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Currency in EUR
Last close As at 24/03/2023
EUR1.61
▲ −0.04 (−2.42%)
Market capitalisation
EUR262m
Research: TMT
Media and Games Invest’s (MGI’s) media operation, Verve Group, has been made a partner on Google’s Open Bidding platform. This gives it far wider reach on both the demand (advertiser) side and supply (publisher) side, accessing inventory (advertising opportunities) via real-time auctions. MGI’s Q3 revenue growth was strong at 39% (23% organic) and FY22 guidance was lifted, with margin pressure from market conditions resulting in unchanged EBITDA guidance. We have adjusted our forecasts accordingly. Google’s endorsement should give greater confidence in MGI’s medium-term prospects as it concentrates on organic growth rather than on M&A. The rating remains at a market discount to peers.
Media and Games Invest |
Adtech credentials boosted by Google partnership |
Q3 results, |
Media |
22 November 2022 |
Share price performance
Business description
Next events
Analysts
Media and Games Invest is a research client of Edison Investment Research Limited |
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Media and Games Invest’s (MGI’s) media operation, Verve Group, has been made a partner on Google’s Open Bidding platform. This gives it far wider reach on both the demand (advertiser) side and supply (publisher) side, accessing inventory (advertising opportunities) via real-time auctions. MGI’s Q3 revenue growth was strong at 39% (23% organic) and FY22 guidance was lifted, with margin pressure from market conditions resulting in unchanged EBITDA guidance. We have adjusted our forecasts accordingly. Google’s endorsement should give greater confidence in MGI’s medium-term prospects as it concentrates on organic growth rather than on M&A. The rating remains at a market discount to peers.
Year end |
Revenue |
Adjusted |
PBT* |
EPS* |
EV/adjusted |
P/E |
12/20 |
140.2 |
35.8 |
21.2 |
0.16 |
16.8 |
11.2 |
12/21 |
252.2 |
71.1 |
33.0 |
0.20 |
8.4 |
9.3 |
12/22e |
322.0 |
88.5 |
39.0 |
0.22 |
6.8 |
8.5 |
12/23e |
393.5 |
102.5 |
48.5 |
0.26 |
5.8 |
7.0 |
Note: *EBITDA, PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
More customers attract more customers
The withdrawal of personal identifiers significantly alters the digital advertising landscape. MGI’s Verve Group is already one of 24 partners working in Google’s Privacy Sandbox, iterating approaches to privacy-first targeting. Most partners are web-focused, and Verve is valued for its premium mobile, in-app experience, including its supply-side platform and reputation for a high-quality inventory. The new agreement – Google’s first in over two years – allows publishers using Google Ad Manager to access Verve’s demand-side customers, with the extra traffic benefiting existing supply-side customers (publishers). For advertisers, Verve’s demand-side clients will be able to access publishers using Google Ad Manager, accelerating the scaling up of this aspect. Essentially, more publishers attract more advertisers, drawing more publishers etc, with each element building critical mass.
Q3 results: Lifted revenue guidance
Q3 results showed 39% revenue growth, of which 23% was organic, despite the tougher backdrop for advertising spend – the strongest Q3 performance of the adtech peer group in our research. Revenue guidance for FY22 has been lifted from €295–315m to €315–325m, with adjusted EBITDA unchanged at €83–93m, reflecting the impact of a more difficult trading environment on margin. Our FY22 revenue forecast rises €15m to €322m, with EBITDA down from €92.4m to €88.5m. Our FY23e numbers raise revenue and broadly maintain adjusted EBITDA.
Valuation: Well below peers
MGI’s share price is down 57% year to date, versus global adtech peers down 52% on average, while quoted gaming companies have done a little better, retrenching by 25%. MGI’s shares are valued below both sets of peers. Parity averaged across FY21–23 would imply a share price of €4.43 (was €3.93), with a DCF indicating a value of €4.21 (was €4.13).
Strong Q3 revenue progress, some margin pressure
The revenue growth was achieved primarily through bringing new (substantial) software clients on board, although there was also progress in extending business with existing software customers, with the ‘Net Dollar Expansion Rate’ at 104%. Given the weakening advertising spend through the quarter, even this modest growth is encouraging, particularly as the softer market meant that the cost-per-mille (CPM) rates were falling overall, so each $1 of revenue takes more ads to earn.
Exhibit 1: Quarterly summary results, year-to-date
€m |
Q122 |
Q222 |
Q322 |
Revenue |
65.9 |
78.1 |
87.6 |
y-o-y revenue growth (%) |
27% |
37% |
39% |
q-o-q revenue growth (%) |
-18% |
19% |
12% |
EBITDA |
16.9 |
20.0 |
21.4 |
Adjusted EBITDA |
17.6 |
21.1 |
23.0 |
Adjusted EBITDA margin (%) |
27% |
27% |
26% |
Source: MGI
Trailing 12 months revenue to end September was €311.7m, which was already at the top end of guidance, so this shift upwards in FY22 guidance simply confirms that, although CPMs are likely to be lower in Q4, overall revenues will still move forward in a range of 4–17% to put the full year results in the €315–325m range (+13% on our modelled number).
With adjusted EBITDA, the 9M22 figure of €61.7m leaves €21.3m to €31.3m to do in Q422 to match management guidance. Our revised FY22 modelled assumption of €88.5m, down from €92.4m, implies Q422 EBITDA of €26.8m, which would be 17% ahead of Q322 and 28% up year-on-year.
Exhibit 2: Summary adjustments to forecasts
Revenue (€m) |
Adjusted EBITDA (€m) |
EPS (€) |
|||||||
Old |
New |
% chg. |
Old |
New |
% chg. |
Old |
New |
% chg. |
|
2022e |
307.0 |
322.0 |
+5 |
92.4 |
88.5 |
-4 |
0.22 |
0.22 |
-3 |
2023e |
370.0 |
393.5 |
+6 |
103.0 |
102.5 |
0 |
0.24 |
0.26 |
+9 |
Source: Edison Investment Research
At an operational level, there is some additional labour cost from the group’s innovation programmes, but there is a simultaneous benefit from the degree of automation as the business scales. Over the short term, MGI will also need to bear the costs of the relocation to Sweden (see our November update). These should fall away over the course of FY23, and we would anticipate the adjusted EBITDA margin starting to move ahead again from FY24.
Cash flow towards investing for the first nine months of the year was €175m, with €26m spent in Q322, including the initial payment for Dataseat. Our FY22e forecast is for investment spend of €183m, falling to €73m for FY23e. As at end September, the group had net interest-bearing debt of €308m (end June 2022: €299m). The leverage ratio was 3.6x net debt/EBITDA, which is above management’s target range of below 3.0x, but below the 3.7x quoted at end Q222. However, it should be borne in mind that the EBITDA figure only includes five months of contribution from AxesInMotion and three months from Dataseat.
Building a trusted, neutral marketplace
Verve is now a bidding partner for in-app inventory on Google Ad Manager on Google’s Open Bidding platform. It is worth digging into this a little deeper.
Firstly, what is Verve? Verve is MGI’s media arm, providing the adtech platform, which enables publishers to access advertising demand and advertisers to access publishers’ inventory on a device-agnostic basis and in an ecosystem that has been built with privacy-first at its core. It numbers 90 of the largest 100 US-based advertisers among its client base and has relationships with over 5,000 publishers around the globe, as well as MGI’s own in-house games stable.
What is the benefit for advertisers? Verve’s existing advertising clients will be able to access a much wider pool of in-app inventory to bid on in real-time. A high-level guide to Google Ad Manager is provided here (with additional details on current trials of versions of the Privacy Sandbox in subsequent links). Demand partners (ie those looking to place advertising content) can access large volumes of apps that are using the Open Bidding platform via Verve.
What is the benefit to MGI/Verve on the demand side? This agreement gives significant potential to scale up MGI on the demand side of the equation and give better balance between the demand and supply sides (supply currently dominates, with 89% of Q322 revenues). It makes it less important for MGI to be looking for additional M&A opportunities and more able to concentrate on organic growth.
What is the benefit to publishers? Publishers who monetise their apps using Google Ad Manager on the Open Bidding platform can now access the large pool of advertisers that work through Verve, and which have premium advertising inventory that they are looking to place.
What is the benefit to MGI/Verve on the supply side? Being part of a bigger pool of in-app advertising opportunities should attract more advertisers, with a larger slice of the pie being pushed through the Verve ad software platform.
As the market continues to move away from cookies and individual or device identifiers, there is likely to be increasing demand for Verve’s proprietary privacy-first targeting solutions, built with its expertise and experience from its own publishing activities. These are both contextual (back to the future in terms of placing advertising alongside the content that is relevant to it), using natural language processing and anonymised audiences, and cohort based, using machine learning and probabilistic audiences.
Elements of resilience built into outlook
There are two key points of note when appraising the group’s short-term prospects. Firstly, free-to-play games tend to be reasonably robust in a downturn, particularly when compared to subscription packages. Around 50% of the group’s EBITDA is earned from free-to-play games.
It is also worth noting that, while based out of Europe, this is very much an international business, generating around 70% of its advertising revenues from the United States, where the current economic indicators are looking considerably more benign than those in Europe.
Management is aiming to come out of the recession stronger. To do this, it must continue to invest and manage the cost base. With both the demand side and supply side catered to within the group’s market offering, new approaches can be developed, tested and brought to market faster, with the group being able to iterate as it goes along rather than having to rely on third parties. The availability of advertiser data gives a feedback loop in building into predictive modelling to optimise ROI. This feedback loop obviously also benefits from being able to fish in a bigger pond through the Google co-operation.
Exhibit 3: Financial summary
€'000s |
2019 |
2020 |
2021 |
2022e |
2023e |
||
31-December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
INCOME STATEMENT |
|||||||
Revenue |
|
|
83,893 |
140,220 |
252,166 |
322,000 |
393,500 |
Operating costs excl. D&A |
(66,965) |
(104,469) |
(181,094) |
(233,500) |
(291,000) |
||
Adjusted EBITDA |
|
|
16,928 |
35,751 |
71,072 |
88,500 |
102,500 |
Operating profit (before amort. and excepts.) |
|
|
12,417 |
28,380 |
54,942 |
69,392 |
80,702 |
Amortisation of acquired intangibles |
(6,032) |
(8,137) |
(11,964) |
(12,562) |
(15,075) |
||
Exceptionals |
(1,386) |
(6,993) |
(4,708) |
(3,500) |
(3,500) |
||
Share-based payments |
0 |
(2,209) |
(1,466) |
(1,613) |
(1,774) |
||
Reported operating profit |
4,999 |
11,041 |
36,804 |
51,717 |
60,353 |
||
Net Interest |
(5,758) |
(7,140) |
(21,919) |
(30,414) |
(32,172) |
||
Joint ventures & associates (post tax) |
0 |
0 |
0 |
0 |
0 |
||
Exceptionals |
0 |
0 |
0 |
0 |
0 |
||
Profit Before Tax (norm) |
|
|
6,659 |
21,240 |
33,023 |
38,978 |
48,530 |
Profit Before Tax (reported) |
|
|
(759) |
3,901 |
14,886 |
21,303 |
28,181 |
Reported tax |
2,012 |
(1,194) |
1,169 |
(3,149) |
(4,166) |
||
Profit After Tax (norm) |
4,508 |
15,281 |
28,163 |
33,216 |
41,356 |
||
Profit After Tax (reported) |
1,253 |
2,707 |
16,055 |
18,154 |
24,016 |
||
Minority interests |
1,577 |
(352) |
(7) |
0 |
0 |
||
Discontinued operations |
0 |
0 |
0 |
0 |
0 |
||
Net income (normalised) |
2,931 |
15,633 |
28,019 |
33,216 |
41,356 |
||
Net income (reported) |
(324) |
3,059 |
16,061 |
18,154 |
24,016 |
||
Average Number of Shares Outstanding (m) |
60.4 |
85.5 |
141.7 |
154.5 |
159.2 |
||
EPS - basic normalised (€) |
|
|
0.05 |
0.18 |
0.20 |
0.22 |
0.26 |
EPS - normalised fully diluted (€) |
|
|
0.04 |
0.16 |
0.20 |
0.22 |
0.26 |
EPS - basic reported (€) |
|
|
(0.01) |
0.04 |
0.11 |
0.12 |
0.15 |
Dividend (€) |
0.00 |
0.00 |
0.00 |
0.00 |
0.00 |
||
Revenue growth (%) |
157.2 |
67.1 |
79.8 |
27.7 |
22.2 |
||
Adjusted EBITDA Margin (%) |
20.2 |
25.5 |
28.2 |
27.5 |
26.0 |
||
Normalised Operating Margin (%) |
14.8 |
20.2 |
21.8 |
21.6 |
20.5 |
||
BALANCE SHEET |
|||||||
Fixed Assets |
|
|
256,593 |
293,466 |
650,495 |
847,559 |
866,273 |
Intangible Assets |
233,208 |
272,829 |
605,746 |
820,744 |
837,871 |
||
Tangible Assets |
3,521 |
1,742 |
4,681 |
6,268 |
7,855 |
||
Investments & other |
19,864 |
18,895 |
40,068 |
20,547 |
20,547 |
||
Current Assets |
|
|
55,856 |
92,376 |
283,598 |
230,951 |
246,265 |
Stocks |
0 |
0 |
0 |
0 |
0 |
||
Debtors |
17,047 |
37,009 |
97,497 |
111,597 |
123,979 |
||
Cash & cash equivalents |
32,984 |
46,254 |
180,156 |
113,409 |
116,341 |
||
Other |
5,825 |
9,113 |
5,945 |
5,945 |
5,945 |
||
Current Liabilities |
|
|
54,544 |
78,205 |
243,433 |
240,343 |
250,083 |
Creditors |
20,274 |
30,037 |
53,754 |
62,664 |
72,404 |
||
Short term borrowings |
1,409 |
6,089 |
32,027 |
32,027 |
32,027 |
||
Other financial liabilities |
17,948 |
30,155 |
137,604 |
125,604 |
125,604 |
||
Other non-financial liabilities |
14,913 |
11,924 |
20,048 |
20,048 |
20,048 |
||
Long Term Liabilities |
|
|
89,347 |
130,792 |
383,168 |
433,168 |
428,168 |
Long term borrowings |
69,916 |
98,104 |
346,382 |
391,382 |
391,382 |
||
Other long term liabilities |
19,431 |
32,688 |
36,786 |
41,786 |
36,786 |
||
Net Assets |
|
|
168,558 |
176,845 |
307,493 |
404,999 |
434,288 |
Minority interests |
70,490 |
(60) |
(59) |
1,314 |
1,314 |
||
Shareholders' equity |
|
|
239,048 |
176,785 |
307,434 |
406,313 |
435,602 |
CASH FLOW |
|||||||
Operating Cash Flow |
1,253 |
2,707 |
16,054 |
18,154 |
24,016 |
||
Depreciation & amortisation |
10,543 |
15,508 |
28,238 |
31,670 |
36,873 |
||
Working capital |
4,692 |
(4,543) |
(5,714) |
(5,190) |
(2,643) |
||
Exceptional & other |
(5,079) |
4,072 |
1,167 |
1,613 |
1,774 |
||
Tax |
(822) |
112 |
1,514 |
87 |
0 |
||
Net finance cost |
5,612 |
7,347 |
23,583 |
30,414 |
32,172 |
||
Net operating cash flow |
|
|
16,199 |
25,203 |
64,842 |
76,747 |
92,192 |
Capex |
(12,611) |
(19,098) |
(39,844) |
(45,315) |
(52,921) |
||
Acquisitions/disposals |
2,831 |
(18,609) |
(255,790) |
(138,000) |
(20,000) |
||
Equity financing |
8,845 |
26,876 |
109,338 |
27,900 |
0 |
||
Dividends |
0 |
0 |
0 |
0 |
0 |
||
Other |
(13,415) |
(31,304) |
(24,920) |
(33,081) |
(16,339) |
||
Net Cash Flow |
1,849 |
(16,932) |
(146,374) |
(111,748) |
2,932 |
||
Opening net debt/(cash) |
|
|
32,593 |
38,341 |
57,939 |
198,253 |
310,000 |
FX |
0 |
0 |
0 |
0 |
0 |
||
Other non-cash movements |
(7,597) |
(2,666) |
6,060 |
1 |
0 |
||
Closing net debt/(cash) |
|
|
38,341 |
57,939 |
198,253 |
310,000 |
307,068 |
Source: Company accounts, Edison Investment Research
|
|
Research: Industrials
Epwin is well placed to leverage off a number of well-established growth trends that are set to continue to drive long-term demand for its energy efficient and low-maintenance building products. The recent interims highlighted how well management is coping with cost inflation, while the acquisition of Poly-Pure underscores the company’s ambition and ability to self-finance accretive expansion. Epwin trades on a P/E of 8.2x for FY23e versus a long-term average of 10.2x with clear potential to be valued at a higher level if margins can be raised, and/or further M&A is evident.
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