Verve Group — Driving better media outcomes

Verve Group (OMX: VER)

Last close As at 10/10/2024

EUR2.71

−0.53 (−16.25%)

Market capitalisation

EUR505m

More on this equity

Research: TMT

Verve Group — Driving better media outcomes

Verve Group’s Q224 figures clearly show the benefit of its strategic focus on privacy-first targeted advertising solutions, with growth well ahead of the market. Organic revenues grew 26% in Q2 and the operating leverage against a tighter cost base delivered an adjusted EBITDA margin of 30%. We raised our forecasts at the H124 update, and now finesse our assumptions. The capital markets day, held with the results, highlighted the further potential from mobile in-app full screen and video, as well as Connected TV, retail media, audio and digital out-of-home. 78% of Verve’s revenues in Q2 were generated in North America, yet the rating remains well below (mostly US-based) peers.

Fiona Orford-Williams

Written by

Fiona Orford-Williams

Director, TMT

TMT

Verve Group

Driving better media outcomes

CMD and Q224 figures

Media

10 September 2024

Price

€3.28

Market cap

€611m

Pro forma net debt (€m) after Jun acquisition and bond issue

402

Shares in issue (including new shares)

186.4m

Free float

71.0%

Codes

VER (Nasdaq), M8G (Xetra)

Primary exchanges

Deutsche Börse Scale, OTCQX

Secondary exchange

Nasdaq Stockholm First North Premier Growth

Share price performance

%

1m

3m

12m

Abs

16.5

106.9

174.3

Rel (local)

11.9

108.2

134.2

52-week high/low

€3.50

€0.78

Business description

Verve operates a fast-growing, profitable ad-software platform that matches global advertiser demand with publisher ad-supply while improving results through first-party data from own content. Verve’s main operational presence is in North America and Europe.

Next events

Q3 report

28 November 2024

Analysts

Fiona Orford-Williams

+44 (0)20 3077 5739

Milo Bussell

+44 (0)20 3077 5700

Verve Group is a research client of Edison Investment Research Limited

Verve Group’s Q224 figures clearly show the benefit of its strategic focus on privacy-first targeted advertising solutions, with growth well ahead of the market. Organic revenues grew 26% in Q2 and the operating leverage against a tighter cost base delivered an adjusted EBITDA margin of 30%. We raised our forecasts at the H124 update, and now finesse our assumptions. The capital markets day, held with the results, highlighted the further potential from mobile in-app full screen and video, as well as Connected TV, retail media, audio and digital out-of-home. 78% of Verve’s revenues in Q2 were generated in North America, yet the rating remains well below (mostly US-based) peers.

Year end

Revenue (€m)

Adjusted EBITDA (€m)

PBT*
(€m)

EPS*
(c)

EV/EBITDA
(x)

P/E
(x)

12/22

324.4

93.2

38.6

13.4

10.9

24.4

12/23

322.0

95.2

26.8

35.8

10.6

9.2

12/24e

410.0

130.0

59.4

24.6

7.8

13.7

12/25e

505.0

175.0

106.5

38.6

5.8

8.6

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

Strong position in a consolidating market

The Verve rebrand is enabling the group to go to market with a more coherent proposition, particularly important when dealing with its global clients and agency customers. The market remains inefficient and overpopulated, with many subscale players, but Verve is a prominent participant with an established privacy-first ethos and strong, collaborative relationships. These include projects with Google, which presented at Verve’s CMD (from 1:58). Verve now has the elements in place on both the supply (publisher) side and the demand (advertiser) side, enhanced by the recent acquisition of Jun, to address the considerable market opportunity.

CMD key points

Q3 has started strongly, with a further quarterly sequential uplift in organic growth, although it is worth noting that the comparatives become tougher in Q4. Verve is achieving better advertising rates (CPMs, being cost per mille), in part because of a slightly better industry backdrop, but mostly reflecting the better quality of inventory with more full-page and video in the mix. Opportunities in other media channels, as well as now having a better balance between supply- and demand-side offerings, support the targeted mid-term revenue CAGR of 25–30%, with the adjusted EBITDA margin expected to expand further on a relatively fixed cost base.

Valuation: Well below peers, DCF

The share price has more than trebled in the year-to-date, reflecting the strong trading. However, the rating still sits at a discount to peers and to the value derived in our discounted cash flow (DCF). Looking at peer average EV/revenue and EV/EBITDA multiples across FY24 and FY25, parity now suggests a share price of €4.47, up from €4.22 as sector sentiment has improved. Our DCF (weighted average cost of capital 10%, terminal growth of 2%) points to €5.28 (previously €4.97) after making a modest (positive) shift in working capital assumptions.

Wide ranging CMD outlines dynamic market

The capital markets day (CMD), held in Stockholm where Verve is now headquartered, provided a thorough oversight of the dynamics of the ad tech market, which remains fast-moving and complex. The day comprised sessions around:

the Q224 performance,

Jun Group and what it brings to the group,

the fast-changing advertising market (presented by a Verve NED with a background at Dentsu),

how AI is shifting the playbook (presented by representatives from Google),

privacy and targeting (presented by IAB TechLab),

where Verve sits in the market, and

where Verve’s most attractive opportunities lie.

The link to the webcast sessions is above, with the accompanying presentation here. We do not attempt to summarise the whole event, rather just pick out a few highlights. The extended view, in our opinion, is a useful time investment for those wishing to improve their understanding of the ad tech industry. Verve also hosts a very helpful glossary of ad tech terminology on its investor relations website.

Verve’s performance and outlook

We upgraded our forecasts at the half-year trading update (Another substantial upgrade) and the adjustments that we make now relate to the finance costs (reduced to reflect the interest rate backdrop and management guidance) and small changes to working capital assumptions.

Overall Q3 has started well, with revenue reported to be growing (organically) ahead of the rate achieved in Q2 (+26%). Q4 will be against tougher comparatives, as Q423 was when the market (and Verve’s performance) started to recover. This is built into the management guidance of revenues of €400–420m for the full year. Pro-forma FY24 revenue, as if including Jun for the full 12 months, is given as €447m and it is this figure that is the basis for our FY25 revenue estimate of €505m, which represents 11% year-on-year growth.

The H124 adjusted EBITDA margin exceeded 30%, reflecting the (relatively) fixed operating cost base post the trimming of €10m of operating cost in the prior year. Our full year assumption is for an adjusted EBITDA margin of 31.7%, with Q4 having an inherently seasonally stronger performance. With the building blocks all now in place, we anticipate further margin expansion in FY25.

What’s driving the growth?

The substantial outperformance of the global programmatic ad spend, which is estimated to grow at 9% in 2025 (source: Statista), is down to a combination of factors. There is an element of market recovery in underlying pricing and volume, which is enhanced for Verve through offering better quality and therefore higher-value inventory such as full-page imagery and video ads. This is driving the net dollar expansion rate (ie the spend by existing clients) of 109% in Q224, with the number of large clients generating revenues of over $100k growing to 851, from 764 in Q124. The group is also winning new clients and expanding into new segments, adding Macy’s, LinkedIn, King and Disney+ on the demand side and Slacker Radio, Zynga, CBS News and WeatherBug on the supply side.

Being able to offer proven privacy-first solutions on iOS is also a major factor (iOS represented 31% of group revenue in Q2) and this provides a roadmap for the gradual withdrawal of personal identifiers on Android. Mobile accounted for 85% of revenues in Q224, with the next largest segment the growing Connected TV (CTV) segment, where market growth is estimated at 14% (Statista).

In addition to this market growth and customer expansion, Verve is extending its offering through new products and services such as its privacy-safe contextual solutions and curated marketplaces (PMPs), which were covered in some detail at the CMD.

Interview with CEO Remco Westermann

Post the CMD, we recorded this short interview with the CEO, which summarises some of the factors behind the strong performance and outlook, including the benefits accruing form the Jun Group acquisition.

Exhibit 1: Executive interview with CEO Remco Westermann

<

Source: Edison Investment Research

Valuation

We evaluate Verve 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. Adtech performance in the year-to-date has been very mixed, with particularly strong performances from Criteo, Viant Technology, Magnite and The Trade Desk, with Digital Turbine and DoubleVerify at the other end of the scale. The median performance has been a gain of 9%. Ad software and content companies also had a mixed showing, with AppLovin continuing to perform particularly strongly (+121% year-to-date), while the purer gaming companies have (on average) underperformed.

Looking at average EV/revenue and EV/EBITDA multiples across FY24 and FY25, parity across the peer set would suggest a share price of €4.47, from the €4.22 calculated previously as sector prospects have improved. This is a little below the figure derived from our DCF of €5.28 (WACC: 10%, terminal growth of 2%), up from €4.97, having made small adjustments to working capital assumptions following the half-year results.

Both approaches result in figures well above the current share price of €3.28, which has more than trebled over the year-to-date as the market has gained confidence in both Verve’s financial performance and improved sentiment around the sector.

Exhibit 2: Peer performance and valuation

Company

Price
(local CCY)

Ytd performance

(%)

Market cap (€m)

EV/sales (x)

EV/EBITDA (x)

P/E (x)

FY0

FY1e

FY2e

FY0

FY1e

FY2e

FY0

FY1e

FY2e

Ad-tech

 

 

 

 

 

 

 

 

 

 

 

 

The Trade Desk

101.4

41

44,957

24.5

19.8

16.5

61.8

47.7

39.3

77.3

63.7

53.6

Pubmatic

15.1

(8)

679

2.2

2.0

1.8

7.8

6.4

5.6

779.9

72.6

N/A 

Viant Technology

10.5

52

598

1.9

1.7

1.5

15.7

10.9

9.3

N/A

95.3

66.6

Magnite

13.3

42

1,693

3.8

3.4

3.0

12.3

10.4

9.0

24.4

17.5

14.3

AcuityAds Holdings

1.5

(6)

51

0.2

0.2

0.2

19.3

4.4

2.7

N/A

N/A

120.2

DoubleVerify Holdings

19.3

(48)

2,961

5.1

4.4

3.7

16.1

13.9

11.6

54.3

61.0

42.2

Integral Ad Science Hold

11.3

(22)

1,641

3.8

3.4

3.0

11.6

10.0

8.6

442.7

55.1

32.7

LiveRamp Holdings

25.5

(33)

1,530

2.2

2.0

1.8

19.1

11.8

9.8

34.2

17.1

16.4

Digital Turbine

2.8

(59)

260

1.0

1.2

1.2

3.8

6.9

7.2

2.4

5.5

6.7

Tremor

287.5

41

462

1.3

1.2

1.1

4.9

4.1

3.7

17.1

9.8

8.2

Criteo

45.1

78

2,280

2.1

1.9

1.8

7.7

5.9

5.6

16.3

10.7

10.4

YOC

18.5

23

64

2.1

1.7

1.5

14.6

10.6

8.5

23.7

17.9

13.8

Median

 

9

 

2.1

1.9

1.8

13.4

10.2

8.6

29.3

17.9

16.4

Ad-software and content 

 

 

 

 

 

 

 

 

 

 

AppLovin

87.9

121

26,506

9.7

7.3

6.5

21.3

13.3

11.6

98.9

25.9

20.8

IronSource

15.9

(61)

5,708

3.4

4.2

4.1

18.9

20.7

18.5

N/A

N/A

N/A

Azerion

1.4

(25)

172

0.6

0.6

0.5

4.7

4.8

4.1

12.6

43.5

15.3

Future

1,049.0

32

1,401

2.0

2.0

1.9

5.6

6.5

6.3

7.6

8.7

8.0

Median

 

3

 

2.7

3.1

3.0

12.3

9.9

8.9

12.6

25.9

15.3

Gaming

 

 

 

 

 

 

 

 

 

 

 

 

Embracer Group

24.2

(12)

2,748

1.3

1.2

1.2

5.4

4.5

4.7

6.2

8.5

7.6

Stillfront Group

7.2

(41)

325

1.1

1.2

1.1

3.0

3.4

3.2

3.4

4.2

3.3

Paradox Interactive

147.2

(35)

1,363

5.7

6.3

5.4

8.9

9.9

8.1

28.3

27.7

21.4

Modern Times Group

76.3

(11)

803

1.2

1.1

1.1

4.6

4.1

4.1

11.0

9.4

8.0

Rovio Entertainment

9.3

(0)

707

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

N/A

Team17

250.0

35

431

2.2

2.1

2.0

11.4

8.0

7.6

17.3

11.7

11.0

Median

 

(11)

 

1.3

1.2

1.2

5.4

4.5

4.7

11.0

9.4

8.0

Total average

1

2.0

2.1

2.0

10.4

8.2

7.4

17.7

17.7

13.2

Verve

3.2

215

611

3.1

2.5

2.0

10.6

7.8

5.8

9.2

13.7

8.6

Premium/(discount) to adtech

209

 

53%

32%

16%

(19%)

(22%)

(31%)

(68%)

(21%)

(46%)

Premium/(discount) to adsoftware and content

213

 

17%

(20%)

(34%)

(13%)

(19%)

(34%)

(25%)

(45%)

(42%)

Premium/(discount) to gaming

227

 

139%

108%

59%

94%

72%

23%

(17%)

45%

8%

Premium/(discount) to total

212

 

56%

21%

0%

3%

(3%)

(20%)

(47%)

(21%)

(34%)

Source: LSEG Data & Analytics. Note: Prices as at 9 September 2024.

Exhibit 3: Financial summary

€000s

2022

2023

2024e

2025e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

324,444

321,981

410,000

505,000

Operating costs excluding D&A

(239,691)

(193,523)

(285,113)

(332,113)

Adjusted EBITDA

 

 

93,202

95,171

130,000

175,000

EBITDA

 

 

84,753

128,458

124,887

172,887

Operating profit (before amort. and excepts.)

 

 

76,556

76,943

112,620

154,467

Amortisation of acquired intangibles

(14,853)

(13,706)

(19,000)

(19,000)

Exceptionals

(27,100)

(6,500)

(3,500)

(500)

Share-based payments

(1,613)

(1,613)

(1,613)

(1,613)

Reported operating profit

26,618

55,124

88,507

133,354

Net Interest

(37,959)

(50,128)

(52,406)

(47,982)

Joint ventures & associates (post tax)

0

0

0

0

Exceptionals

0

0

0

0

Profit Before Tax (norm)

 

 

38,597

26,814

60,214

106,485

Profit Before Tax (reported)

 

 

(11,341)

4,996

36,101

85,372

Reported tax

(9,064)

(2,718)

(11,913)

(28,173)

Profit After Tax (norm)

21,085

57,312

40,343

71,345

Profit After Tax (reported)

(20,405)

46,218

24,188

57,200

Minority interests

(88)

(513)

(520)

(525)

Discontinued operations

0

0

0

0

Net income (normalised)

20,947

57,025

40,863

71,871

Net income (reported)

(20,317)

46,731

24,708

57,725

Average Number of Shares Outstanding (m)

156.2

159.2

166.0

186.4

EPS - basic normalised (c)

 

 

13.4

35.8

24.6

38.6

EPS - normalised fully diluted (c)

 

 

12.0

32.1

22.2

35.1

EPS - basic reported (c)

 

 

(13.0)

29.3

14.9

31.0

Dividend (c)

0.00

0.00

0.00

0.00

Revenue growth (%)

28.7

(0.8)

27.3

23.2

Adjusted EBITDA Margin (%)

28.7

29.6

31.7

34.7

Normalised Operating Margin (%)

23.6

23.9

27.5

30.6

BALANCE SHEET

Fixed Assets

 

 

823,637

813,515

954,448

1,005,252

Intangible Assets

791,284

796,607

938,970

991,320

Tangible Assets

5,522

3,963

2,532

987

Investments & other

26,831

12,945

12,945

12,945

Current Assets

 

 

221,022

193,513

206,191

241,315

Stocks

0

0

0

0

Debtors

52,229

32,281

41,562

51,192

Cash & cash equivalents

149,992

121,740

125,136

150,631

Other

18,801

39,493

39,493

39,493

Current Liabilities

 

 

219,471

240,768

190,413

206,029

Creditors

68,711

80,335

95,229

110,845

Short term borrowings

31,903

34,510

32,390

32,390

Other financial liabilities

97,515

104,402

42,746

42,746

Other non-financial liabilities

21,342

21,521

20,048

20,048

Long-term liabilities

 

 

503,443

413,804

528,385

516,385

Long-term borrowings

389,386

348,038

422,000

415,000

Other long-term liabilities

114,057

65,766

106,385

101,385

Net Assets

 

 

321,745

352,456

441,841

524,153

Minority interests

(1,211)

182

182

182

Shareholders' equity

 

 

322,956

352,274

441,659

523,971

CASH FLOW

Operating Cash Flow

(20,405)

46,218

24,188

57,200

Depreciation & amortisation

70,694

29,491

36,380

39,533

Working capital

55,284

12,051

5,613

5,986

Exceptional & other

1,907

(66,328)

1,613

1,613

Tax

1,340

(1,940)

4,500

0

Net finance cost

37,959

50,065

52,406

47,982

Net operating cash flow

 

 

146,779

69,556

124,700

152,313

Capex

(45,859)

(35,047)

(37,050)

(40,337)

Acquisitions/disposals

(138,000)

0

(130,000)

(50,000)

Equity financing

28,517

0

40,050

0

Dividends

0

0

0

0

Other

(53,413)

(52,301)

(26,184)

(29,482)

Net Cash Flow

(61,976)

(17,792)

(28,484)

32,494

Opening net debt/(cash)

 

 

198,600

273,900

297,427

372,000

FX

0

(2,881)

0

0

Other non-cash movements

(765)

(2,854)

(46,088)

0

Closing net debt/(cash)

 

 

261,341

297,427

372,000

339,505

Source: Company accounts, Edison Investment Research

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London, WC1R 4PS

United Kingdom

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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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H224 continues to be a rewarding period for Basilea Pharmaceutica, with the announcement of a third successive milestone payment for Cresemba in the last month following strong sales performance (+24% y-o-y growth in in-market sales to US$489m for the 12 months ending March 2024). The latest milestone (US$25m/CHF21m) was triggered by license partner Pfizer exceeding a predetermined sales threshold in Europe. In total, Cresemba has raked in upwards of CHF34m in milestone payments in the year to date (with c CHF32m in H224 thus far), and we expect a further c CHF5m before year-end based on the most recent guidance from management. Beyond Cresemba, we expect the key focus areas for Basilea in H224 to be finalising a US commercialisation partner for Zevtera and the initiation of the first Phase III study for fosmanogepix (in candidemia/invasive candidiasis).

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