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Research: Financials
On 17 December, German Startups Group (GSG) announced that it has sold its 50.8% stake in the digital agency Exozet to Endava, a US-listed technology service provider headquartered in London. GSG will receive c €11.2m in gross cash proceeds (€10.8m after deducting M&A commissions), translating into a disposal gain of around €6.1m (or €0.54 per share). The gain represents c 40% of GSG’s market capitalisation calculated on the closing price of €1.46 on 16 December. GSG had been considering the sale of Exozet for some time and has now achieved an exit price ahead of its initial assumptions.
German Startups Group |
Profitable disposal of Exozet
Financials |
Scale research report - Update
19 December 2019 |
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On 17 December, German Startups Group (GSG) announced that it has sold its 50.8% stake in the digital agency Exozet to Endava, a US-listed technology service provider headquartered in London. GSG will receive c €11.2m in gross cash proceeds (€10.8m after deducting M&A commissions), translating into a disposal gain of around €6.1m (or €0.54 per share). The gain represents c 40% of GSG’s market capitalisation calculated on the closing price of €1.46 on 16 December. GSG had been considering the sale of Exozet for some time and has now achieved an exit price ahead of its initial assumptions.
Disposal price ahead of previous expectations
GSG announced in 2018 that it was in negotiations to sell its majority stake in Exozet, but without conclusion. At the time, GSG expected a revaluation gain vs book value of around €1.0m (and a €1.5m profit on the initial acquisition price), as well as a cash inflow in the low single-digit million euros. Subsequently, Exozet’s revenues increased by 38% y-o-y to €7.3m in H119, generating an EBIT of €0.9m (vs a €0.4m loss in H118). Exozet has recently made good progress in its new order intake, particularly in the virtual/augmented reality segment. We understand that this – together with the structured tender procedure that was used to complete the transaction – may have contributed to the more attractive sale price.
Significant positive impact on FY19 results
Simultaneously, GSG’s management has guided to FY19 net profit of €3–5m (ie €0.27–0.44 per share). It also expects IFRS-based equity per share to reach €2.90–3.10 (versus the closing price of €1.71 on 17 December). Importantly, management estimates that this will include cash and short-term financial assets of more than €1.00 per share. GSG does not intend to reinvest the proceeds from Exozet’s disposal in its original business model (VC) and will instead use them for share buybacks, given the shares continue to trade below the NAV estimated by the company. In 2019 to date, the company has repurchased 7.7% of the end-2018 number of shares outstanding.
Valuation: Trading at a deep discount to NAV
GSG’s current share price of €1.73 represents a 31% discount to NAV at end-H119 (based on the book value of equity ex-minorities) and a 42% discount to the midpoint of the equity per share range for end 2019 estimated by the company.
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Company financials
Source: German Startups Group accounts |
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Research: TMT
Keywords has rounded off the year with three small acquisitions, very much in line with its stated M&A strategy: Kantan, a Dublin-based machine translation technology company (€7m); Ichi, a London-based video games creative and marketing services agency (£3.2m); and Syllabes, a Montreal-based audio recording studio (C$0.5m). Together, they have reported revenues of c €4.8m and have been acquired on a trailing multiple of c 2.3x revenues. As we approach year-end, we retain our view that Keywords remains strongly positioned as the only public games service provider at a global scale. The company’s P/E rating (25.7x FY20e) reflects its leading market position, track record and potential, and should fall further as Keywords continues its buy-and-build strategy successfully.