MGI – Media and Games Invest — Building adtech market presence

MGI – Media and Games Invest (XETRA: M8G)

Last close As at 22/02/2024

EUR0.88

0.03 (3.53%)

Market capitalisation

EUR141m

More on this equity

Research: TMT

MGI – Media and Games Invest — Building adtech market presence

MGI – Media and Games Invest (MGI) is building a strong position in the programmatic adtech sector, under the Verve name. Its supply (publishing) side is expanding its customer base in a difficult market, with Verve now the largest mobile in-app provider for Google in North America and EMEA and fourth largest on iOS. Verve’s demand (advertising) side is growing strongly, from a lower base. The group’s Q123 revenues were up by 1% (organic, +4% with currency), while lower costs from the slimmed-down games portfolio and the operational benefit of the combined tech stacks have lifted margins faster than we anticipated. The share price is at a sizable discount to peers. In our view, this does not reflect the value inherent in MGI’s large first-party data resource, AI-driven targeting or the scale of its opportunity.

Fiona Orford-Williams

Written by

Fiona Orford-Williams

Director, TMT

Media and Games Invest_resized

TMT

MGI – Media and Games Invest

Building adtech market presence

Q123 update

Media

5 June 2023

Price

€1.07

Market cap

€170m

Net debt (€m) at 31 March 2023

288.3

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

(13.7)

(34.3)

(65.5)

Rel (local)

(15.5)

(37.3)

(68.9)

52-week high/low

€3.21

€1.07

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

AGM

30 June 23

H123 results

31 August 23

Analysts

Fiona Orford-Williams

+44 (0)7833 941869

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) is building a strong position in the programmatic adtech sector, under the Verve name. Its supply (publishing) side is expanding its customer base in a difficult market, with Verve now the largest mobile in-app provider for Google in North America and EMEA and fourth largest on iOS. Verve’s demand (advertising) side is growing strongly, from a lower base. The group’s Q123 revenues were up by 1% (organic, +4% with currency), while lower costs from the slimmed-down games portfolio and the operational benefit of the combined tech stacks have lifted margins faster than we anticipated. The share price is at a sizable discount to peers. In our view, this does not reflect the value inherent in MGI’s large first-party data resource, AI-driven targeting or the scale of its opportunity.

Year

end

Revenue
(€m)

Adjusted EBITDA*
(€m)

PBT*
(€m)

EPS*
(€)

EV/EBITDA* (x)

P/E
(x)

12/21

252.2

71.2

26.9

0.20

6.8

5.2

12/22

324.4

93.2

30.3

0.13

5.2

8.5

12/23e

340.0

96.0

34.6

0.11

4.9

10.8

12/24e

375.0

107.5

44.9

0.14

4.4

8.1

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

Respectable Q1 performance in difficult market

MGI’s Q123 net revenues were up 4% (+1% organic), while adjusted EBITDA was 9% ahead of Q122. Programmatic advertising net revenues rose 8%, while games revenues dipped 6%, reflecting a cleaning up of the portfolio in Q422. With welldocumented poor trading conditions in advertising markets, this is a good result and reflects the recruitment of more software clients (a modest expansion of large client numbers, but more smaller clients onboarded where business levels should build through the year). Existing clients reined in their budgets in view of the uncertain economic backdrop but the churn rate was limited to 5%. The end-March interest-bearing debt was €288.3m, which equates to 2.7x trailing twelve-month EBITDA, comfortably within management’s targeted range of 2-3x.

EBITDA estimates lifted for FY23 and FY24

FY23 revenue guidance has been adjusted to reflect the portfolio changes and is now for €335–45m, with adjusted EBITDA now guided to €95–105m. We have taken €3m out of our revenue number, while upgrading our adjusted EBITDA modelling from €88m up to €96m, with consequential uplift to FY24 estimates.

Valuation: Substantial discount to peers, DCF

MGI’s share price is down 38% year-to-date, versus an 11% median gain across global adtech peers (in a very wide range of +108% to -40%). MGI’s shares are valued below both adtech and gaming peers. Across averaged FY22–24 EV/sales and EV/adjusted EBITDA, parity would imply a share price of €3.57 (€3.50 in our March update). A DCF now indicates €3.91 (was €3.80).

Q123: restricted top line growth, good margin progress

For most advertising businesses, Q1 is always the weakest period, building sequentially with a heavier weighting to Q4. In the current year, this is likely to be even more exaggerated than normal, with advertisers reluctant to commit spend against budgets when the consumer backdrop is so friable. With volumes under pressure, pricing adjusts downward to attempt to stimulate demand, meaning each dollar of revenue earned through the ecosystem is harder to earn. MGI delivered 166bn ad impressions in Q123, a 6% increase on last year. Given the reduced spending from its existing customers (down 11%), the gains from new software clients are substantial. The group discloses the number of customers generating over US$100k of annualised gross revenues and this increased from 551 at end-FY22 to 557 at end-March. This is a relatively modest uplift but it does not take into account clients coming on board at levels under this threshold and who may build as they use the platform more extensively. On the analysts’ call, this number was put at 50–60 in the period.

Exhibit 1: Quarterly income statement progression

€m

Q122

Q222

Q322

Q422

Q123

Revenue

65.9

78.1

87.6

92.9

68.8

y-o-y revenue growth (%)

27%

37%

39%

16%

4%

q-o-q revenue growth (%)

-18%

19%

12%

6%

-26%

EBITDA

16.9

20.0

21.4

26.5

17.4

Adjusted EBITDA

17.6

21.1

23.0

24.0

19.1

Adjusted EBITDA margin (%)

27%

27%

26%

26%

28%

Source: Company accounts

Operating costs in the quarter reflect a full quarter of costs taken out with the games portfolio rationalisation in Q422 but also the benefits starting to come through from the consolidation of the various tech stacks gained through earlier acquisitions. Two larger consolidations have already been completed, with the amalgamation of the Connected TV tech stacks likely to be fully achieved by Q323, with most Liquid customers now moved across to the Smaato platform.

Adjustments to estimates

We have trimmed our revenue estimates slightly on the Q123 results. Management’s guidance is €335–45m, which, excluding the portfolio changes and currency effects, would be equivalent to guidance of €350–60m. The progress on the cost base enables us to lift our outlook for adjusted EBITDA, which increases by 9% for FY23e and by 8% for FY24e.

The anticipated interest charge is little changed after the successful issue of €225m of new corporate bonds in May 2023 and the subsequent repurchase of €175m of bonds previously set to expire in FY24. Further bond repurchases will be made if the pricing makes sense. We have also increased the anticipated rate of reported tax, dampening the impact at the EPS level, although, for now, we are not modelling any cash tax payments.

Exhibit 2: Adjustments to forecasts

Revenue (€m)

Adjusted EBITDA (€m)

EPS (€)

Old

New

% change

Old

New

% change

Old

New

% change

2023e

343.0

340.0

-1

88.0

96.0

+9

0.09

0.11

+12

2024e

388.5

375.0

-3

100.0

107.5

+8

0.13

0.14

+6

Source: Edison Investment Research

Mid-term financial targets unchanged

While the outlook for the current year is circumspect, management’s guidance for the medium-term is for a good uplift in top-line growth equating to a CAGR of 25–30% as momentum builds particularly on the demand-side segment, where MGI has a strong offering in AI-driven privacy-first and contextual targeting. This should ensure that adjusted EBITDA margins remain in a range of 25–30% (our modelling derives 28.2% for FY23 and 28.7% for FY24e).

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. With a slight improvement in sentiment in the adtech sector after difficult trading in FY22, current year EV/EBITDA ratings here have edged ahead of the ad software companies. The gaming companies are now the lowest ranking of the three subsectors.

MGI’s shares are trading at a discount across EV/sales, EV/EBITDA and P/E for FY22, FY23e and FY24e. With P/E more variable due to tax regimes, etc, were the shares to trade at EV/sales and EV/EBITDA parity to the averages of these peers across the three years, MGI’s share price would be €3.57, from €3.50 when this exercise was last carried out in March.

Our DCF, based on a WACC of 9% and a terminal growth rate of 2% (unchanged on our March calculation), derives a value of €3.91, previously €3.80.

Exhibit 3: Adtech, ad software and gaming peer valuations

 

Price

YTD performance

Market

cap

Net debt

EV/sales (x)

EV/EBITDA (x)

P/E (x)

Company

(local ccy)

(%)

(€m)

(€m)

FY0

FY1e

FY2e

FY0

FY1e

FY2e

FY0

FY1e

FY2e

Ad-tech

 

 

 

 

 

 

 

 

 

 

 

 

 

The Trade Desk

67.7

51

30,847

(1,352)

20.0

16.7

13.4

48.4

43.0

33.4

65.3

56.8

47.3

Pubmatic

17.1

33

828

(163)

2.7

2.7

2.4

7.3

9.0

7.4

31.2

111.5

42.0

Viant Technology

4.6

14

265

(193)

0.4

0.4

0.3

-

6.8

4.0

-

-

-

Magnite

11.8

11

1,489

374

3.9

3.6

3.2

11.1

11.0

9.1

16.1

21.5

14.1

AcuityAds Holdings

2.3

8

87

(52)

0.4

0.4

0.3

7.8

13.4

5.8

-

-

-

DoubleVerify Hdgs

33.4

52

5,178

(248)

11.5

9.5

7.8

37.6

30.8

24.4

132.3

99.9

68.7

Integral Ad Science

18.3

108

2,642

127

7.2

6.6

5.6

24.1

20.2

16.9

484.3

169.1

69.0

Quotient Technology

2.7

(20)

250

(6)

0.8

0.9

0.9

13.4

7.7

5.3

-

-

91.4

LiveRamp Holdings

25.0

7

1,546

(459)

2.3

2.0

1.9

25.4

17.4

11.9

50.3

34.7

22.5

Digital Turbine

9.1

(40)

849

309

1.0

1.9

2.0

6.3

7.6

8.9

5.5

7.9

11.7

Tremor

258.6

(3)

426

(84)

1.1

0.9

0.8

2.5

2.7

2.2

5.4

8.1

3.6

Criteo

32.2

23

1,683

(349)

1.6

1.5

1.3

5.7

5.2

4.5

12.5

11.7

10.5

YOC

12.4

(6)

43

(1)

1.8

1.4

1.2

11.9

9.3

7.3

18.2

14.1

11.4

Median

 

11

 

 

1.8

1.9

1.9

11.5

9.3

7.4

24.7

28.1

22.5

Ad-software and content 

 

 

 

 

 

 

 

 

 

 

 

 

AppLovin

24.1

128

8,174

2,094

3.9

3.8

3.4

10.4

9.6

8.3

-

75.6

38.6

IronSource

27.7

(3)

9,763

1,047

8.4

5.4

4.5

-

37.7

19.6

-

77.8

31.2

Azerion

3.1

(43)

369

176

1.2

1.0

0.9

9.9

7.8

6.4

-

37.2

18.4

Future

776.0

(39)

1,081

560

1.7

1.8

1.8

4.9

5.1

5.0

4.9

5.5

5.4

Median

 

(21)

 

 

2.8

2.8

2.6

9.9

8.7

7.3

4.9

56.4

24.8

Gaming

 

 

 

 

 

 

 

 

 

 

 

 

 

Embracer Group

21.7

(54)

2,235

1,395

2.3

1.1

1.0

5.7

4.6

3.6

-

5.4

5.3

Stillfront Group

19.3

10

842

345

1.9

1.8

1.7

5.4

4.9

4.8

7.4

6.9

6.3

Paradox Interactive

253.0

19

2,314

(54)

12.8

10.8

9.6

18.7

15.2

13.2

36.8

33.4

29.5

Modern Times Group

70.5

(21)

744

(356)

0.8

0.8

0.8

3.4

3.6

3.3

12.2

13.5

11.4

Rovio Entertainment

9.2

52

704

(106)

1.9

1.9

1.8

11.1

11.2

11.0

21.2

22.0

20.9

Team17

380.0

(14)

639

(54)

3.8

3.6

3.4

11.1

10.2

9.4

15.5

15.1

14.1

Median

 

(1)

 

 

2.1

1.8

1.8

8.4

7.6

7.1

15.5

14.3

12.8

Total average

(4)

2.2

2.2

2.1

9.9

8.5

7.3

15.0

32.9

20.0

MGI - Media & Games Invest

1.1

(34)

182

199

1.4

1.3

1.2

5.4

5.0

4.5

8.5

10.8

8.1

Premium/(discount) to adtech

(45)

 

(21%)

(30%)

(36%)

(53%)

(46%)

(39%)

(65%)

(61%)

(64%)

Premium/(discount) to adsoftware and content

(13)

 

(50%)

(52%)

(53%)

(46%)

(42%)

(39%)

74%

(81%)

(67%)

Premium/(discount) to gaming

(33)

 

(33%)

(27%)

(32%)

(36%)

(34%)

(37%)

(45%)

(24%)

(36%)

Premium/(discount) to total

 

(30)

 

(37%)

(39%)

(42%)

(46%)

(41%)

(39%)

(43%)

(67%)

(59%)

Source: Refinitiv, Edison Investment Research. Note: Prices as at 30 May 2023.

Exhibit 4: Financial summary

€000s

2021

2022

2023e

2024e

31-December

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

252,166

324,444

340,000

375,000

Operating costs excl. D&A

(187,124)

(239,691)

(249,274)

(272,951)

Adj. EBITDA

 

 

71,216

93,153

96,000

107,500

EBITDA

 

 

65,042

84,753

90,727

102,048

Operating profit (before amort. and excepts.)

 

 

48,768

68,288

73,910

84,115

Amortisation of acquired intangibles

(11,964)

(14,853)

(13,368)

(13,368)

Exceptionals

(4,708)

(27,100)

(3,500)

(3,500)

Share-based payments

(1,466)

(1,613)

(1,774)

(1,951)

Reported operating profit

36,804

26,618

55,268

65,296

Net Interest

(21,919)

(37,983)

(39,276)

(39,188)

Joint ventures & associates (post tax)

0

0

0

0

Exceptionals

1

0

0

0

Profit Before Tax (norm)

 

 

26,850

30,304

34,634

44,927

Profit Before Tax (reported)

 

 

14,887

(11,365)

15,992

26,108

Reported tax

1,169

(9,064)

(10,000)

(14,841)

Profit After Tax (norm)

28,018

21,194

15,867

21,237

Profit After Tax (reported)

16,055

(20,429)

5,992

11,267

Minority interests

(7)

(88)

(1,000)

(1,200)

Discontinued operations

0

0

0

0

Net income (normalised)

28,019

21,056

16,867

22,437

Net income (reported)

16,061

(20,341)

6,992

12,467

Average Number of Shares Outstanding (m)

141.7

156.2

159.2

159.2

EPS - basic normalised (c)

 

 

19.77

13.48

10.59

14.09

EPS - normalised fully diluted (c)

 

 

19.77

12.07

9.51

12.64

EPS - basic reported (c)

 

 

11.33

(13.02)

4.39

7.83

Dividend (c)

0.00

0.00

0.00

0.00

Revenue growth (%)

28.7

4.8

10.3

Adjusted EBITDA Margin (%)

28.2

28.7

28.2

28.7

Normalised Operating Margin (%)

19.3

21.0

21.7

22.4

BALANCE SHEET

Fixed Assets

 

 

650,495

823,637

833,581

849,409

Intangible Assets

605,746

791,284

800,368

815,934

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

232,425

260,240

Stocks

0

0

0

0

Debtors

97,497

65,085

64,274

71,918

Cash & cash equivalents

180,156

149,992

162,206

182,377

Other

5,945

5,945

5,945

5,945

Current Liabilities

 

 

243,433

219,471

217,567

224,040

Creditors

53,754

68,711

60,360

66,833

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

356,996

394,166

Minority interests

(59)

1,211

1,211

1,211

Shareholders' equity

 

 

307,434

322,956

358,207

395,377

CASH FLOW

Operating Cash Flow

16,055

(20,429)

5,992

11,267

Depreciation & amortisation

28,238

58,135

30,185

31,301

Working capital

(5,714)

55,284

(7,540)

(1,171)

Exceptional & other

1,167

(2,755)

1,774

1,951

Tax

1,514

6,002

0

0

Net finance cost

23,583

37,983

39,276

39,188

Net operating cash flow

 

 

64,843

134,220

69,686

82,537

Capex

(39,844)

(46,007)

(38,000)

(40,000)

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)

(22,905)

(17,365)

Net Cash Flow

(146,373)

(75,300)

13,940

20,172

Opening net debt/(cash)

 

 

57,690

198,600

273,900

259,824

FX

0

0

0

0

Other non-cash movements

5,463

0

136

0

Closing net debt/(cash)

 

 

198,600

273,900

259,824

239,653

Source: Company accounts, Edison Investment Research

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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.

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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.

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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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Creo Medical has announced that its flagship product, Speedboat Inject, has been selected for assessment by the National Institute for Health and Care Excellence (NICE), a UK-based independent expert organisation that provides national guidance on medical practices and technologies. Post selection, the device will go through a committee review of the headline data and a multi-stage evaluation process by NICE, to investigate Speedboat for endoscopic submucosal dissection of lower gastrointestinal lesions. While Creo’s Pioneer training programme and robotics deals with Intuitive Surgical and CMR Surgical hold significant potential for Speedboat’s uptake globally, the NICE guidance, if favourable, would likely support increased adoption of the device in the UK, providing further validation for the product as well as the CROMA platform.

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