It was founded in the 1970s by Georg Nemetschek, who still owns around 45% of the business. The company helps customers with construction planning, computer aided design and product visualisation. 

We first met Nemetschek in February 2024 and were very impressed but felt that at 40x earnings their valuation was too high. We took advantage of the broad software sell-off at the start of this year to revisit the business and initiated a position in early March, which we have since been building up.  

Much of the share price weakness in the software industry has been attributed to concerns that AI may disrupt established software suppliers. We disagree with this view in Nemetschek’s case. Whilst acknowledging market pressure, management have emphasised that their expertise and loyal customer base provide resilience against these fears. Architects and engineers typically train on one software system for their entire careers and Nemetschek’s close relationship with universities means their tools are adopted early on. 

Moreover, construction projects are highly specialised and risk averse, making rapid shifts to unproven AI alternatives unlikely. The idea that AI will replace software businesses, such as Nemetschek, overlooks the reality that architecture and construction are both complex and heavily regulated - a tiny error could have catastrophic consequences. Rather than a threat, management see AI as an opportunity; they have recently launched a new tool that analyses architectural designs and predicts potential issues, essentially providing a preconstruction quality check.

Nemetschek’s attractive offering was reinforced by excellent full-year results in March. Revenue grew 20% for the year, with Q4 +12%. Operating profit increased 23% with a margin of 31.2%, and net profit rose 24%. Net debt fell two-thirds, from EUR 294.6m to EUR 107.5m, strengthening the balance sheet for organic growth and potential acquisitions. Earlier in the month, management proposed a 25% dividend increase, their thirteenth consecutive rise. An encouraging results call supported these strong numbers. Describing their 2026 target as ‘ambitious but achievable’, management have guided for revenue growth of +15% and operating profit +33%. 

This positive outlook aligns with signs of improvement in the German macroeconomic backdrop. Around 17% of Nemetschek’s revenue comes from Germany, a market that has been weak for two years as construction activity slowed. Last year Friedrich Merz created a €500 billion infrastructure fund to upgrade Germany’s infrastructure after years of underinvestment, which will be deployed over the next decade. We believe Nemetschek is well positioned to benefit when German construction stabilises and eventually recovers.

In our view, the business model is robust and the share price should follow the strong fundamentals and underlying earnings growth.
 

The above article has been prepared for investment professionals. Any other readers should note this content does not constitute advice or a solicitation to buy, sell, or hold any investment. We strongly recommend speaking to an investment adviser before taking any action based on the information contained in this article.

Please also note that the value of investments and the income you get from them may fall as well as rise, and there is no certainty that you will get back the amount of your original investment. You should also be aware that past performance may not be a reliable guide to future performance.