candidate. This is not due to a lack of patience; rather, it is because I am increasingly losing trust in the management’s ability to deliver on their promises.
Why MuM was a high-conviction buy for me
Before diving deeper into the current issues, I want to briefly introduce MuM and explain why I invested in this German small-cap (market cap under €1bn) in the first place. Founded in 1984 by Adi Drotleff, who still holds more than 45% of the shares, the company has developed into one of Europe’s leading providers of software solutions in the following areas:
- CAD (Computer-Aided Design): This software is used to create high-precision digital models of components and products, which serve as “digital twins”. In this field, MuM is closely linked to the world market leader Autodesk as one of its largest European partners. However, it faces direct competition from Siemens Digital Industries Software (NX, Solid Edge), which dominates the high-end segment, as well as from systems such as SolidWorks from Dassault Systèmes.
- CAM (Computer-Aided Manufacturing): This technology provides direct control and simulation of production machinery, using CAD models to optimize the physical manufacturing process. Here, MuM’s subsidiary Open Mind, and its hyperMILL software, competes with Siemens (NX CAM).
- BIM (Building Information Modeling): BIM is a networked working method for the construction industry that consolidates all project data, ranging from geometry and structural analysis to costs and schedules, into a central 3D model. While MuM plays a pioneering role here, its largest and most direct competitor is the fellow German-listed Nemetschek Group.
The company’s business model rests on two very different pillars that are often misunderstood:
- The “MuM Digitization” segment is historically closely linked to the US giant Autodesk. In this segment, MuM acts as a partner and consultant for Autodesk software. When an architecture firm in Munich or a mechanical engineer in Graz uses Autodesk software such as AutoCAD or Revit, it is often done through MuM. MuM is one of Autodesk’s oldest and largest partners in Europe, and the two companies are deeply intertwined (with the greater dependency naturally on MuM’s side). The role is clear: MuM provides installation, training, and custom adaptation. The catch, however, is the technological dependency on a third-party provider. When Autodesk changes the rules, as they did in 2024 (see below), MuM must follow suit.
- Under the “MuM Software” segment, MuM sells its own proprietary software solutions, particularly in the CAM sector, through its subsidiary, Open Mind. Since this is MuM’s own intellectual property, margins are characteristically high, with EBIT margins exceeding 25% (FY 2024: 28%).
Over the years, MuM has significantly reduced its reliance on Autodesk thanks to the success of the Software segment. In 2001, the share of gross profit from Autodesk resale peaked at over 75%, but has since melted down to less than 25%.
What a run from 2015 to 2021: the stock went up 16,2 % p.a.
To understand today’s disappointment, one must understand MuM’s past performance. Between 2015 and September 2021, the stock was an absolute “return monster”. Anyone who invested in 2015 could enjoy an annual return of over 16% through 2021, including dividends.
CEO Adi Drotleff always comes across as very conservative and rational in interviews.
And together with his CFO, Markus Pech, he delivered.
Company forecasts were almost always exceeded, and communication was characterized by rare transparency in the small-cap sector.
MuM also followed an aggressive dividend payout policy, in which almost all profits were returned to shareholders (more on that in a moment).
Many investors considered the stock notoriously overpriced at the time because the P/E ratio was often 30 or higher. However, this was a misconception due to a specific accounting practice.
To properly value MuM, one must understand how the company handles its research and development (R&D) costs. Here, MuM differs radically from many of its industry peers:
- The industry standard: Most software companies (especially in the US or under IFRS rules) “capitalize” a large portion of their development costs. This means that the money spent on developing new software is treated as an investment and depreciated over several years. The advantage for the company? The costs do not appear immediately and in full on the income statement. The reported profit (Net Income) thus looks artificially inflated and “prettier.”
- The MuM approach: MuM always followed an almost old-fashioned, conservative approach. Every year, around €25 to €30 million flows into development, but instead of capitalizing these costs, MuM records them immediately and in full as an expense for the current year. This approach significantly reduces the reported profit. A lower profit with the same share price mathematically leads to a higher P/E ratio (and also higher dividend payout ratios). For an investor, however, this means significantly higher “Earnings Quality.” While other companies juggle capitalized legacy burdens on their balance sheets, MuM’s profit is “clean.” MuM was therefore more of a company that “writes off” its entire R&D department every year from current cash flow without building up debt for the future. This is financial discipline in its purest form, rarely found in the tech sector today, and I found it extremely attractive from an investor’s point of view.
The Autodesk hiccup in 2024
In mid-2024, the world changed for MuM. Autodesk switched its global sales model from a reseller model to a commission-based model. The principle is simple:
- Before: MuM bought the software and resold it. These resales generated revenue. After deducting the purchase costs, the operative profit remained.
- Now: Autodesk sells directly, and MuM receives only a referral fee.
This change led to a massive drop in reported revenue. If MuM previously sold software for €10,000, that full €10,000 was recorded as revenue. Today, perhaps only a commission of €1,500 appears as revenue.
However, the bottom line would be the same in both scenarios.
Therefore, I was indifferent to this change. While revenue shrinks, profitability actually increases because low-margin “pass-through” items are eliminated. From my perspective, it was a classic “left pocket, right pocket no-brainer.”
With one small tweak: investors who only look at revenue growth might be spooked, so for me, as someone investing in the stock monthly, it was a nice opportunity to acquire shares at a lower price.
The latest numbers (are not so great)
Now, we can finally discuss the reasons for the poor share price performance. There are a few, but from my perspective, the slow growth in MuM Software and the gap between how management communicated expectations and how the company actually delivered in recent years are the decisive factors.
Slow growth in MuM Software is alarming
Let’s first look at the preliminary figures for FY 2025 (I do not expect any major changes in the audited report).
The main item for me is the top line low growth in the MuM Software segment. In FY 2025, the segment grew by a disappointing 4.7% (gross profit in MuM Software rose by only 3.7%). This is how revenue in MuM Software looked over the full year.
- Q1 2025: Increase from €27.8 million to €29.1 million (+4.7%).
- 6M 2025: Increase from €57.66 million to €60.65 million (+5.2%).
- 9M 2025: Increase from €85.99 million to €89.8 million* (+4.5%).
- FY 2025: Increase from €109.3 million to €114.5 million (+4.7%).
So it was never about just a bad quarter or two. MuM has clearly entered a phase of mid-single-digit growth phase in its software segment.
The cash flow gap is real
Another aspect investors should keep an eye on is the free cash flow (FCF). MuM has not yet provided specific details on this in the preliminary figures, but FCF will surely be below the previous years’ figures.
First off, this is expected, and there are technical reasons for that:
- For years, as a reseller, MuM benefited from a massive working capital advantage: the company collected payments from customers immediately but paid Autodesk much later. This “upfront cash” artificially inflated the cash flow. Consequently, the FCF in FY 2024 stood at €3.60 per share, nearly double the adjusted EPS of €1.58.
- With the switch to the commission model, this effect vanished as MuM had to settle old liabilities without new gross volume flowing in.
- Additionally, there was a final “resale boost” in the fourth quarter of 2024 ahead of the Autodesk transition; customers rushed to buy licenses under the old model one last time.
In 2025, MuM saw the echo of this development: operating cash flow collapsed in Q3 2025 by nearly 40%, to €24.1 million from €39.4 million, and this will also lead to a decrease in FCF for FY 2025.
Analysts (surveyed by FactSet research) now expect FCF to fall from €3,58 per share to €1,32 (mind the €2 dividend per share/year). While I expected that drop, we should now focus on the next two years, as those will be decisive for a recovery in FCF.
And no, I don’t expect a dividend cut in the near term.
- As already mentioned, the cash flow gap was to be expected.
- The gap between dividends and cash flow becomes somewhat less concerning when you factor in the scrip dividend. MuM offers investors the option to receive shares instead of cash as dividends. On average, about 35% of shareholders choose this option, reducing total cash outflows on dividends.
However, if FCF remains meaningfully below the cash dividend for two consecutive years after the Autodesk transition, the payout becomes a clear red flag.
My trust issue with the management
The following part is for paid subscribers only.
Since this report contains valuable/personal insights. I want to restrict access to paying subscribers only. I invest a lot of time and effort into writing these pieces/researching companies, etc.
So if my work is worth the price of a coffee to you, it would go a long way in keeping me motivated and providing even more insights! ☕️
Behind the paywall, you will find in particular:
The trust gap: Why recent management communication fell short.
- MuM and AI: good or bad? My professional assessment (from a B2B SaaS perspective) and why Autodesk’s shift toward native task automation puts MuM’s high-touch training business model under immediate pressure.
In my personal exit strategy, I lay out four “proof of life” indicators that will determine the fate of my shares (I will also share insights into the size and performance of my position).
Since I’m just starting, I’ve set the lowest fee and am offering a discount for the first 10 paid subscribers. So now is the perfect time to join! 💡✨
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