Media and Games Invest — Sharpening focus in digital advertising

MGI – Media and Games Invest (XETRA: M8G)

Last close As at 24/02/2024

EUR0.88

0.03 (3.53%)

Market capitalisation

EUR141m

More on this equity

Research: TMT

Media and Games Invest — Sharpening focus in digital advertising

MGI – Media and Games Invest (MGI) is increasingly focused on its vertically integrated multichannel advertising platform, retaining a core of games that serve to generate first-party data and provide an efficient sandpit for developing new services. FY22 results were at the top end of guidance (as revised upwards at Q322), despite the headwind of lower market advertising rates. This scenario has continued in Q123, and we have taken a cautionary approach to our revised FY23 forecasts, which will be reviewed when management issues guidance for the year at the Q1 update. Medium-term guidance remains for a revenue CAGR of 25–30%. The shares are valued well below peers and the level indicated by a discounted cash flow (DCF).

Fiona Orford-Williams

Written by

Fiona Orford-Williams

Director, TMT

Media and Games Invest_resized

TMT

MGI – Media and Games Invest

Sharpening focus in digital advertising

FY22 results

Media

7 March 2023

Price

€1.60

Market cap

€255m

Net debt (€m) at 31 December 2022

273.9

Shares in issue

159.2m

Free float

70.1%

Code

M8G

Primary exchange

Nasdaq Stockholm First North Premier Growth

Secondary exchanges

Deutsche Börse Scale, OTCQX

Share price performance

%

1m

3m

12m

Abs

(0.6)

2.7

(50.5)

Rel (local)

(2.6)

(5.9)

(58.6)

52-week high/low

€3.85

€1.40

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

Annual report

28 April 2023

Q123 results

31 May 2023

Analyst

Fiona Orford-Williams

+44 (0)7833 941869

MGI – Media and Games Invest is a research client of Edison Investment Research Limited

MGI – Media and Games Invest (MGI) is increasingly focused on its vertically integrated multichannel advertising platform, retaining a core of games that serve to generate first-party data and provide an efficient sandpit for developing new services. FY22 results were at the top end of guidance (as revised upwards at Q322), despite the headwind of lower market advertising rates. This scenario has continued in Q123, and we have taken a cautionary approach to our revised FY23 forecasts, which will be reviewed when management issues guidance for the year at the Q1 update. Medium-term guidance remains for a revenue CAGR of 25–30%. The shares are valued well below peers and the level indicated by a discounted cash flow (DCF).

Year

end

Revenue
(€m)

Adj EBITDA* (€m)

PBT*
(€m)

EPS*
(€)

EV/EBITDA* (x)

P/E
(x)

12/21

252.2

71.2

26.9

0.20

8.1

8.1

12/22

324.4

93.2

30.3

0.13

6.2

13.3

12/23e

343.0

88.0

22.8

0.09

6.4

19.7

12/24e

388.5

100.0

32.7

0.13

5.6

13.4

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

Good progress building scale

FY22 revenue growth was 29% (18% organic), with 16% progress in Q422. This reflects the growing base of new advertising and publishing software customers, with 551 on board at the year-end, up 133 on the prior year. Advertising is now 80% of group revenues, with the balance generated from consumer games. FY22 adjusted EBITDA margin was 29%, a touch ahead of FY21 at 28%. Adjustments of €8.4m were weighted to Q422, with €5.1m attributable to one-off costs of moving the jurisdiction from Malta to Sweden, various M&A transactions and severance costs. MGI also wrote down the fair value of some smaller, non-strategic games’ assets by €23.6m as its emphasis pivots further towards digital advertising. This accounts for the bulk of the purchase price allocation amortisation of €41.5m taken for the year.

Forecasts reflect caution on FY23 advertising

In the temporary absence of guidance, we are taking a cautious approach to our FY23 modelling, given that digital advertising rates, as measured by cost per mille (CPM), are still retrenching. As the year progresses, the comparators will become easier. Medium-term guidance remains for a revenue CAGR of 25–30%, delivering an adjusted EBITDA margin in the 25–30% range and an EBIT margin of 15–20%. Our preliminary thoughts on FY24 show margins remaining in the guided range.

Valuation: Substantial scope for uplift

MGI’s share price is down 6% year-to-date, versus global adtech peers up 6% on average, with quoted gaming companies posting average gains of 4%. MGI’s shares are valued below both sets of peers. Parity averaged across FY22–24 EV/sales and EV/adjusted EBITDA would imply a share price of €3.50 (was €4.43 in FY21–23), with a DCF indicating a value of €3.80 (was €4.21).

FY22 results show strong growth

Revenue growth slowed in Q422, as had been expected, given the lower CPMs in the market, which mean that more adverts have to be shown to match the previous income levels – difficult in a market where brand owner sentiment is, at best, fragile. This is reflected in the net dollar expansion rate from existing customers dipping to 96% in Q422, with the boost to the top line coming from newly recruited customers, who were both on the advertiser and publisher side. For existing customers generating over US$100k of revenue, the retention rate was 97%.

Exhibit 1: Quarterly summary results

€m

Q122

Q222

Q322

Q422

Revenue

65.9

78.1

87.6

92.9

y-o-y revenue growth (%)

27%

37%

39%

16%

q-o-q revenue growth (%)

-18%

19%

12%

6%

EBITDA

16.9

20.0

21.4

26.5

Adjusted EBITDA

17.6

21.1

23.0

31.5

Adjusted EBITDA margin (%)

27%

27%

26%

34%

Source: MGI

The adjustments to EBITDA largely relate to non-cash employee stock ownership plan (ESOP) adjustments, the lay-offs of 50 full-time equivalents in the games workforce and the relocation to Sweden, which was part of a broader programme to improve institutional investability, including improving corporate governance standards at the group. There were additional elements related to portfolio activity and operational changes in connection to the rebalancing of the games portfolio.

Net finance charges increased to €38.0m from €21.9m, reflecting approximately €23.0m of cash interest on the MGI bonds, combined with IFRS non-cash interest on earnouts and the one-time set-up costs of the securitisation programme. Strong free cash flow, aided by a securitisation programme, helped reduce the leverage ratio to 2.9x at the year-end, from 3.7x at the half-year. In February 2023, MGI disposed of its 8% shareholding in quoted games company EG7 as part of its refocusing programme. Had this been done during FY22, the pro-forma leverage would have reduced to 2.7x, based on net debt of €256m (from the published year-end net debt of €274m), well below the target limit of 3.0x.

The securitisation programme covers up to €75m of receivables (primarily from Fortune 500 companies) at a cost of funds rate (similar to Euribor) plus 1.55%, on a non-recourse basis, with a cash inflow of €48m received prior to the year-end.

Very good potential for further progress

With a huge target addressable market (Statista quotes a global market value of US$621bn for FY23), there is a long runway until market share starts to become an issue for MGI. It is more the case that as the group builds scale, it attracts greater numbers of software customers due to the increasing reach and also attracts a higher calibre of advertisers, with larger budgets.

Games remain an intrinsic element of the growth strategy, but focused on mobile and casual, where the audiences are larger and faster growing than for premium MMO (massively multiplayer online) games. MGI operates a portfolio of over 5k mobile and casual games, with more than one billion registered players, which give it a rich first-party data resource of value of itself, but also of intrinsic use as a test bed for developments in the digital advertising operations.

Exhibit 2: Revisions to numbers

Revenue (€m)

Adjusted EBITDA (€m)

EPS (€)

Old

New

% chg.

Old

New

% chg.

Old

New

% chg.

2022

322.0

324.4

+1

88.5

93.2

+5

0.22

0.13

-35

2023e

393.5

343.0

-13

102.5

88.0

-14

0.26

0.09

-65

2024e

-

388.5

N/A

-

100.0

N/A

-

0.13

N/A

Source: MGI accounts, Edison Investment Research

Management guidance is for a medium-term revenue CAGR of 25–30%, which looks ambitious for the current year, given the economic backdrop. However, Verve Group, which is the holding company name for the various components of the programmatic digital advertising offering, added 60 new customers (not yet active) to its roster in Q422, who will add to its revenue-generating potential in FY23. As well as other games publishers, the list has a number of interesting names including Curiosity Media (Spanish-learning websites) and Chegg (North American edtech).

Innovation and partnerships add opportunities

We have outlined some of the group’s innovation initiatives in previous reports and covered the strategic partnership with Google in our November update. The market continues to undergo significant changes, mostly driven by the shift in attitudes (societal and regulatory) towards privacy. As ever, where there is change, there is opportunity.

Developments and partnerships include:

Google Open Bidding, as described previously.

Getty Images, whereby brands can engage consumers with Visual Intent contextual targeting, that is serving them with ads directly relevant to the imagery being used, rather than by linking to textual content.

A Shopify app integration, suitable for small business e-commerce companies.

Verve’s Moments.AI and the Visual Intent contextual targeting solutions working with Adelaide to deliver high-quality measurement metrics.

Connected TV re-targeting, unlocking previously untapped games console audiences for re-engagement. This is a good example of cross-channel user acquisition combined with player lifetime expansion.

Combined with M&A coming back into the equation as the group’s leverage reduces, and assuming further moderation in vendors’ expectations on pricing, these initiatives give us confidence to believe that the medium-term growth anticipated by management is feasible and that MGI should be able to deliver the degree of return envisaged.

Valuation

As previously, 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. The gaming companies are being accorded slightly higher ratings on a current year EV/sales and EV/EBITDA basis, but a discount on P/E. On FY23 numbers, there is less differential.

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 €3.50, from €4.43 when this exercise was last carried out in November.

Exhibit 3: Adtech, ad software and gaming peer valuations

 

Price

YTD perf

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

57.3

28

26,446

(1352)

17.0

14.1

11.3

41.2

37.2

29.5

55.8

51.4

42.2

Pubmatic

13.6

6

677

(163)

2.1

2.1

1.8

5.6

6.8

5.6

25.1

383.0

37.3

Viant Technology

4.8

18

276

(193)

0.4

0.4

0.4

-

16.5

6.5

-

-

-

Magnite

10.8

2

1,369

374

3.6

3.4

3.0

10.4

10.6

8.4

14.9

18.9

12.4

AcuityAds Holdings

2.3

11

91

(64)

0.3

0.3

0.3

6.2

5.0

3.6

-

-

-

DoubleVerify Holdings

27.7

26

4,314

(248)

9.5

7.7

6.3

31.1

25.5

19.8

110.8

85.4

54.3

Integral Ad Science Hold

11.9

35

1,724

127

4.8

4.3

3.7

16.1

13.6

11.2

317.0

129.8

44.5

Quotient Technology

3.3

(4)

300

(6)

1.0

1.1

1.0

16.1

8.6

7.3

-

-

662.0

LiveRamp Holdings

24.8

6

1,507

(542)

2.0

1.7

1.7

22.6

15.3

10.7

50.3

34.1

23.5

Digital Turbine

11.1

(27)

1,033

367

1.2

2.3

2.3

7.6

8.9

8.5

6.8

9.5

9.5

Tremor

315.2

19

512

(310)

0.7

0.5

0.4

1.5

1.2

1.1

6.5

4.7

4.3

Criteo

32.5

25

1,708

(349)

1.6

1.4

1.3

5.8

5.2

4.6

12.8

12.5

10.8

YOC

12.7

(5)

44

(1)

1.8

1.5

1.2

12.1

9.0

7.2

18.6

13.6

11.2

Median

11

1.8

1.7

1.7

11.2

9.0

7.3

21.8

26.5

23.5

Ad-software and content 

 

 

 

 

 

 

 

 

 

 

 

 

AppLovin

14.0

32

4,939

2094

2.7

2.6

2.4

7.1

7.0

6.0

-

51.2

25.8

IronSource

30.9

8

10,881

1047

9.3

5.9

5.0

-

52.1

22.9

-

112.0

35.4

Azerion

2.9

(46)

326

176

1.1

0.9

0.8

9.1

6.7

5.3

-

35.0

17.3

Future

1,333.0

5

1,824

560

2.5

2.6

2.5

7.1

7.1

6.7

8.3

8.8

8.2

Median

7

2.6

2.6

2.4

7.1

7.0

6.4

8.3

43.1

21.5

Gaming

Embracer Group

53.6

13

5,746

1395

4.6

2.1

1.8

11.2

8.3

6.3

-

13.3

12.8

Stillfront Group

20.1

14

922

334

2.0

1.9

1.8

5.7

5.1

4.9

8.0

7.4

6.6

Paradox Interactive

234.0

10

2,212

(54)

12.2

10.3

9.3

17.9

14.3

12.9

35.4

30.4

27.3

Modern Times Group

72.1

(19)

807

178

2.0

1.9

1.8

8.7

8.7

7.8

13.0

16.8

13.1

Rovio Entertainment

8.2

34

622

(106)

1.6

1.6

1.6

9.6

9.5

9.4

18.8

19.4

18.4

Team17

459.0

4

757

(63)

4.6

4.4

4.1

13.3

12.6

11.6

18.5

17.9

16.6

Median

10

3.3

2.0

1.8

10.4

9.1

8.6

18.5

17.3

14.8

Total average

9

2.6

2.1

2.0

9.6

8.4

7.4

16.2

29.0

20.0

Media & Games Invest

1.7

(4)

263

199

1.4

1.3

1.2

5.4

5.6

4.9

13.7

20.4

13.8

Premium/(discount) to ad-tech

(15)

(22%)

(22%)

(29%)

(52%)

(38%)

(33%)

(37%)

(23%)

(41%)

Premium/(discount) to ad-software and content

(11)

(45%)

(48%)

(51%)

(23%)

(21%)

(23%)

66%

(53%)

(36%)

Premium/(discount) to gaming

(14)

(57%)

(33%)

(35%)

(47%)

(39%)

(43%)

(26%)

18%

(7%)

Premium/(discount) to total

(13)

(45%)

(36%)

(40%)

(43%)

(34%)

(34%)

(16%)

(30%)

(31%)

Source: Refinitiv, Edison Investment Research. Note: Prices as at 6 March 2023.

DCF sense check

We have also repeated our DCF analysis, using a WACC of 9.0% and a terminal growth rate of 2.0%, as previously. This infers a valuation of €3.80, below the €4.21 we published last time, reflecting the more cautious short-term growth assumptions, and 9% ahead of the implied valuation derived from peers, above.

Exhibit 4: Financial summary

€'k

2020

2021

2022

2023e

2024e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

140,220

252,166

324,444

343,000

388,500

Operating costs excl. D&A

(104,469)

(187,124)

(239,691)

(260,274)

(293,951)

Adj. EBITDA

 

 

35,751

71,216

93,153

88,000

100,000

EBITDA

 

 

35,751

65,042

84,753

82,726

94,549

Operating profit (before amort. and excepts.)

 

 

28,380

48,768

68,288

62,892

72,603

Amortisation of acquired intangibles

(8,137)

(11,964)

(14,853)

(17,824)

(21,388)

Exceptionals

(6,993)

(4,708)

(27,100)

(3,500)

(3,500)

Share-based payments

(2,209)

(1,466)

(1,613)

(1,774)

(1,951)

Reported operating profit

11,041

36,804

26,618

39,795

45,763

Net Interest

(7,140)

(21,919)

(37,983)

(40,044)

(39,918)

Joint ventures & associates (post tax)

0

0

0

0

0

Exceptionals

0

1

0

0

0

Profit Before Tax (norm)

 

 

21,240

26,850

30,304

22,848

32,685

Profit Before Tax (reported)

 

 

3,901

14,887

(11,365)

(249)

5,845

Reported tax

(1,194)

1,169

(9,064)

(1,511)

(3,396)

Profit After Tax (norm)

15,281

28,018

21,194

14,394

21,220

Profit After Tax (reported)

2,707

16,055

(20,429)

(1,760)

2,449

Minority interests

(352)

(7)

(88)

0

0

Discontinued operations

0

0

0

0

0

Net income (normalised)

15,633

28,019

21,056

14,394

21,220

Net income (reported)

3,059

16,061

(20,341)

(1,760)

2,449

Average Number of Shares Outstanding (m)

85.5

141.7

156.2

159.2

159.2

EPS - basic normalised (€)

 

 

0.18

0.20

0.13

0.09

0.13

EPS - normalised fully diluted (€)

 

 

0.16

0.20

0.12

0.08

0.12

EPS - basic reported (€)

 

 

0.04

0.11

(0.13)

(0.01)

0.02

Dividend (c)

0.00

0.00

0.00

0.00

0.00

Revenue growth (%)

67.1

79.8

28.7

5.7

13.3

Adjusted EBITDA Margin (%)

25.5

28.2

28.7

25.7

25.7

Normalised Operating Margin (%)

20.2

19.3

21.0

18.3

18.7

BALANCE SHEET

Fixed Assets

 

 

293,466

650,495

823,637

832,057

841,396

Intangible Assets

272,829

605,746

791,284

798,863

807,361

Tangible Assets

1,742

4,681

5,522

6,363

7,204

Investments & other

18,895

40,068

26,831

26,831

26,831

Current Assets

 

 

92,376

283,598

221,016

228,358

255,631

Stocks

0

0

0

0

0

Debtors

37,009

97,497

65,085

59,955

68,121

Cash & cash equivalents

46,254

180,156

149,986

162,459

181,566

Other

9,113

5,945

5,945

5,945

5,945

Current Liabilities

 

 

78,205

243,433

219,471

212,993

221,253

Creditors

30,037

53,754

68,711

63,527

71,787

Short term borrowings

6,089

32,020

31,903

31,903

31,903

Other financial liabilities

30,155

137,611

97,515

97,515

97,515

Other non-financial liabilities

11,924

20,048

21,342

20,048

20,048

Long Term Liabilities

 

 

130,792

383,168

503,443

498,443

498,443

Long term borrowings

97,855

343,925

389,386

389,386

389,386

Other long-term liabilities

32,937

39,243

114,057

109,057

109,057

Net Assets

 

 

176,845

307,493

321,739

348,980

377,331

Minority interests

(60)

(59)

1,211

1,211

1,211

Shareholders' equity

 

 

176,785

307,434

322,950

350,191

378,542

CASH FLOW

Operating Cash Flow

2,707

16,055

(20,429)

(1,760)

2,449

Depreciation & amortisation

15,508

28,238

58,135

37,657

43,334

Working capital

(4,543)

(5,714)

55,284

(54)

94

Exceptional & other

4,072

1,167

(2,755)

1,774

1,951

Tax

112

1,514

6,002

0

0

Net finance cost

7,347

23,583

37,983

40,044

39,918

Net operating cash flow

 

 

25,203

64,843

134,220

77,662

87,747

Capex

(19,098)

(39,844)

(46,007)

(43,949)

(50,544)

Acquisitions/disposals

(18,609)

(255,790)

(138,000)

(2,841)

0

Equity financing

26,876

109,338

27,900

0

0

Dividends

0

0

0

0

0

Other

(31,304)

(24,920)

(53,413)

(15,932)

(18,095)

Net Cash Flow

(16,932)

(146,373)

(75,300)

14,940

19,108

Opening net debt/(cash)

 

 

36,976

57,690

198,600

273,906

258,830

FX

0

0

0

0

0

Other non-cash movements

(3,782)

5,463

(6)

136

0

Closing net debt/(cash)

 

 

57,690

198,600

273,906

258,830

239,722

Source: Company accounts, Edison Investment Research

General disclaimer and copyright

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.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

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No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2023 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

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.

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London, WC1R 4PS

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London │ New York │ Frankfurt

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London, WC1R 4PS

United Kingdom

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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.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2023 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

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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Pharnext — Revised legal structure to offer operational stability

In a bid to increase operational oversight and financial stability, Pharnext has changed its legal framework, from a public limited company to a limited partnership with shares, following shareholder approval. Pharnext Développement, a joint-stock company controlled by Neovacs (with Hugo Brugière as chairman), will be the sole general partner with existing shareholders as limited partners. This follows the January 2022 commitment by Neovacs to provide liquidity support to Pharnext (up to €24m to December 2023 at Euribor +12%) to progress lead asset PXT3003 to final data readouts (expected in Q423). We revise our valuation for the estimated net debt figure and latest shares outstanding (875.2m as of 17 February 2023). While we keep our probability of success for PXT3003 at 70%, we raise our discount rate from 12.5% to 15% on account of recent biotech volatility and increased macro risks. Our valuation now stands at €217m (from €269m) or €0.25/basic share (vs €250/share previously, post the 5,000:1 share consolidation). We highlight that the valuation and opinions in this note are based solely on publicly available information and are consistent in our approach for our ongoing coverage of Pharnext.

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