MGI – Media and Games Invest — Building a major global adtech player

MGI – Media and Games Invest (OMX: M8G)

Last close As at 13/04/2024

EUR1.50

0.35 (30.21%)

Market capitalisation

EUR235m

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Research: TMT

MGI – Media and Games Invest — Building a major global adtech player

MGI – Media and Games Invest (MGI) has been steadily gaining market share in a difficult trading environment. It is now the leading mobile open web supply-side platform (SSP) on both Android and iOS in North America; second on Android and fifth on iOS in EMEA. Continuing weak advertising pricing means that FY23 revenue guidance was pulled back at the interims, but careful cost management should ensure EBITDA is flat over FY22, with an annualised cost-saving programme of €10m also put in place. MGI’s fundamentals are positive, with its vertical integration giving an efficient market proposition and earlier acquisitions providing a sound basis for its connected TV offering. The withdrawal of personal identifiers on Google should give further impetus, which we feel is not yet reflected in the rating.

Fiona Orford-Williams

Written by

Fiona Orford-Williams

Director, TMT

Media and Games Invest_resized

TMT

MGI – Media and Games Invest

Building a major global adtech player

Q223 results

Software

14 November 2023

Price

€0.83

Market cap

€132m

Net debt (€m) at 30 June 2023

307.7

Shares in issue

159.2m

Free float

70.1%

Code

M8G

Primary exchange

Nasdaq Stockholm First North Premier Growth

Secondary exchange

Deutsche Börse Scale, OTCQX

Share price performance

%

1m

3m

12m

Abs

(11.6)

(38.2)

(52.1)

Rel (local)

(12.6)

(36.3)

(55.6)

52-week high/low

€1.87

€0.78

Business description

MGI – Media and Games Invest is an advertising software platform with strong first-party games content. It mainly operates in North America and Europe. Organic growth has been supplemented with acquisitions, and the group has bought more than 35 companies and assets in the past six years.

Next events

Q323 figures

30 November 23

Analysts

Fiona Orford-Williams

+44 (0)20 3077 5739

Milo Bussell

+44 (0)20 3077 5700

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

MGI – Media and Games Invest (MGI) has been steadily gaining market share in a difficult trading environment. It is now the leading mobile open web supply-side platform (SSP) on both Android and iOS in North America; second on Android and fifth on iOS in EMEA. Continuing weak advertising pricing means that FY23 revenue guidance was pulled back at the interims, but careful cost management should ensure EBITDA is flat over FY22, with an annualised cost-saving programme of €10m also put in place. MGI’s fundamentals are positive, with its vertical integration giving an efficient market proposition and earlier acquisitions providing a sound basis for its connected TV offering. The withdrawal of personal identifiers on Google should give further impetus, which we feel is not yet reflected in the rating.

Year

end

Revenue
(€m)

Adjusted EBITDA*
(€m)

PBT*
(€m)

EPS*
(c)

EV/EBITDA* (x)

P/E
(x)

12/21

252.2

71.2

26.9

19.8

6.8

4.2

12/22

324.4

93.2

30.3

13.5

5.2

6.2

12/23e

303.0

93.2

20.8

9.5

5.2

8.7

12/24e

325.5

102.5

32.9

15.4

4.5

5.4

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

Q2 results reflect lower pricing, higher volumes

Q223 net revenues were down by 2% at €76.2m (organic growth of 1% adjusted for divestments and currency). Considering that management notes advertising prices in cost per mille as running at 20–25% lower than the prior year, this represents a very good uplift in volumes as the group grows its market share. An adjusted EBITDA margin of 28% (Q222: 27%) shows the resilience of the business model as volumes scale, as well as tight control of costs. Working capital was a net drain in H123 as receivables increased with more, larger publisher payments, but this should unwind in H223. End-June net leverage at 3.2x was slightly over the 2–3x target range but, again, should fall back within that range by the year-end. FY23 revenue guidance is now flat over FY22 (adjusted for divestments), with adjusted EBITDA guided to flat year-on-year, which implies a step up for full year margins.

Fundamental market changes give large opportunity

The programmatic adtech market is highly inefficient, with many layers of complexity each scraping a slice of cost. MGI, through its Verve brand, has built a vertically integrated solution that is gaining traction and growing share. We believe that many advertisers, publishers and intermediaries are ill-prepared for the upcoming withdrawal of Google cookies and that this presents Verve with a major opportunity to accelerate its presence with its established AI-driven solutions.

Valuation: Well below peers

Adtech shares have had mixed performances in 2023, with scale a clear benefit. MGI is now trading at a considerable discount to peers across pure adtech and relevant content categories. Parity of rating on EV/sales and EV/EBITDA across FY22–24e would see the price climb to €3.03 (from €3.57 in June).

Exhibit 1: Financial summary

€000s

2021

2022

2023e

2024e

31-December

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

252,166

324,444

303,000

325,515

Operating costs excl. D&A

(187,124)

(239,691)

(217,897)

(228,098)

Adj. EBITDA

 

 

71,216

93,153

93,215

102,529

EBITDA

 

 

65,042

84,753

85,103

97,417

Operating profit (before amort. and excepts.)

 

 

48,768

68,288

69,566

81,578

Amortisation of acquired intangibles

(11,964)

(14,853)

(13,368)

(13,368)

Exceptionals

(4,708)

(27,100)

(6,500)

(3,500)

Share-based payments

(1,466)

(1,613)

(1,613)

(1,613)

Reported operating profit

36,804

26,618

48,086

63,098

Net Interest

(21,919)

(37,983)

(48,793)

(48,684)

Joint ventures & associates (post tax)

0

0

0

0

Exceptionals

1

0

0

0

Profit Before Tax (norm)

 

 

26,850

30,304

20,773

32,895

Profit Before Tax (reported)

 

 

14,887

(11,365)

(707)

14,414

Reported tax

1,169

(9,064)

0

(4,882)

Profit After Tax (norm)

28,018

21,194

14,114

23,393

Profit After Tax (reported)

16,055

(20,429)

(707)

9,533

Minority interests

(7)

(88)

(1,000)

(1,200)

Discontinued operations

0

0

0

0

Net income (normalised)

28,019

21,056

15,114

24,593

Net income (reported)

16,061

(20,341)

293

10,733

Average Number of Shares Outstanding (m)

141.7

156.2

159.2

159.2

EPS - basic normalised (c)

 

 

19.77

13.48

9.49

15.44

EPS - normalised fully diluted (c)

 

 

19.77

12.07

8.52

13.86

EPS - basic reported (c)

 

 

11.33

(13.02)

0.18

6.74

Dividend (c)

0.00

0.00

0.00

0.00

Revenue growth (%)

179.8

28.7

(6.6)

7.4

Adjusted EBITDA Margin (%)

28.2

28.7

30.8

31.5

Normalised Operating Margin (%)

19.3

21.0

23.0

25.1

BALANCE SHEET

Fixed Assets

 

 

650,495

823,637

831,854

844,828

Intangible Assets

605,746

791,284

798,641

811,353

Tangible Assets

4,681

5,522

6,382

6,644

Investments & other

40,068

26,831

26,831

26,831

Current Assets

 

 

283,598

221,022

222,702

247,303

Stocks

0

0

0

0

Debtors

97,497

65,085

54,789

58,860

Cash & cash equivalents

180,156

149,992

161,968

182,498

Other

5,945

5,945

5,945

5,945

Current Liabilities

 

 

243,433

219,471

212,433

215,251

Creditors

53,754

68,711

55,226

58,044

Short term borrowings

32,020

31,903

39,644

39,644

Other financial liabilities

137,611

97,515

97,515

97,515

Other non-financial liabilities

20,048

21,342

20,048

20,048

Long Term Liabilities

 

 

383,168

503,443

491,443

491,443

Long term borrowings

343,925

389,386

382,386

382,386

Other long term liabilities

39,243

114,057

109,057

109,057

Net Assets

 

 

307,493

321,745

350,679

385,437

Minority interests

(59)

1,211

1,211

1,211

Shareholders' equity

 

 

307,434

322,956

351,890

386,648

CASH FLOW

Operating Cash Flow

16,055

(20,429)

(707)

9,533

Depreciation & amortisation

28,238

58,135

28,904

29,206

Working capital

(5,714)

55,284

(3,189)

(1,253)

Exceptional & other

1,167

(2,755)

1,613

1,613

Tax

1,514

6,002

0

0

Net finance cost

23,583

37,983

48,793

48,684

Net operating cash flow

 

 

64,843

134,220

75,414

87,782

Capex

(39,844)

(46,007)

(34,992)

(35,051)

Acquisitions/disposals

(255,790)

(138,000)

5,159

(5,000)

Equity financing

109,338

27,900

0

0

Dividends

0

0

0

0

Other

(24,920)

(53,413)

(32,422)

(26,861)

Net Cash Flow

(146,373)

(75,300)

13,159

20,870

Opening net debt/(cash)

 

 

57,690

198,600

273,900

260,062

FX

0

0

0

0

Other non-cash movements

5,463

0

679

(340)

Closing net debt/(cash)

 

 

198,600

273,900

260,062

239,532

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.

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.

Copyright: Copyright 2023 Edison Investment Research Limited (Edison).

Australia

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.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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.

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.

Copyright: Copyright 2023 Edison Investment Research Limited (Edison).

Australia

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.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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