Team Internet Group — Earnings remain resilient

Team Internet Group (AIM: TIG)

Last close As at 12/12/2024

GBP0.92

−2.00 (−2.13%)

Market capitalisation

GBP239m

More on this equity

Research: TMT

Team Internet Group — Earnings remain resilient

Team Internet’s H1 earnings showed resilience despite continued headwinds in online marketing. Going into the typically seasonally stronger H2, we expect the company’s initiatives in product innovation, vertical integration and international to increasingly influence growth and margin expansion. At 8.2x FY24 earnings, Team Internet continues to trade at a significant discount to peers on our unchanged earnings estimates. We believe this rating remains attractive given the company’s track record, prospects and cash generation.

Written by

Dan Ridsdale

Head of Technology

TMT

Team Internet

Earnings remain resilient

Interim results

Software and comp services

12 August 2024

Price

171.8p

Market cap

£431m

US$1.25/£

Net debt ($m) at 30 June 2024

109.9

Shares in issue

250.9m

Free float

49%

Codes

TIG, TIGXF

Primary exchange

AIM

Secondary exchange

OTCQX

Share price performance

%

1m

3m

12m

Abs

5.0

24.8

44.8

Rel (local)

4.7

27.5

34.3

52-week high/low

204p

115p

Business description

Team Internet Group is a global internet company that derives recurring revenue from privacy-safe, AI-based customer journeys that help online consumers make informed choices, as well as from the distribution of domain names.

Next events

Q3 results

November 2024

Analyst

Dan Ridsdale

+44 (0)20 3077 5700

Team Internet is a research client of Edison Investment Research Limited

Team Internet’s H1 earnings showed resilience despite continued headwinds in online marketing. Going into the typically seasonally stronger H2, we expect the company’s initiatives in product innovation, vertical integration and international to increasingly influence growth and margin expansion. At 8.2x FY24 earnings, Team Internet continues to trade at a significant discount to peers on our unchanged earnings estimates. We believe this rating remains attractive given the company’s track record, prospects and cash generation.

Year end

Revenue (US$m)

EBITDA (US$m)

PBT*
(US$m)

EPS*
(c)

DPS
(p)

EV/EBITDA (x)

P/E
(x)

Yield
(%)

12/22

728.2

86.0

64.3

14.7

0.0

5.6

14.6

N/A

12/23

836.9

96.4

77.6

22.5

2.0

5.6

9.5

1.2

12/24e

939.2

110.2

91.0

26.3

2.3

5.6

8.2

1.3

12/25e

1037.7

119.5

101.8

28.3

2.5

5.6

7.6

1.5

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

Earnings resilience despite headwinds

H1 gross revenues of $409.7m (+3% y-o-y) were essentially flat excluding $10.7m from Shinez, acquired 29 April. A weak adverting market continues to suppress Online Marketing, particularly Search, but as this is the lowest gross profit business, net revenues (gross profit) grew 7% y-o-y at $97.7m, with gross margin expanding by 80bp y-o-y. EBITDA expanded by 4% to $46.6m. Net debt was $109.9m, reflecting the Shinez acquisition and operating cash conversion at 87%. However, with cash conversion expected to normalise close to 100% in H2 and no share buybacks scheduled, we expect net debt to reduce to $66m by year end. This includes the payment of an inaugural interim dividend of 1p.

On track, strategic initiatives coming into play

Our P&L estimates are essentially unchanged from the net revenue/gross profit level and below, with gross revenue pared back by c 4.5%, more in line with consensus. While we do not expect a near-term recovery in click rates, events such as the Olympics and particularly the US elections should support the online advertising market into the seasonally stronger H2. Key strategic initiatives should start to have an impact in FY25. These include vertical integration initiatives, such as including Tonic or Vergleich ads on Shinez content, the expansion of Vergleich beyond Germany and new product launches as well as competitive and efficiency initiatives in Online Presence.

Valuation: Discount looks unjustified

Team Internet trades at an EV/EBITDA multiple of 6.0x and a P/E of 8.2x with a 14% free cash flow yield. On a fundamental basis, we believe that this remains too low for a business with Team Internet’s track record, prospects and cash generation. The group’s rating is a c 45% P/E ratio discount to ad-tech peers of the online marketing business and a 47% discount to the online presence peers (albeit a small subset). A recovery in online advertising, accretive M&A and/or a resumption of buybacks could drive EPS upside.

Divisional review

Online Marketing

Advertising weakness suppresses net revenue, gross profit continues to advance

The weak advertising market and strong comparisons suppressed Online Marketing growth in H1, particularly in Search (primarily Tonic and Shinez) but, as these are lower gross profit business lines, the effect was most felt on gross revenues, while net revenue (gross profit) continued to advance. Gross revenues for H1 were up 3% y-o-y to $312.5m but down 1% (excluding the $10.7m from Shinez), whereas net revenue advanced 5% y-o-y. Performance in Q2 also showed some sign of improvement, with gross revenues (excluding Shinez) up 1% y-o-y versus a 3% decline in Q1, while gross profit grew by 10%.

The number of visitor sessions grew 16% y-o-y to 6.1bn on a trailing 12-month basis, but revenue per 1,000 sessions dropped to $88 versus $91 in Q1 and 100 a year ago. Given the good rise in volumes, Team Internet should be well placed as and when an improved demand environment drives prices up again.

Strategic initiatives to drive growth and margins

Management’s strategy for Online Marketing is develop the business into a diverse digital audience matching platform, connecting audiences and advertisers between platforms that are not innately integrated. The company’s Omni-media, Omni-monetisation(OM2) strategy is to deploy both M&A to and organic development initiatives to grow its coverage of both media channels and monetisation opportunities.

Increased supply and demand-side versatility

Following the acquisition of Shinez, the company’s coverage of the online marketing ecosystem is represented in Exhibit 2, while the diversity of the company’s revenue exposure is shown in Exhibit 3. The acquisition of Shinez has added a new social media partner channel, in X, strengthens the lines of business with Meta and Instagram (shared by both) and through its relationships with direct advertisers, doubles the Online Marketing segment’s revenue generated independently of Google.

Exhibit 1: OM2 – Increasing ecosystem coverage

Source: Team Internet, Edison

Exhibit 2: Value flows – FY22 Annual Report

Exhibit 3: Value flows – Interim Report 2024

Source: Team Internet

Source: Team Internet

Exhibit 2: Value flows – FY22 Annual Report

Source: Team Internet

Exhibit 3: Value flows – Interim Report 2024

Source: Team Internet

Coverage of the conversion funnel: Scope for vertical integration

With the acquisition of Shinez, Team Internet now has a presence at each stage of the e-commerce conversion funnel, from the initial raising of awareness and brand building, then building and qualifying interest, right through to setting up the transaction:

Awareness: Shinez provides solutions for helping advertisers raise awareness and build their brand, and is paid on a pay per (1,000) view (PPM) basis.

Interest: Tonic determines a consumer’s interests through its double qualification process, then directs well-qualified leads to advertisers, being monetised on a pay per click basis (PPC).

Sale: at the sharp end of the funnel, Vergleich provides comparison sites to enable consumers already considering a purchase to compare and evaluate products or services, being paid on a per transaction (PPA) basis, often a percentage of the purchase price or in Vergleich’s case a percentage of the total basket size.

Exhibit 4: Coverage of the e-commerce conversion funnel

Source: Edison Investment Research, Team Internet

This coverage of the funnel opens up a number of opportunities for vertical integration, essentially capturing a greater proportion of the value chain in connecting buyers to advertisers.

These include delivering ad inventory to the Shinez sites using Tonic, or even selective placement of VGL transaction sites where it is seen not to conflict with the platforms’ advertiser customers. Given Shinez’s high volume, but low transaction value, the successful addition of higher-value PPC or PPA revenues on only a small proportion of volume should generate meaningful revenue synergies.

The group also aims to leverage the Shinez platform to generate revenue from previously unmonetised Tonic and VGL visitor sessions through programmatic display and video advertising on a pay-per-view basis. Management also hopes that the behavioural insights gathered from Tonic and VGL will enable Shinez to more effectively connect advertisers with relevant audiences, supporting higher revenues per thousand session values.

Online Presence: Solid growth, improved margins

Online Presence continued to perform robustly. This is driven in part by the structural shift towards top level domains, where Team Internet is competitively strong. The company’s move to strengthen the team, improve customer service and rationalise operations also appears to be having an impact. Gross revenues grew by 6% to $97.2m and net revenues up by 11% to $32.7m. Operating margins were ‘much improved’, although the company does not disclose down to this level.

Estimates

Our estimates are shown in Exhibit 4. Management has confirmed that it expects to meet consensus estimates. We have reduced our gross revenue forecasts, which were at the top end of consensus, by 4.5%, reflecting the weak advertising market, but our estimates for net revenue and gross profit down are little changed, reflecting the mix shift to higher-margin business. The Olympics and, in particular, the US election should drive an improving market for Online Marketing in H2. We believe that good progress with strategic initiatives, such vertical integration of Shinez and Tonic or VGL services, internationalisation of VGL and accretive M&A, could all generate upside to our estimates.

Net debt was $109.9m, reflecting the Shinez acquisition, with operating cash conversion at 87%, somewhat below management’s target. However, with cash conversion expected to normalise close to 100% in H2 and no share buybacks scheduled, we expect net debt to reduce to $66m by year end, giving the company plenty of scope for acquisitions or capital distribution via increased dividends or buybacks.

Exhibit 5: Revenue model

US$m

FY23

H124

H224e

FY24e

FY25e

Online Marketing

Gross revenue (excl Shinez)

657.1

301.8

375.0

676.8

721.8

Growth (Organic)

14%

-1%

6%

3%

7%

Shinez

10.7

50.3

61.0

106.5

Gross Revenue

657.1

312.5

425.3

737.8

828.3

Net Revenue

131.7

65.0

91.6

156.6

178.1

Gross Margin

20.0%

21.5%

21.5%

21.2%

21.5%

Online Presence

Revenue

179.8

97.2

104.2

201.4

209.4

Growth (Organic)

17%

6%

19%

12%

4%

Gross Profit

59.4

32.7

35.0

67.7

71.2

Gross Margin

33.0%

33.6%

33.6%

33.6%

34.0%

Group

Gross Revenue

836.9

409.7

529.5

939.2

1037.7

Net Revenue / Gross Profit

191.1

97.7

126.6

224.3

249.3

Gross Margin

22.8%

23.8%

23.9%

23.9%

24.0%

Opex (ex D,A, SBP)

94.7

51.1

63.0

114.1

129.8

EBITDA adjusted

96.4

46.6

63.6

110.2

119.5

EBIT adjusted

93.1

45.3

61.9

107.2

116.0

PBT adjusted

77.5

36.8

54.2

91.0

101.8

PAT adjusted

63.2

28.8

40.2

69.0

74.2

EPS – adjusted diluted (c)

22.5

10.9

15.4

26.3

28.3

Net debt/(cash)

74.1

110.8

66.2

66.2

-4.4

Source: Team Internet, Edison Investment Research estimates. Note: FY23 numbers are restated.

Exhibit 6: Estimate changes

Year end 31 December

Reported

Y-o-y

Old

New

 

Y-o-y

Old

New

 

Y-o-y

US$m

2023

growth

2024e

2024e

Change 

growth

2025e

2025e

Change 

growth

Gross revenue

837

15%

984

939

(4.5)%

12%

1,082

1,038

(4.1)%

10%

Net revenue

191

8%

219

224

2.5%

17%

225

249

10.6%

11%

Adjusted EBITDA

96

12%

110

110

0.5%

14%

117

119

2.3%

8%

EBITDA Margin

12%

11%

12%

11%

12%

Profit Before Tax (norm)

78

21%

90

90

0.0%

16%

97

98

1.0%

9%

Profit Before Tax (reported)

2

(90)%

46

46

(0.2)%

2851%

54

57

5.9%

25%

Net income (normalised)

22

(47)%

72

69

(3.8)%

216%

77

74

(4.0)%

8%

Basic average number of shares outstanding (m)

272

257

253

258

253

EPS – basic normalised (c)

23.27

49%

27.94

27.25

(2.5)%

17%

29.97

29.30

(2.2)%

8%

EPS – diluted normalised (c)

22.46

45%

27.06

26.33

(2.7)%

17%

29.02

28.32

(2.4)%

8%

 

Closing net debt/(cash)

74.1

72.0

66.2

5.9

(4.4)

Source: Team Internet, Edison Investment Research estimates


Valuation

Team Internet trades at an EV/EBITDA multiple of c6.0x and a P/E of c8x with a 14% free cash flow yield. On a fundamental basis, we believe that this remains too low for a business with Team Internet’s track record, prospects and cash generation. The group’s forward year P/E ratio is a c 45% discount to ad-tech peers of the online marketing business and a 47% discount to the online presence peers (albeit a small subset). A recovery in online advertising, good progress with the company’s vertical integration and internationalisation initiatives, accretive M&A and/or a resumption of buybacks could drive EPS upside.

Exhibit 7: Peer group multiples

 

Year end

Share price

Quoted
ccy

EV/sales

EV/sales

EV/EBITDA

EV/EBITDA

P/E

P/E

Company

 

 

 

FY1e (x)

FY2e (x)

FY1e (x)

FY2e (x)

FY1e (x)

FY2e (x)

Team Internet Group

Dec-24

171.8

GBp

0.7

0.6

6.1

5.6

8.2

7.6

 

 

 

 

 

 

 

 

 

 

Online Marketing peers

 

 

 

 

 

 

 

 

 

Applovin Corp

Dec-24

67.2

USD

5.7

5.0

10.6

9.1

21.5

17.1

Stroeer SE & Co KgaA

Dec-24

58.0

EUR

2.3

2.1

7.7

6.9

18.5

14.5

Magnite Inc

Dec-24

12.9

USD

3.3

3.0

10.2

8.9

15.9

13.3

Criteo

Dec-24

45.5

USD

2.0

1.8

6.1

5.8

11.0

10.6

Perion Network Ltd

Dec-24

8.1

USD

NM

NM

NM

NM

34.8

42.3

Taboola.com Ltd

Dec-24

3.1

USD

0.5

0.4

4.5

3.7

10.3

8.0

PubMatic Inc

Dec-24

19.0

USD

2.6

2.3

8.4

6.9

80.9

42.4

Mgi Media and Games Invest Se

Dec-24

2.5

EUR

1.7

1.4

5.9

4.6

14.3

8.6

Tremor International Ltd

Dec-24

273.0

GBp

1.1

1.0

3.8

3.3

9.0

7.5

Viant Technology Inc

Dec-24

9.5

USD

1.5

1.3

10.0

8.4

110.1

88.1

System1

Dec-24

1.1

USD

0.8

0.7

10.8

7.9

NM

NM

YOC AG

Dec-24

15.9

EUR

1.5

1.2

9.5

7.7

15.5

11.9

Mean

 

 

 

2.1

1.9

8.0

6.7

31.1

24.0

Median

 

 

 

1.7

1.4

8.4

6.9

15.9

13.3

Discount to median

 

 

 

-28%

-19%

-49%

-43%

Online Presence (web services) peers

 

 

 

 

 

 

 

 

 

GoDaddy

Dec-24

152.8

USD

5.5

5.1

18.7

16.3

24.3

23.7

Verisign

Dec-24

175.2

USD

11.5

11.1

15.7

15.1

21.9

20.2

Squarespace

Dec-24

44.1

USD

5.3

4.6

24.9

19.2

107.4

61.0

ionos

Dec-24

23.8

EUR

2.7

2.5

9.5

8.3

18.4

14.4

Tucows

Dec-24

23.4

USD

NM

NM

NM

NM

NM

NM

Mean

 

 

 

6.3

5.8

17.2

14.7

43.0

29.8

Median

 

 

 

5.4

4.9

17.2

15.7

23.1

22.0

Total mean

 

 

 

3.2

2.9

10.4

8.8

34.2

25.6

Total median

 

 

 

2.3

2.1

9.5

7.9

18.5

14.5

Discount to median

63%

71%

44%

52%

Source: Edison Investment Research, LSEG Data & Analytics. Note: Prices as at 12 August 2024.

Exhibit 8: Financial summary

$m

2022

2023

2024e

2025e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Gross Revenue

 

 

728.2

836.9

939.2

1,037.7

Cost of Sales

(550.5)

(645.8)

(714.9)

(788.4)

Gross Profit (net revenue)

177.7

191.1

224.3

249.3

EBITDA

 

 

86.0

96.4

110.2

119.5

Normalised operating profit

 

 

83.0

93.1

107.2

116.0

Amortisation of acquired intangibles

(36.4)

(38.8)

(41.1)

(41.1)

Exceptionals

(7.3)

(4.1)

(1.4)

0.0

Share-based payments

(5.7)

(4.5)

(2.6)

(3.5)

Reported operating profit

33.6

45.7

62.1

71.4

Net Interest

(18.8)

(15.6)

(16.2)

(14.2)

Joint ventures & associates (post tax)

0.1

0.1

0.0

0.0

Exceptionals

0.0

0.0

0.0

0.0

Profit Before Tax (norm)

 

 

64.3

77.6

91.0

101.8

Profit Before Tax (reported)

 

 

14.9

30.2

45.9

57.2

Reported tax

(16.9)

(5.0)

(15.1)

(18.1)

Profit After Tax (norm)

41.4

63.2

69.0

74.2

Profit After Tax (reported)

(2.0)

25.2

30.8

39.1

Net income (normalised)

41.4

63.2

69.0

74.2

Net income (reported)

(2.0)

25.2

30.8

39.1

Basic average number of shares outstanding (m)

268

272

253

253

EPS - basic normalised (c)

 

 

15.4

23.3

27.2

29.3

EPS - diluted normalised (c)

 

 

14.7

22.5

26.3

28.3

EPS - basic reported (c)

 

 

(0.8)

9.2

12.6

15.2

Dividend (p)

0.00

2.00

2.30

2.50

Revenue growth (%)

77.4

14.9

17.5

10.0

Gross Margin (%)

24.4

22.8

23.9

24.0

EBITDA Margin (%)

11.8

11.5

11.7

11.5

EBITDA/Net Revenue (%)

48.4

50.4

49.1

47.9

Normalised Operating Margin

11.4

11.1

11.4

11.2

BALANCE SHEET

Fixed Assets

 

 

365

347

355

321

Intangible Assets

348

327

335

302

Tangible Assets

7

7

7

6

Investments & other

10

13

13

13

Current Assets

 

 

194

200

247

330

Stocks

1

0

0

0

Debtors

98

107

116

128

Cash & cash equivalents

95

93

131

202

Current Liabilities

 

 

198

188

198

213

Creditors

190

186

197

211

Short term borrowings

5

0

0

0

Lease liabilities

2

2

2

2

Long-Term Liabilities

 

 

194

202

232

232

Long-term borrowings

146

167

197

197

Other long-term liabilities

48

36

36

35

Net Assets

 

 

167

157

171

205

Shareholders' equity

 

 

167

157

171

205

CASH FLOW

Op Cash Flow before WC and tax

54

72

90

102

Working capital

7

(8)

2

2

Exceptional & other

25

18

20

21

Tax

(8)

(6)

(15)

(18)

Net operating cash flow

 

 

78

76

97

107

Capex

(7)

(10)

(9)

(9)

Acquisitions/disposals

0

(5)

(39)

0

Interest paid

(8)

(12)

(18)

(18)

Equity financing

59

0

0

0

Change in borrowing

167

15

30

0

Dividends

0

(4)

(10)

(7)

Other

(31)

(43)

(15)

(2)

Net Cash Flow

258

17

36

70

Opening net debt/(cash)

 

 

81

57

74

66

FX

(5)

3

3

0

Other non-cash movements

(14)

(15)

(30)

0

Closing net debt/(cash)

 

 

(157)

74

66

(4)

Source: Edison Investment Research, company accounts

General disclaimer and copyright

This report has been commissioned by Team Internet and prepared and issued by Edison, in consideration of a fee payable by Team Internet. 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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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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Research: Healthcare

AFT Pharmaceuticals — Hikma partnership expands to include Combogesic

AFT Pharmaceuticals has expanded its licensing partnership with Hikma in the US to include distribution of the recently launched Combogesic tablets (Maxigesic Rapid). We view this as a logical step, given Hikma’s established footprint in the US, with synergistic benefits likely on costs and sales uptake. Hikma already holds exclusive distribution rights to Maxigesic/Combogesic IV in the US and will now also market the tablet formulation in the same hospital and ambulatory setting. Management expects to book the first sales within CY24 and, while the deal economics have not been fully disclosed, the agreement includes a profit share for Hikma according to our understanding. Note that unlike the IV formulation, AFT’s sales strategy for the tablets entails having different distribution partners across sales channels. The first distribution agreement for the Combogesic tablets was signed with Alexso in June 2024.

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