MGI – Media and Games Invest — Back on a growth track

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Research: TMT

MGI – Media and Games Invest — Back on a growth track

MGI – Media and Games Invest (MGI) had a good Q423, gaining market share in an improving trading environment. Organic revenue growth of 16% in the quarter helped lift the full year figure to +5%. This good momentum has continued into the new year, with 18% revenue growth in January. MGI has leading positions in in-app advertising in the US on both iOS and Android, with the US its largest market at 70% of revenues, and has well established non-identifier-based and AI-driven solutions in the market. In the fast-growing Connected TV (CTV) market, MGI is targeting margin over volume. We have lifted our FY24 estimates reflecting the improving growth and margin prospects. Our view is that these are not yet factored into the valuation.

Fiona Orford-Williams

Written by

Fiona Orford-Williams

Director, TMT

TMT

MGI – Media and Games Invest

Back on a growth track

FY23 results

Software

4 March 2024

Price

€1.16

Market cap

€185m

Net debt (€m) at 31 December 2023

295

Shares in issue

159.2m

Free float

71.0%

Code

M8G

Primary exchange

Deutsche Börse Scale, OTCQX

Secondary exchange

Nasdaq Stockholm First North Premier Growth

Share price performance

%

1m

3m

12m

Abs

16.0

32.3

(30.0)

Rel (local)

10.3

22.3

(39.6)

52-week high/low

€1.64

€0.78

Business description

MGI – Media and Games Invest is an advertising software platform that helps advertisers efficiently acquire customers via smartphones, computers, connected TV or digital-out-of-home media (DOOH) as well as publishers to efficiently and optimally monetise their advertising space.

Next events

Q124 figures

30 May 2024

H124 figures

29 August 2024

Analyst

Fiona Orford-Williams

+44 (0)20 3077 5739

MGI – Media and Games Invest is a research client of Edison Investment Research Limited

MGI – Media and Games Invest (MGI) had a good Q423, gaining market share in an improving trading environment. Organic revenue growth of 16% in the quarter helped lift the full year figure to +5%. This good momentum has continued into the new year, with 18% revenue growth in January. MGI has leading positions in in-app advertising in the US on both iOS and Android, with the US its largest market at 70% of revenues, and has well established non-identifier-based and AI-driven solutions in the market. In the fast-growing Connected TV (CTV) market, MGI is targeting margin over volume. We have lifted our FY24 estimates reflecting the improving growth and margin prospects. Our view is that these are not yet factored into the valuation.

Year end

Revenue (€m)

Adjusted EBITDA* (€m)

PBT*
(€)

EPS*
(c)

EV/EBITDA
(x)

P/E
(x)

12/22

324.4

93.2

38.6

13.4

5.1

8.6

12/23

322.0

95.2

26.8

35.8

5.0

3.2

12/24e

355.0

103.3

32.5

14.0

4.6

8.7

12/25e

390.5

116.9

61.8

26.3

4.1

4.5

Note: * Adjusted EBITDA, PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

FY23 ahead of guidance

MGI lowered revenue guidance in August when there was still a lot of uncertainty in the market and achievable prices for advertising inventory (CPMs, or cost per mille) were weak. The actual FY23 figure of €322m is well ahead of this €303m guidance (was €335–345m), with adjusted EBITDA coming in at €95m, above the guided €93m (was €95–105m). Ad volumes lifted notably in Q4, up 14% year-on-year, and the number of large software clients (those spending over $100k) grew to 568 from 551 in Q423. Net interest-bearing debt ended the year at €295m, at 3.1x EBITDA.

Strong positioning in a strengthening market

The programmatic adtech market remains highly inefficient, with many layers of complexity each scraping a slice of cost. As the market adapts to the withdrawal of personal identifiers, MGI, through its Verve brand, has a clear opportunity to build share with its established AI-driven targeting solutions. We have lifted our FY24 revenue estimate by 10% to reflect the momentum and expect adjusted EBITDA margins to remain broadly static as the group continues to invest to take advantage of opportunities in both in-app and CTV. The fast growth in the latter supports our modelled top line FY25e progress of 10%, which may prove conservative.

Valuation: Parity with peers suggests upside

Adtech shares have generally performed well in the year-to-date, with a few exceptions, as prospects for improved ad spend have brightened. Scale is a clear benefit. MGI continues to trade at a considerable discount to peers across pure adtech and relevant content categories. With the roll-forward of the year and improved ratings in the overall peer set, parity of rating on EV/revenue and EV/EBITDA across FY24–25e would see the price climb to €3.70 (from €3.45 in December).

Strong Q423 pushes full year outturn ahead

Revenue growth accelerated in Q423, with the gradual re-emergence of confidence of advertisers, with volumes picking up and setting the stage for an improvement in CPMs. Ad impressions served were up 14% year-on-year and up 11% on the prior quarter, although there is inevitably an uptick in Q4 as Thanksgiving and Christmas campaigns kick in. The group’s larger clients – those spending over $100k – grew in number to 568, from 559 in Q323. The presentation outlined a 95% client retention rate among this cohort in Q423 (pretty much unchanged across the year) and with the net dollar expansion rate (ie the increase in the amount spent by those existing customers) also 95%. The implication is that the growth was driven by the acquisition of new customers.

New software customers coming on board are likely to start in a relatively small way, building towards the $100k threshold to be disclosed, so we would expect this number to continue to rise. It is also more likely that these new customers are drawn to the Verve offering by the growing market recognition of its contextual targeting solutions in a market undergoing upheaval with the deprecation of Google identifiers. This was discussed at greater length in our December Outlook report.

Exhibit 1: Key quarterly statistics

€m

Q122

Q222

Q322

Q422

Q123

Q223

Q323

Q423

Ad impressions (bn)

156

161

172

181

166

181

186

206

Software clients >$100k revenue

479

513

546

551

557

559

559

568

Revenue

65.9

78.1

87.6

92.9

68.8

76.2

78.3

98.7

y-o-y revenue growth (%)

27%

37%

39%

16%

4%

-2%

-11%

6%

q-o-q revenue growth (%)

-18%

19%

12%

6%

-26%

11%

3%

26%

EBITDA

16.9

20.0

21.4

26.5

17.4

20.04

63.7

27.3

Adjusted EBITDA

17.6

21.1

23.0

31.5

19.1

21.3

23.1

31.7

Adjusted EBITDA margin (%)

27%

27%

26%

34%

28%

28%

29%

32%

Source: MGI

The resumption of strong growth enabled the group to outperform the targets management had set in the summer, when markets were still suppressed. The adjusted EBITDA margin of 30.1% for the year was slightly above the guided range of 25–30% and we would anticipate that management would be looking to stay broadly within that range, spending on R&D to keep ahead, or at least abreast, of market developments.

Net finance charges increased to €50.1m from €38.0m, reflecting the higher absolute amount of net debt and higher interest rates (the bonds and maturities are laid out in the Outlook note linked above, although €34.5m of bonds maturing in November 2024 are now categorised as short-term debt, being due in less than 12 months). Net debt to adjusted EBITDA at the year-end was 3.1x, slightly over management’s target range of 2.5–3.0x, but we do not regard this with any particular concern due to the cash generative capabilities of the business model. Interest cover for FY23 was 2.5x, down from 4.0x in FY22, and is likely to have bottomed out, presuming that interest rates have reached their peak.

Forecasts edged up, but still cautious

Exhibit 2: Revisions to forecasts

Revenue (€m)

Adjusted EBITDA (€m)

EPS (c)

Old

New

% chg.

Old

New

% chg.

Old

New

% chg.

2023

303.0

322.0

+6

93.2

95.2

+2

9.5

35.8

+278

2024e

325.5

355.0

+9

102.5

103.3

+1

15.4

14.0

-9

2025e

-

390.5

N/A

-

116.9

N/A

-

26.3

N/A

Source: Edison Investment Research, MGI accounts. Note: For FY23, ‘New’ = actual.

Given the better feel to the underlying trading environment and the particularly strong growth in inapp advertising and CTV as it gains traction with both advertisers and consumers, we have raised our revenue forecast by 9% to €355m. It may be that this proves to be overly cautious, given the momentum into Q124. There is a more modest uplift in the adjusted EBITDA projection, which reflects the group’s continuing need to invest in its technical product offerings and platforms, as well as supporting the sales and marketing effort on the demand side (agency-facing) and in the CTV market. The group has been active in AI and machine learning solutions for some years and management estimates that ongoing investment here accounts for around a quarter of capex. There is no need for heavy catch-up spend.

In CTV, the group is not pushing to maximise market share and/or lead the market in volume terms but is rather targeting customers that are themselves looking for greater definition in targeting their audiences. This should enable MGI to achieve margins in excess of high-volume industry norms (thin).

We now publish our first thoughts on FY25, with the proviso that visibility is limited. We have assumed a further 10% revenue growth and maintained the adjusted EBITDA margin. With reducing net debt and lower interest rates, this should translate into stronger growth in earnings per share. On the basis of our modelling, interest cover improves to 3.4x (FY24e: 1.9x).

Net debt to adjusted EBITDA comes out at 2.7x for FY24e, falling to 2.2x for FY25e, showing that there may be potential for a resumption in M&A, provided suitable assets are available at sensible prices.

Valuation

We evaluate MGI compared to three sets of peers: (relatively) pure adtech, ad software combined with content (games or other) and (relatively) pure gaming. Although this leads to a cumbersome peer table, it allows us to see the slightly different dynamics. Sentiment has been improving in adtech over recent weeks, with a median price gain of 12% over the year-to-date. Ad-software and content companies have had a mixed showing, with AppLovin performing particularly strongly, while the purer gaming companies have notably underperformed.

We have rolled out a year, so are now looking at EV/revenue and EV/EBITDA across FY24 and FY25. On this basis, parity across the peer set would suggest a share price of €3.70, from the €3.45 calculated in December on FY23–24. This is a little below the figure derived from our DCF of €4.06 (WACC: 10%, terminal growth of 2%), up from €3.31 when we last ran these numbers in December.

Both approaches result in figures well above the current share price of €1.16, up 14% year-to-date.

Exhibit 3: Financial summary

€000s

2021

2022

2023

2024e

2025e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

252,166

324,444

321,981

355,000

390,500

Operating costs excl. D&A

(187,124)

(239,691)

(193,523)

(256,841)

(275,706)

Adjusted EBITDA

 

 

71,216

93,202

95,171

103,271

116,906

EBITDA

 

 

65,042

84,753

128,458

98,159

114,794

Operating profit (before amort. and excepts.)

 

 

48,768

76,556

76,943

85,275

97,547

Amortisation of acquired intangibles

(11,964)

(14,853)

(11,229)

(11,229)

(11,229)

Exceptionals

(4,708)

(27,100)

(6,500)

(3,500)

(500)

Share-based payments

(1,466)

(1,613)

(1,613)

(1,613)

(1,613)

Reported operating profit

36,804

34,886

57,601

68,934

84,205

Net Interest

(21,919)

(37,959)

(50,171)

(52,735)

(35,727)

Joint ventures & associates (post tax)

0

0

0

0

0

Exceptionals

1

0

0

0

0

Profit Before Tax (norm)

 

 

26,850

38,597

26,771

32,540

61,819

Profit Before Tax (reported)

 

 

14,887

(3,073)

7,430

16,199

48,478

Reported tax

1,169

(9,064)

(2,718)

(5,346)

(15,998)

Profit After Tax (norm)

28,018

21,085

57,220

21,802

41,419

Profit After Tax (reported)

16,055

(12,137)

46,113

10,853

32,480

Minority interests

(7)

(88)

(513)

(520)

(525)

Discontinued operations

0

0

0

0

0

Net income (normalised)

28,019

20,947

56,933

22,322

41,945

Net income (reported)

16,061

(12,049)

46,626

11,373

33,005

Average Number of Shares Outstanding (m)

141.7

156.2

159.2

159.2

159.2

EPS - basic normalised (c)

 

 

19.77

13.41

35.75

14.02

26.34

EPS - normalised fully diluted (c)

 

 

19.77

12.01

32.08

12.58

23.64

EPS - basic reported (c)

 

 

11.33

(7.71)

29.28

7.14

20.73

Dividend (c)

0.00

0.00

0.00

0.00

0.00

Revenue growth (%)

179.8

28.7

(0.8)

10.3

10.0

Adjusted EBITDA Margin (%)

28.2

28.7

29.6

29.1

29.9

Normalised Operating Margin (%)

19.3

23.6

23.9

24.0

25.0

BALANCE SHEET

Fixed Assets

 

 

650,495

823,637

813,515

839,612

868,072

Intangible Assets

605,746

791,284

796,608

824,264

854,283

Tangible Assets

4,681

5,522

3,963

2,404

845

Investments & other

40,068

26,831

12,944

12,944

12,944

Current Assets

 

 

283,598

221,022

193,514

172,478

198,315

Stocks

0

0

0

0

0

Debtors

97,497

52,229

32,281

35,986

39,585

Cash & cash equivalents

180,156

149,992

121,740

96,999

119,237

Other

5,945

18,801

39,493

39,493

39,493

Current Liabilities

 

 

243,433

219,471

240,768

246,271

254,975

Creditors

53,754

68,711

80,335

89,431

98,135

Short term borrowings

32,020

31,903

34,510

32,390

32,390

Other financial liabilities

137,611

97,515

104,402

104,402

104,402

Other non-financial liabilities

20,048

21,342

21,521

20,048

20,048

Long Term Liabilities

 

 

383,168

503,443

413,804

413,804

401,804

Long term borrowings

343,925

389,386

348,038

348,038

341,038

Other long term liabilities

39,243

114,057

65,766

65,766

60,766

Net Assets

 

 

307,493

321,745

352,457

352,016

409,608

Minority interests

(59)

1,211

(182)

(182)

(182)

Shareholders' equity

 

 

307,434

322,956

352,275

351,834

409,426

CASH FLOW

Operating Cash Flow

16,055

(12,137)

46,113

10,853

32,480

Depreciation & amortisation

28,238

58,135

29,402

29,225

30,588

Working capital

(5,714)

68,140

31,572

5,390

5,106

Exceptional & other

1,167

(15,611)

(85,443)

1,613

1,613

Tax

1,514

6,002

2,718

0

0

Net finance cost

23,583

37,959

50,171

52,735

35,727

Net operating cash flow

 

 

64,843

142,488

74,533

99,816

105,514

Capex

(39,844)

(46,007)

(42,878)

(45,323)

(34,048)

Acquisitions/disposals

(255,790)

(138,000)

0

(10,000)

(25,000)

Equity financing

109,338

27,900

0

0

0

Dividends

0

0

0

0

0

Other

(24,920)

(53,413)

(52,301)

(30,506)

(17,227)

Net Cash Flow

(146,373)

(67,032)

(20,646)

13,987

29,239

Opening net debt/(cash)

 

 

57,690

198,600

273,900

297,427

283,429

FX

0

0

(2,881)

0

0

Other non-cash movements

5,463

(8,628)

0

0

0

Closing net debt/(cash)

 

 

198,600

273,900

297,427

283,439

254,191

Source: Company accounts, Edison Investment Research

General disclaimer and copyright

This report has been commissioned by MGI – Media and Games Invest and prepared and issued by Edison, in consideration of a fee payable by MGI – Media and Games Invest. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

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This report has been commissioned by MGI – Media and Games Invest and prepared and issued by Edison, in consideration of a fee payable by MGI – Media and Games Invest. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

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Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

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London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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Research: TMT

4iG — Record FY23 results; transformation plan underway

4iG’s FY23 results showed good revenue and EBITDA growth on a reported and pro forma basis. The Telco business, which includes an 11 month contribution from the Vodafone Hungary acquisition, showed pro forma revenue growth of 7% and pro forma EBITDA growth of 17%. The group transformation project is well underway and, as part of the plan, the space-related businesses have been hived off into a standalone company. The plans for a subsea fibre-optic cable between Egypt and Albania are making good progress.

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