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Research: TMT
Team Internet’s results for the nine months to 30 September 2023 (9M23) showed good, continued progress, with revenue, adjusted EBITDA and adjusted EPS growing 16%, 11% and 28% y-o-y. Online Presence continued its return to form, with 20% growth over the period. While the weak advertising market and a strong comparative period was reflected in a moderation in growth in Online Marketing (15%), this still implies outperformance of the overall market. Management expects full year results to be at least in line with consensus. We make no material changes to our P&L estimates and continue to see scope for upside. We have increased our year end net debt forecast (previously below consensus) to reflect higher capital investment in content and software development, acquisition costs and working capital than previously modelled. In our view, the company’s value P/E rating of 7.1x FY23 dropping to 6.1x in FY24 is in stark contrast the company’s growth track record and prospects.
Team Internet Group |
Diversity delivering resilience |
Q323 results |
Software and comp services |
13 November 2023 |
Share price performance
Business description
Next events
Analyst
Team Internet Group is a research client of Edison Investment Research Limited |
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Team Internet’s results for the nine months to 30 September 2023 (9M23) showed good, continued progress, with revenue, adjusted EBITDA and adjusted EPS growing 16%, 11% and 28% y-o-y. Online Presence continued its return to form, with 20% growth over the period. While the weak advertising market and a strong comparative period was reflected in a moderation in growth in Online Marketing (15%), this still implies outperformance of the overall market. Management expects full year results to be at least in line with consensus. We make no material changes to our P&L estimates and continue to see scope for upside. We have increased our year end net debt forecast (previously below consensus) to reflect higher capital investment in content and software development, acquisition costs and working capital than previously modelled. In our view, the company’s value P/E rating of 7.1x FY23 dropping to 6.1x in FY24 is in stark contrast the company’s growth track record and prospects.
Year end |
Revenue* (US$m) |
Adj EBITDA* |
PBT* (US$m) |
EPS** |
EV/EBITDA |
P/E |
12/21 |
410.5 |
46.3 |
31.9 |
10.9 |
10.4 |
13.9 |
12/22 |
728.2 |
86.0 |
64.3 |
21.4 |
5.6 |
7.1 |
12/23e |
833.7 |
94.4 |
80.1 |
21.4 |
5.1 |
7.1 |
12/24e |
909.6 |
103.0 |
89.3 |
24.7 |
4.7 |
6.1 |
Note: *Excludes impact of share-based payments, foreign exchange charges and non-core operating costs.
Double-digit growth in both segments
9M23 revenues in Online Presence grew 20% y-o-y to $114.1m, driven by a number of factors, including demand for ‘exotic’ top-level domains (TLDs), value-added service upsell, strategic partnerships and pricing optimisation. With a strengthened management team, progress with the UK government and ICANN’s proposed release of new generic TLDs in 2026, we see continued good growth opportunities. Online marketing revenues grew by 15% to $475m for 9M23. Q3 revenues were up 10% to $170m but gross profit down a touch year-on-year at $33m (vs $34m), reflecting the fact that Q322 was a particularly strong trading period across Search, Comparison and Performance and the weak advertising market backdrop. Net debt increased from $68.2m at H1 to $81.7m, reflecting the company’s purchase of $16.3m worth of shares, working capital outflows and 95% operating cash flow to EBITDA conversion. Management expects this to normalise closer to 100% in Q4.
Valuation: Resilience, growth prospects not priced in
Given the weak advertising market and strong comparative period, these are creditable results. We make no material changes to our P&L estimates. Entering the peak Q4 period, we see good scope for upside this year and our FY24 forecast, which calls for 9% revenue growth, look prudent. Our year end net debt estimate increases from US$59m (which was below consensus) to US$80.9m, reflecting the accelerated share buyback plus higher capex, acquisition costs and working capital outflows than modelled. We see this as a one-off adjustment and expect the business model to continue to generate healthy cash flows. In our view, the company’s value P/E rating of 7.1x FY23 dropping to 6.1x in FY24 is in stark contrast the company’s growth track record and prospects.
Divisional review
Online Presence continues its return to form
Revenues in Online Presence grew 20% y-o-y to $114.1m for 9M23. Organic growth for the trailing 12 months (TTM) was 17%, an acceleration from 15% at the interims and the company’s highest organic growth rate since establishment. Q3 revenues grew 21% y-o-y to $45m.
This acceleration is being driven by a number of factors, including:
■
demand for ‘exotic’ TLDs – the number of processed domain registration years increased by 11% y-o-y to 14.1m for TTM.
■
Pricing optimisation, with a particular focus on aligning prices to the mid-point of the market. Average revenue per domain year increased by 8% from $10.03 to $10.81.
■
The impact of strategic partnerships, such as the partnership with WHMCS (a leading web hosting automation provider), which was announced in February 2023. More recently the company has announced a partnership with Titan, a business email service provider, which should help drive value-added services sales. (The share of value-added service revenue was 11.2% over the TTM period.)
Looking to 2024, the company’s progress with the UK government could provide additional scope for growth. Team Internet’s Registry business has been selected as one of two suppliers of critical domain services to the UK government’s Crown Commercial Service’s Network Services 3 framework. Further out, ICANN’s proposed release of new generic TLDs in 2026 will provide further growth opportunities.
The group has also recently hired a new divisional CEO for Online Presence, Simon McCalla, to strengthen its Online Presence operations. Mr McCalla brings with him experience from both domain related businesses (he was CTO at Nominet for six years to September 2019) as well as experience from CEO roles with Elexon and Sedex (both privately held platform businesses).
Online Marketing: Continued double-digit growth
The performance of Online Marketing is set upon a backdrop of a weak advertising market and an exceptionally strong comparative period in Q322, where all three key business units –Tonic, Parking Crew and Vergleich – performed strongly. This is also a quarter where much of the focus is on lining up campaigns for the peak trading period in Q4 with Black Friday and Christmas. Revenues for 9M23 grew by 15% while TTM organic revenue growth was 20%. Q3 revenues were up 10% to $170m but gross profit was down a touch year-on-year at $33m.
Volumes increased significantly, with the number of visitor sessions up 36% to 5.6bn for the 12 months to September, offset by a 7% decrease in RPM (revenue per 1,000 sessions), reflecting the weak spending environment. This may indicate the potential for a good uptick in growth as the spend environment improves.
The division also continues to strengthen and diversify its partner base. ZeroPark signed three strategic partnerships: with Sovrn, a publisher technology platform, where ZeroPark has become a tier one partner, with booking.com and with Klarna. Voluum (Team Internet’s ad tracker) has launched an integration with Shopify, allowing customers to directly feed conversion data from their Shopify stores into Voluum, bolstering their ad, product and page performance.
Estimate changes
Our P&L estimates are essentially unchanged with a marginal (1.4%) upgrade to FY23 adjusted EPS to reflect progress on the share buyback. Management has stated that it expects 2023 estimates to be ‘at least’ in line with consensus estimates and robust trading in Q4 could drive upside. For FY24, we believe that our 9% growth estimate is prudent, given the company’s broadening span of strategic partners.
We have increased our year end net debt figure from US$59m to US$80.9m, reflecting the accelerated share buyback plus higher capex, acquisition costs and working capital outflows than modelled. We see this as a one-off adjustment and expect the business model to continue to generate healthy cash flows.
Exhibit 1: Estimate changes
Year end 31 December, US$'000 |
Old |
New |
Change |
Y-o-y |
Old |
New |
Change |
Y-o-y |
2023e |
2023e |
growth |
2024e |
2024e |
growth |
|||
Gross revenue |
833,705 |
833,705 |
- |
14% |
909,572 |
909,572 |
- |
9% |
Net revenue |
190,585 |
190,585 |
- |
7% |
208,116 |
208,116 |
- |
9% |
Adj. EBITDA |
94,416 |
94,416 |
- |
10% |
103,017 |
103,017 |
- |
9% |
Profit Before Tax (norm) |
80,720 |
80,087 |
(0.8)% |
25% |
89,302 |
89,298 |
(0.0)% |
12% |
Profit Before Tax (reported) |
38,623 |
34,090 |
(11.7)% |
130% |
47,205 |
47,201 |
(0.0)% |
38% |
Net income (normalised) |
58,118 |
57,663 |
(0.8)% |
0% |
64,297 |
64,295 |
(0.0)% |
12% |
Basic average number of shares outstanding (m) |
273 |
267 |
257 |
257 |
||||
EPS - basic normalised (c) |
21.29 |
21.58 |
(0.8)% |
(2)% |
25.00 |
25.00 |
(0.0)% |
18% |
EPS - diluted normalised (c) |
21.09 |
21.37 |
(0.8)% |
(2)% |
24.75 |
24.75 |
(0.0)% |
18% |
Revenue growth (%) |
14.5 |
14.5 |
9.1 |
9.1 |
||||
Gross Margin (%) |
22.9 |
22.9 |
22.9 |
22.9 |
||||
Adjusted EBITDA margin (%) |
11.3 |
11.3 |
11.3 |
11.3 |
||||
Adjusted EBITDA/net revenue (%) |
49.5 |
49.5 |
49.5 |
49.5 |
||||
Change in Working capital |
4,299 |
(7,054) |
2,222 |
863 |
||||
Capex |
(5,667) |
(10,300) |
(5,819) |
(7,819) |
||||
Acquisitions |
(18,600) |
(23,500) |
(10,000) |
(10,000) |
||||
Share repurchase/issue |
(46,273) |
(46,273) |
- |
- |
||||
Closing net debt/(cash) |
58,968 |
80,867 |
8,914 |
35,110 |
Source: Edison Investment Research
Exhibit 2: Financial summary
$'k |
2020 |
2021 |
2022 |
2023e |
2024e |
||
Year end 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
INCOME STATEMENT |
|||||||
Revenue |
240,012 |
410,540 |
728,237 |
833,705 |
909,572 |
||
Cost of Sales |
(164,894) |
(292,041) |
(550,541) |
(643,120) |
(701,456) |
||
Gross Profit |
75,118 |
118,499 |
177,696 |
190,585 |
208,116 |
||
EBITDA |
29,394 |
46,251 |
86,024 |
94,416 |
103,017 |
||
Normalised operating profit |
27,310 |
42,737 |
83,045 |
90,206 |
99,115 |
||
Amortisation of acquired intangibles |
(13,747) |
(18,291) |
(36,399) |
(36,399) |
(36,399) |
||
Exceptionals |
(10,529) |
(7,087) |
(7,395) |
(3,900) |
0 |
||
Share-based payments |
(5,113) |
(5,006) |
(5,698) |
(5,698) |
(5,698) |
||
Reported operating profit |
(2,079) |
12,353 |
33,553 |
44,209 |
57,018 |
||
Net Interest |
(9,834) |
(10,798) |
(18,736) |
(10,120) |
(9,817) |
||
Joint ventures & associates (post tax) |
79 |
0 |
0 |
0 |
0 |
||
Exceptionals |
0 |
0 |
0 |
0 |
0 |
||
Profit Before Tax (norm) |
17,555 |
31,939 |
64,309 |
80,087 |
89,298 |
||
Profit Before Tax (reported) |
(11,834) |
1,555 |
14,817 |
34,090 |
47,201 |
||
Reported tax |
975 |
(5,097) |
(16,895) |
(24,827) |
(27,682) |
||
Profit After Tax (norm) |
14,044 |
25,551 |
57,414 |
57,663 |
64,295 |
||
Profit After Tax (reported) |
(10,859) |
(3,542) |
(2,078) |
9,263 |
19,519 |
||
Minority interests |
0 |
0 |
0 |
0 |
0 |
||
Net income (normalised) |
14,044 |
25,551 |
57,414 |
57,663 |
64,295 |
||
Net income (reported) |
(10,859) |
(3,542) |
(2,078) |
9,263 |
19,519 |
||
Basic average number of shares outstanding (m) |
197 |
227 |
266 |
267 |
257 |
||
EPS - basic normalised (c) |
7.14 |
11.24 |
21.61 |
21.58 |
25.00 |
||
EPS - diluted normalised (c) |
6.86 |
10.91 |
21.41 |
20.37 |
24.75 |
||
EPS - basic reported (c) |
(5.52) |
(1.56) |
(0.78) |
3.47 |
7.59 |
||
Dividend (c) |
0.00 |
0.00 |
0.01 |
0.01 |
0.01 |
||
Revenue growth (%) |
119.8 |
71.0 |
77.4 |
14.5 |
9.1 |
||
Gross Margin (%) |
31.3 |
28.9 |
24.4 |
22.9 |
22.9 |
||
EBITDA Margin (%) |
12.2 |
11.3 |
11.8 |
11.3 |
11.3 |
||
EBITDA/Net Revenue (%) |
39.1 |
39.0 |
48.4 |
49.5 |
49.5 |
||
Normalised Operating Margin |
11.4 |
10.4 |
11.4 |
10.8 |
10.9 |
||
BALANCE SHEET |
|||||||
Fixed Assets |
270,578 |
271,830 |
365,062 |
355,269 |
334,870 |
||
Intangible Assets |
255,716 |
254,169 |
347,938 |
338,145 |
317,746 |
||
Tangible Assets |
8,677 |
8,601 |
7,358 |
7,358 |
7,358 |
||
Investments & other |
6,185 |
9,060 |
9,766 |
9,766 |
9,766 |
||
Current Assets |
77,606 |
128,391 |
193,650 |
182,753 |
230,412 |
||
Stocks |
1,011 |
895 |
646 |
500 |
2,114 |
||
Debtors |
47,941 |
71,363 |
98,231 |
111,922 |
112,139 |
||
Cash & cash equivalents |
28,654 |
56,133 |
94,773 |
70,331 |
116,159 |
||
Other |
0 |
0 |
0 |
0 |
0 |
||
Current Liabilities |
96,421 |
137,129 |
197,712 |
204,073 |
206,767 |
||
Creditors |
89,256 |
117,016 |
190,348 |
196,839 |
199,533 |
||
Tax and social security |
0 |
0 |
0 |
0 |
0 |
||
Short term borrowings |
5,819 |
18,276 |
5,456 |
5,326 |
5,326 |
||
Lease liabilities |
1,346 |
1,837 |
1,908 |
1,908 |
1,908 |
||
Long Term Liabilities |
137,867 |
149,110 |
193,667 |
206,562 |
209,241 |
||
Long term borrowings |
107,820 |
119,251 |
145,872 |
145,872 |
145,872 |
||
Other long term liabilities |
30,047 |
29,859 |
47,795 |
60,690 |
63,369 |
||
Net Assets |
113,896 |
113,982 |
167,333 |
127,386 |
149,273 |
||
Minority interests |
0 |
0 |
0 |
0 |
0 |
||
Shareholders' equity |
113,896 |
113,982 |
167,333 |
127,386 |
149,273 |
||
CASH FLOW |
|||||||
Op Cash Flow before WC and tax |
3,997 |
23,360 |
54,195 |
74,698 |
87,503 |
||
Working capital |
4,129 |
4,091 |
7,245 |
(7,054) |
863 |
||
Exceptional & other |
14,526 |
15,804 |
24,434 |
15,818 |
15,515 |
||
Tax |
(1,957) |
(2,230) |
(8,399) |
(11,931) |
(25,004) |
||
Net operating cash flow |
20,695 |
41,025 |
77,475 |
71,530 |
78,877 |
||
Capex |
(4,259) |
(4,810) |
(6,543) |
(10,300) |
(7,819) |
||
Acquisitions/disposals |
(37,065) |
(18,344) |
(81,396) |
(23,500) |
(10,000) |
||
Interest paid |
(9,512) |
(8,695) |
(7,766) |
(10,120) |
(9,817) |
||
Equity financing |
34,667 |
0 |
58,187 |
(46,273) |
0 |
||
Change in borrowing |
1,563 |
24,721 |
34,691 |
0 |
0 |
||
Dividends |
0 |
0 |
0 |
(3,538) |
(3,401) |
||
Other |
(4,734) |
(3,700) |
(30,730) |
(2,241) |
(2,083) |
||
Net Cash Flow |
1,355 |
30,197 |
43,918 |
(24,442) |
45,828 |
||
Opening net debt/(cash) |
74,998 |
84,985 |
81,394 |
56,555 |
80,867 |
||
FX |
1,117 |
(2,718) |
(5,278) |
0 |
0 |
||
Other non-cash movements |
(12,459) |
(23,888) |
(13,801) |
130 |
0 |
||
Closing net debt/(cash) |
84,985 |
81,394 |
56,555 |
80,867 |
35,110 |
||
Source: Company data, Edison Investment Research
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