Media and Games Invest — Following in Stillfront’s footsteps

Media and Games Invest (MGI) operates in the media and gaming sectors, supplementing strong organic growth with a buy, integrate, build and improve acquisition strategy. Gamigo, MGI’s principal gaming business and now wholly owned, delivered a revenue CAGR of 31% and an EBITDA CAGR of 61% in FY14–19.

When buying companies, MGI drives synergies from technology integration (eg cloud-based game hosting), creating efficiency improvements and providing a competitive advantage. The group’s most important investments include gamigo, a fast-growing gaming and media company; ReachHero, an influencer marketing platform; Applift, a mobile advertising company; PubNative, a supply-side platform (SSP) for mobile advertising; and its most recent acquisition, Verve Wireless, a location-based performance marketing business acquired by gamigo.

MGI has evolved through a number of corporate transformations, but through its predecessor companies can trace its roots back to 2000, when gamigo was first founded. Since then, the company has become a leading European publisher of free-to-play and freemium games titles, as well as a significant player in online and mobile advertising. MGI employs approximately 650 staff.

Following its latest new business acquisition, Verve Wireless, in January 2020, the group’s revenues are now split roughly 50/50 between the B2C games segment and the B2B media business. As well as being profitable in its own right, the media businesses provide cost-effective customer acquisition, retention and monetisation, offering a tangible benefit to the games segment.

As at H119, MGI reported net debt of €54.2m (including IFRS 16 lease assets), with cash at bank of €26.2m. Following the acquisition of the minority holdings in gamigo, the group has estimated net debt of c €70m (c 3.7x consensus FY20e EBITDA of €19.0m) including two listed bonds, a €25m MGI unsecured 7% bond (of which €17m has been issued) repayable at par in 2024, and a €50m gamigo secured 7.75% bond repayable at par in 2022, as well as €10m of banking facilities drawn down and €2.5m undrawn.

As we have noted in our report on the impact of COVID-19 on the games sector (European video games: A safe haven in troubled times), mature games companies are a net beneficiary of increasing consumer demand as a result of lockdown. The games sector is also a stable business in challenging times and historically has proven resilient during economic downturns.

MGI has successfully implemented remote working to ensure the continuing operation of its games and media platforms. As reported by gamigo, the number of new customers per day for the week of 30 March to 5 April 2020 (the latest data available prior to the release) had increased by 64% compared to the week of 9–15 March 2020, and the number of daily active users (DAU) had risen by 19% following lockdowns in gamigo’s main markets of Europe and North America. Although these are limited data points, they are consistent with data from across the industry and we believe the increase in demand highlighted is representative, supporting management’s expectation for further strong growth for FY20.

MGI’s management highlights the following benefits from the group’s buy, integrate, build and improve strategy in the high-growth media and games sectors:

MGI follows a buy, integrate, build and improve strategy in both the media (B2B) and gaming (B2C) segments, focused around distressed companies that have come under pressure due to a lack of scale and suffering from high overhead costs (particularly from personnel, distribution and IT infrastructure). After the companies are acquired, they are restructured and integrated with a focus on the realisation of cost synergies in personnel, IT and marketing/distribution, materially cutting overheads. After integrating a business, MGI continues to invest in organic growth, supporting for example game acquisition, ongoing development, in-game advertising, new launches or the internationalisation of its properties.

MGI’s principal subsidiary gamigo, which publishes massively multiplayer online games (MMOGs) and casual games, was founded in 2000 and acquired by Samarion (Remco Westermann’s investment vehicle) from Axel Springer in 2012. Under Remco Westermann’s management, the business model was changed, moving away from capital-intensive and risky new game development and concentrating instead on licensing and acquiring proven games and IP rights from distressed games and media companies.

Management has completed more than 30 acquisitions and, following this revised strategy, have delivered a five-year revenue CAGR FY14–19 of 31% for gamigo, MGI’s principal gaming subsidiary, and a five-year EBITDA CAGR of 61%. In May 2018, MGI bought 53% of the voting rights in gamigo and currently holds 99.9% of the equity following the acquisition of the substantial outstanding minorities in Q120. MGI’s strategy is now fully focused on the media (B2B) and gaming (B2C) sectors.

In B2C gaming, MGI publishes online and casual games, mainly through its subsidiary, gamigo, which publishes first-party titles and provides a degree of in-house ‘update and improve’ development support for end-customers. The group supports a broad portfolio of online and console games (c 30 MMOGs and more than 5,000 casual games) including casual games, role-playing games and strategy games, mainly targeting gamers in Europe and North America distributed via 15 online portals. Games are typically licensed worldwide or licensed exclusively for specific regions or territories.

Free-to-play massively multiplayer online games (MMOGs) account for the largest share of revenues. Free-to-play means users are able to play for free (with low-level ad-funding), but can purchase in-game items at a range of prices. The business model requires ongoing support to develop the game and related content, working in close collaboration with the playing community. In addition to regular events and competitions, new items (eg costumes, skins, weapons) and content (new functions, levels and opponents) are provided on a regular basis to enhance the game and maintain a fresh playing experience for the committed community.

With appropriate support, users can remain loyal to the game for many years, playing for free or investing money in the game over the entire period. For established games, over 50% of revenues can be generated by users who have been active players for more than five years. For paying users, monthly investment of €50–80 is not uncommon and over the full lifetime of a game (sometimes 10 years or more), superfans may choose to invest thousands or even tens of thousands of euros to maintain their playing experience. To highlight this longevity, set out below are the player age groupings for certain of MGI’s gaming portfolio.

MGI’s core demographic are male and female gamers aged 20–34, playing for an average of 10–15 hours per week. With gamers spending multiple hours per week, potentially over a number of years, on a cost per hour basis, even to higher spenders, MGI’s games offer a very cost-effective form of community-based entertainment, typically <€1 per hour (less than cinema).

MMOGs are where several thousand players meet, connect and interact with each other through fixed player communities (so-called ‘guilds’ or ‘clans’) on a playing field or server environment, with this community aspect creating a strong bond between the users and the game.

There is a technical difference between browser-based games (BBGs, games played online through an internet browser) and client games (games that are downloaded, with the client stored on the PC), although both are PC-based. However, when playing either BBGs or client games, players must be online to communicate with the server. Console games are games played online on consoles such as Xbox, PlayStation or Nintendo Switch.

As shown in Exhibit 10, PC-based online titles represented c 92% of gamigo’s FY19 revenues (client-based plus browser), with console titles representing 7% and mobile titles only 1%. Management recognises that the proportion of mobile revenue needs to grow, but intends to wait for the appropriate opportunity at the right price.

In addition to offering MMOGs, MGI also supports more than 5,000 casual games, playable on different platforms and devices. These are mostly single-player games accessed on the platforms of deutschland-spielt.de and WildTangent (acquired in April 2019), offering access to all the games on the portal for a monthly subscription. MGI’s casual games portfolio also includes Facebook games as well as mobile games. For all these casual titles (in contrast to premium titles paid for upfront), a portion of MGI’s revenues come from advertising and promotional videos.

The gamigo group currently offers over 30 MMOGs and more than 5,000 casual games. These include MMOGs such as Fiesta Online and Desert Operations, which have already been on the market for over 10 years. However, if the games are well supported and actively marketed, the company can maintain a low churn rate and stabilise or revitalise titles through targeted marketing and refreshed game content, in collaboration with the existing player community.

Launching new games on the market is a major risk for games companies, since there are already many games with a long-term loyal player base, as well as large numbers of new games launched every month. To manage this risk, MGI prefers to acquire game licences by taking over companies with titles with an existing user and sales base rather than developing original IP.

Gamigo has grown strongly in recent years and so has a large registered customer base and a good reputation, and is increasingly focusing on stronger licences. However, gamigo looks to ‘fail fast’, with titles that under-deliver against expectations being swiftly discontinued or phased out.

Gamigo does acquire new games IP and licences, but only based on strict criteria, minimising upfront investment and committing marketing budget only if user numbers and revenue targets are met. Since 2017, gamigo has invested in IP and development rights and has now acquired the worldwide rights for seven of its 10 best-selling games, with ongoing development work (improvement, updates and sequels) taken in-house.

In the media (B2B) segment, MGI covers the entire value chain for digital advertising. In addition to adspree and Mediakraft, members of the gamigo group, MGI acquired three further media companies in 2019 – Applift, PubNative and ReachHero – as well as Verve Wireless in January 2020.

Online advertising value can be broken down into five distinct roles, as shown in Exhibit 11 below.

MGI’s most important investments include ReachHero, a leading influencer SaaS platform; Applift, a leading media company specialising in mobile advertising; PubNative, an SSP platform for mobile advertising; and Verve Wireless, a mobile data platform for location-based programmatic video and display marketing.

Below is a summary of MGI’s principal marketing subsidiaries:

Mediakraft (online influencer marketing agency): Mediakraft is MGI’s online advertising agency specifically focused on social, influencer and video marketing. The company produces content, but also manages YouTube channels, as well as designing and producing end-to-end influencer advertising campaigns. Its customers include advertisers as well as influencers and YouTube channels, focusing on the gaming sector. The company manages content for YouTubers and influencers, connecting their content to relevant advertising. The company is active in Germany, Poland and Turkey.

Adspree (online performance marketing): adspree manages MGI's gaming portals, acquiring new users both for MGI’s own games and for third-party titles. Adspree is also a publisher, seeking to maximise ad revenues for MGI and third-party providers. It manages clients' advertising campaigns across all major channels: search engine optimisation (SEO), pay-per-click (PPC), social media/impact marketing, programmatic media buying, affiliate marketing and TV advertising for both first-party and third-party titles.

Applift (app performance ad agency)/PubNative (SSP): Applift and PubNative operate in a highly competitive but fast-consolidating space, with major rivals such as The Trade Desk (DSP) or Google Ad Manager (SSP). Applift and PubNative differentiate themselves by focusing on gaming SMEs (c 50% of revenues), a market that remains highly fragmented.

Applift is an international mobile advertising agency, which supports app-owners with user-acquisition. It has 10 sales-led offices worldwide. The company specialises in customer targeting and re-engagement via publishers as well as via programmatic technology.

PubNative, Applift’s subsidiary, is an SSP for mobile programmatic in-app advertising and enables app publishers to monetise their advertising inventory. It enables publishers to connect directly via an application programming interface (API). As well as having connections to most important DSPs and SSPs, PubNative also has a large direct supply network via SDK integration.

ReachHero (SaaS-based influencer ad agency): ReachHero (MGI holds 67.38%) provides agency services for social media influencers and creators to connect brands/products/advertisers with the appropriate influencer and channel. ReachHero operates a SaaS platform where agencies and advertisers can book and manage influencer campaigns and have access to more than 70k registered influencers. ReachHero is involved in the entire creation process and also acts as an advertising pipeline for Mediakraft.

Verve Wireless (location-based mobile programmatic advertising): Verve Wireless, acquired in January 2020, is a mobile data platform for location-based programmatic video and display marketing that will expand MGI’s programmatic mobile brand marketplace, as well as its data management and location-based platform. Verve uses first-party mobile data, including location data and ad products such as Tap-to-Map, for example, to allow retailers to drive store visits and pedestrian traffic.

Following a similar approach to that taken in the gaming segment, MGI has started to integrate its media companies into a single platform, leveraging their individual capabilities to extend their client reach and reduce the overall cost base.

Media and gaming are complementary sectors with a number of similar characteristics: technology-led, high growth and with a highly fragmented corporate landscape. However, from a group perspective, there are also strong synergies between the two service lines that are essential to MGI.

To provide an effective advertising proposition, companies need to offer attractive content, ie high-quality advertising space, transparency and reliable user metrics. Accordingly, advertisers are increasingly looking for private marketplaces with exclusive partners in preference to open marketplaces, where platforms integrate with multiple publishers with weaker control over data, formats, visibility and reporting.

Gamigo reaches more than 600,000 daily active users (DAUs) and more than five million monthly active users (MAUs) across its games portfolio and gaming portals, providing access to a rich source of user data. The unique dataset generated is a competitive advantage for MGI and provides a significant USP for its advertising assets. In turn, the gaming business benefits considerably from access to in-house advertising specialists, particularly from cost-effective user acquisition. Using these advantages, gamigo is able to acquire or license third-party titles and cross-sell them to its existing user base, supported by the technology and insight from its advertising arm to target new users and monetise existing users.

Over the past couple of years, following the acquisition of MGI’s initial stake in gamigo in May 2018, management has focused on consolidating and scaling MGI’s interests in gaming and media. Since then, MGI has further expanded its interests in the media sector, with the acquisitions of ReachHero, Applift and PubNative in 2019. In total, management has completed more than 30 acquisitions over the past six years, funded by both equity and debt, including the issue of two listed bonds. Major strategic milestones over the last 18 months include:

Looking ahead, we foresee unfinished business as the group continues to scale and completes its transformation into a more transparent international gaming and media business. In addition, although MGI’s historical capital markets focus has been mainly in the DACH region, we expect the group to expand its footprint into English-speaking markets, to better reflect where the majority of its customers are located and to target a more international investor audience.

Market analyst Newzoo estimates that more than 2.2 billion gamers generated c $148.8bn of revenues in 2019, with Western markets representing c 48% of global revenues and 45% of total revenues on mobile devices. Overall revenues are forecast to grow at c 8.4% (2019–22), building to a total market size of over $190bn by 2022. Mobile continues to offer a double-digit revenue CAGR, whereas PC and console offer single-digit growth (Newzoo).

To put this into context, the games market is already more than three times the value of global box office movie receipts, estimated to be $42bn (source: Statista), and seven times the size of the recorded music industry at $19bn (source: The International Federation of the Phonographic Industry (IFPI)), but remains some way behind the pay TV market, which ABI Research forecasts will reach $295bn by 2022, making the likes of Netflix increasingly nervous of the challenge from games for users’ screen time.

As an entertainment form, the games industry is now truly mainstream, spanning all geographies and most demographics. Supported by the rise of mobile gaming, 45% of US gamers are now female (source: Entertainment Software Association), with the balance in mobile games c 50/50. The average age of a US gamer is 34 (and ageing) and 64% of households are home to at least one person who plays video games.

As mentioned above, the games industry continues to enjoy strong secular growth, both in revenues and player numbers. Historically, this growth can be seen in terms of the number of titles submitted to Steam, the leading PC distribution platform:

In 2019, Western markets represented c 49% of global games revenues estimated at $152bn, with 45% of total revenues on mobile devices. Overall revenues are forecast to grow at c 8.4%+ (2019–22), with a double-digit mobile CAGR, whereas PC and console offer single-digit growth (Newzoo).

As we consider the underlying drivers of growth, there are a number of themes we would highlight that are likely to drive continuing growth over the short to medium term.

As part of our broader research on the games sector, we have identified the following eight factors as future drivers of growth in the games sector:

Driver 1 – digitalisation continues to transform business models: digitalisation has reduced the financial resources and capital intensity required to launch new titles, supporting business model diversity, more flexibility and better profitability for developers and IP owners.

Driver 2 – prevalence of games-as-a-service (GaaS): GaaS involves managing a game’s community post-launch and has helped transform the economics of game creation, reducing development risk, increasing player stickiness and longevity and improving profitability. The GaaS business model offers substantial outsourcing opportunities, with the creation of downloadable content (DLC) and live game support over an extended lifecycle post-release considered non-core by most developers.

Driver 3 – streaming and subscription models: Significant investment is going into developing effective video game streaming models and the associated technologies by both publishers and technology companies, leading to a broadening of the player base and increasing subscriptions.

Driver 4 – e-sports to drive growth: e-sports is another evolution of the games industry that will have a significant impact on future growth, providing another way to build a community around successful titles, streamed live to a global audience over Twitch and YouTube.

Driver 5 – mobile capturing the casual audience: mobile offers the potential for global scale and penetration, but remains a casual medium where tastes, fads and fashions move quickly. Sustainable revenues are hard to achieve, but emerging business models may change this. Apple Arcade, a subscription service ($4.99 per month) offering exclusive premium mobile content, launched in 2019 and may herald a more sustainable, premium revenue model in this fast-moving market.

Driver 6 – Far East/Chinese opportunity: the size of the Chinese market is hard to ignore; China constituted $36.5bn of the $71.5bn Asian market in 2019, together representing c 48% of global games revenues (Newzoo).

Driver 7 – IP/content is king: with the prospect of a proliferation of channels to market in the coming years (eg streaming, digital distribution, next-generation consoles), this should represent a great opportunity for IP owners to maximise returns from their IP and expertise.

Driver 8 – tax reliefs level the playing field: tax reliefs for the games and broader creative industries are now either in place or under consideration across much of Europe. These are critical to levelling the playing field and sustaining a creative industry in high-cost jurisdictions.

MGI’s management team comprises the following:

Remco Westermann, CEO and chairman of the board: Mr Westermann is a manager, entrepreneur and investor with more than 25 years of leadership experience. He has founded, reorganised and grown TMT companies (eg Bob Mobile, CLIQ Digital) and has an MSc from Erasmus University.

Paul Echt, CFO: Mr Echt has more than eight years’ experience in the tech and finance industries. He previously held positions at UniCredit Bank and Shopgate. He has a Masters in Business Management/Finance (MA) and a Bachelor of Laws (LLB).

Gary Coffey, chief technology officer (CTO): Mr Coffey has more than 12 years’ experience in fintech and engineering. Previously, he worked at Bombardier Transportation and BAE Systems Applied Intelligence. He has a diploma in computer applications from Dublin City University.

Jens Knauber, COO (gaming): Mr Knauber has more than 10 years’ experience in the gaming industry with over 300 published titles. He held a series of leadership positions at Hamburg publisher, dtp. He has responsibility for the gamigo group.

Stefan Rascher, CSO (media): Mr Rascher has more than 20 years’ experience in marketing, e-commerce and telecommunications. Previously, he held various positions held at E-Plus, Quam and in his own consulting firm. He has responsibility for the Media Elements group.

Corporate structure

Much of the historical complexity of the group’s corporate structure has been resolved with the acquisition of the gamigo minorities. The corporate structure following the acquisition is set out below:

Shareholders and free float

MGI’s shares remain relatively tightly held, although with relatively high liquidity given the company’s size:

Given MGI’s transformation over the past few years into a gaming and media company, we examine the group’s pro forma track record based around its subsidiary, gamigo, as this is the core of the business today and the basis for future growth. MGI’s P&L reflects €5m of discontinued operations in H118 relating to the sale of its residual real estate assets, but otherwise its FY18 and H119 financials mainly reflect its holding in gamigo following its initial consolidation in May 2018.

MGI’s H119 balance sheet had intangible assets of €226.7m (of which €83.2m are acquired intangibles), as well as €143.5m of goodwill largely arising from the consolidation of the non-controlling interest in gamigo. Shareholders’ equity of €160.7m includes minority interests in gamigo of €91.4m. In H119, the profit attributable to minorities (€0.53m) was actually higher than the profit to shareholders (€0.35m). However, with the acquisition of the minority interests in gamigo in Q120, significant minorities will henceforward be eliminated from the accounts.

Through consistent organic growth, supplemented by M&A, MGI has achieved very strong top-line growth over the last five years. The group has completed more than 30 acquisitions since 2013, which has helped gamigo achieve a revenue CAGR of 31% in FY14–19, as well as an EBITDA CAGR of 61% over this period. H119 showed similar levels of ongoing growth, such that consensus forecasts indicate FY19 revenues of €71.6m for MGI, more than double FY18 revenues.

EBITDA rose to €8.65m in FY18, a 23% increase on FY17 (€7.0m), with consensus FY19e EBITDA of €14.5m, a further 67% increase over FY18. Historically, EBITDA margins for MGI and gamigo have largely varied between 20% and 30% since FY15; MGI is targeting EBITDA margins in the medium term of 20%+, with 30% EBITDA margins for gamigo. FY19e consensus EBITDA margins are 20.2%, rising to 22.5% in FY21e.

With management having drawn down on both its gamigo and MGI bonds in FY19, there was a sharp increase in interest payable in H119 (H119: €1.9m vs H118: €0.3m) and, following further drawdowns in H219, net interest is expected to more than double in FY19 vs FY18 (€2.1m). Following the acquisition of the outstanding minorities in gamigo, we understand that MGI’s net debt has risen to c €70m.

Based on consensus estimates, both sales and EBITDA for MGI are forecast to grow at a c 40–50% CAGR (2018–21e) as MGI scales in a high-growth sector, with FY19 revenue forecast to be €71.6m and EBITDA €14.5m (20.2% margin). Looking through to FY21e, consensus estimates are for sales of €115m and EBITDA of €25.8m, a 22.5% EBITDA margin, with consensus net income of €5.5m.

As an active acquirer in the technology and media sectors, MGI’s fixed assets largely comprise intangible assets arising from acquisition activity in recent financial years. In H119, intangibles represented €226.7m of total assets of €295m, an increase from €204.1m and €236.3m from FY18. At 30 June 2019, MGI reported gross cash of €26.2m and net debt of €54.2m.

Gamigo has proved able to generate consistently strong operating cash flows, allowing the group to finance acquisitions, as well as raise and pay down its debt. FY18 saw gamigo’s operating cash flow rise to €10.5m from €3.8m in FY17, sufficient to cover its cash commitment in the period (for the acquisition of Trion). In H119, the cash commitment for WildTangent was more than covered by MGI’s H119 operating cash flow of €5.8m.

As shown in Exhibit 21 below, MGI/gamigo’s revenue, EBITDA and operating cash flow trajectories on a pro forma basis have followed a positive upward trend since FY15.

MGI has issued €17m of a €25m five-year unsecured bond issued by the parent company in 2019 and a €50m four-year secured bond issued by gamigo in 2018, in addition to its banking facilities (a €10m bank loan from UniCredit Bank and a €2.5m working capital facility from BillFront).

MGI has a long history of leverage and, despite increasing absolute levels of debt (see Exhibit 22 below), given healthy pro forma EBITDA growth since 2014 at gamigo, interest cover and leverage have continued to decline. However, with the recent transformation of the group, the acquisition of the remaining minority interests in gamigo and a number of major acquisitions in H219 (WildTangent) and H120 (Verve), we would expect H120 debt and leverage to reach record levels (net debt of c €70m, c 3.7x FY20e consensus EBITDA). Despite this, with the group’s predictable revenue streams and strong operating cash flow, consensus estimates anticipate leverage to fall materially over the course of FY20 and FY21 (absent further M&A).

MGI’s principal free-to-play gaming subsidiary, gamigo, announced its audited FY19 results on 27 April 2020 ahead of MGI’s audited results, expected in June 2020. Gamigo’s revenues rose 30% to €59m (FY18: €45m), while EBITDA increased by 48% to €16m (2018: €11m) as margins widened to 28% from 24% in FY18. This led to a 22% increase in net profits of €2.0m (FY18: €1.6m).

As well as the positive business and financial progress made in FY19, the company highlighted the boost to game revenues it has been benefiting from in March and April 2020, seeing increased consumer demand as a result of international COVID-19 related lockdowns. In anticipation of the recessionary economic environment that is likely to follow later this year, the company’s CEO Remco Westermann also went further to highlight that historically games industry revenues have proven resilient in economic downturns.

Although gamigo has benefited from its mature games portfolio, management expects an increase in inbound M&A enquiries as other games and media businesses with financing challenges struggle. With gross cash of €22m as at 31 December 2019 and a net interest-bearing debt (NIBD)/EBITDA ratio of 1.7x (Exhibit 22), gamigo has the capacity for further M&A. Based on this analysis, management expects gamigo’s growth to continue in FY20.

As neither the German nor the DACH markets have many listed games companies, we need to look internationally for appropriate peers. This is entirely relevant as games companies, by the nature of their player base, tend to be international if not global businesses. Although there are many quoted games companies around the world, there is a huge diversity in business model among this broader group and relatively few directly comparable companies. We believe that the most relevant peer group for MGI includes companies that: 1) operate in the free to play games space; 2) follow a buy-and-build model; 3) have exposure to media as well as games; and 4) use debt as well as equity finance.

For the moment, we have limited our comparator universe to European companies, although Zynga and Glu from the US, as well as some Asian companies, might also offer valid benchmarks. Based on our analysis, we believe that MGI’s closest peer is Stillfront Group (Sweden), which matches all the criteria set out above, although the business operates at greater scale. Stillfront’s valuation (FY20e: 6.1x sales, 14.8x EV/EBITDA) therefore might offer an indication of the valuation rating for MGI as it matures. We also include a number of other European casual and mobile games companies, as well as Embracer Group in Sweden (a buy-and-build model) and Sumo Group in the UK (a co-development and services provider) as additional reference points.

From this analysis, although MGI is not forecast to show meaningful net profits until FY21 based on consensus, it trades at a material discount to the peer group based on sales metrics (60–70% discount) for FY20e and FY21e, but a narrower 40-50% discount based on EV/EBITDA. Management has stated that it is targeting medium-term EBITDA margins of 20%+ (30% for gamigo), which compares to 30%+ for the peer group. Looking through to FY21e, MGI trades on an EV/sales multiple of 1.6x, an EV/EBITDA multiple of 7.1x (a 26.8% EBITDA margin) and a P/E ratio of 15.3x. Reflecting on gamigo’s pro forma five-year revenue CAGR of 31% and EBITDA CAGR of 61% FY14–19, as MGI scales via a combination of organic revenue growth and M&A, and focuses on margin enhancement, there is considerable scope for multiples to improve in the short to medium term.

There are a number of factors that investors should bear in mind when investing in MGI: