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Currency in EUR
Last close As at 24/03/2023
EUR1.61
▲ −0.04 (−2.42%)
Market capitalisation
EUR262m
Research: TMT
Media and Games Invest’s (MGI’s) recent EGM confirmed that the group can now proceed with its relocation to Sweden, set for January 2023, and the associated improvements to corporate governance, which should remove potential barriers to investment. Q322 results are scheduled for 15 November and, as with Q222, we would expect there to be a benefit from new publishers coming on board with an offset from a more testing economic backdrop. The inclusion of recent acquisition Dataseat from July will begin to step up the proportion of revenues and earnings generated from the demand-side. MGI’s valuation remains well below peers.
Media and Games Invest |
Swedish re-domicile going ahead |
EGM result and Q222 results |
Media |
10 November 2022 |
Share price performance
Business description
Next events
Analysts
Media and Games Invest is a research client of Edison Investment Research Limited |
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Media and Games Invest’s (MGI’s) recent EGM confirmed that the group can now proceed with its relocation to Sweden, set for January 2023, and the associated improvements to corporate governance, which should remove potential barriers to investment. Q322 results are scheduled for 15 November and, as with Q222, we would expect there to be a benefit from new publishers coming on board with an offset from a more testing economic backdrop. The inclusion of recent acquisition Dataseat from July will begin to step up the proportion of revenues and earnings generated from the demand-side. MGI’s valuation remains well below peers.
Year end |
Revenue |
Adjusted |
PBT* |
EPS* |
EV/adjusted |
P/E |
12/20 |
140.2 |
35.8 |
21.2 |
0.16 |
13.9 |
10.2 |
12/21 |
252.2 |
71.2 |
33.0 |
0.17 |
7.0 |
10.0 |
12/22e |
307.0 |
92.4 |
48.0 |
0.22 |
5.4 |
7.5 |
12/23e |
370.0 |
103.0 |
52.8 |
0.24 |
4.8 |
7.0 |
Note: *Adjusted EBITDA, PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Governance improvements in place
The company’s earlier attempt to approve the constitutional changes (including transferring the registered office to Sweden) was unanimously passed at the AGM in September. However, as under 50% of the total outstanding voting rights were in attendance, the changes did not take effect, and an EGM was reconvened for 1 November, at which the necessary resolutions were passed. As well moving from Malta to Sweden, and appointing Deloitte Sweden as auditor from 1 January 2023, the group’s name changes to MGI – Media and Games Invest SE. By resolutions passed at the AGM, the board expanded to six members, with five independent directors, and has now established both Audit and Remuneration Committees.
Shift in emphasis to organic growth
MGI has now transitioned to an organic growth strategy post July’s Dataseat purchase, which gave a strong base for building a credible, scalable, demand-side platform. This is very much an international business, with c 70% of advertising revenues earned in the United States, giving a degree of resilience in a deteriorating economic background. MGI’s strong portfolio of free-to-play games is also a key defensive characteristic. The current valuation effectively rules out equity-funded M&A, with debt leverage also above management’s medium-term range target of 2–3x net debt/EBITDA. With the shift to an organic growth strategy, this should now be less of a concern.
Valuation: Well below peers
MGI’s share price is down 60% year to date, while global adtech peers have fallen by 53% on average, reflecting the market rotation away from high-growth sectors. Quoted gaming companies have done a little better, falling by 20%. MGI’s shares are valued below both sets of peers. Parity on average across FY21–23 would imply a share price of €3.93 (July: €5.06), with a DCF indicating a value of €4.13.
Update post Q222
Good organic and top-line growth in Q2
The Q222 figures were presented as a simple split between the supply (publisher) and demand (advertiser) sides, with the supply side therefore including the bulk of revenues that would previously have been shown in the Games segment. We note that Dataseat was not acquired until July so is not represented in these reported figures.
Exhibit 1: Summary Q222 figures
€m |
Supply-side segment |
Demand-side segment |
Group |
Revenue |
70.4 |
7.7 |
78.1 |
% change |
32 |
104 |
37 |
% change organic |
14 |
76 |
18 |
Adjusted EBITDA |
19.9 |
1.2 |
21.1 |
% change |
36 |
71 |
38 |
Adjusted EBITDA margin (%) |
28 |
16 |
27 |
Source: Media and Games Invest
Organic growth of 14% on the supply-side segment comprises a stable performance from existing software clients, enhanced by 25 new publishers added to the portfolio (including TuToTV and Tripledot), but dampened by softening economic conditions. In Q222, the group had 513 software clients generating more than €100k of gross revenues, up from 479 in Q221, with a retention rate of 95%. Some attrition is inevitable, so this represents a strong performance.
Net interest-bearing debt at the half-year end was €299m (end December 2021: €199m), with the increase mostly attributable to the final fixed consideration and earn-out payments for the KingsIsle acquisition plus the initial payment for AxesInMotion. The group’s leverage ratio was 3.7x net debt/EBITDA at 30 June 2022 (end FY21: 2.8x), but this figure is distorted as the EBITDA element only includes earnings from 10 months of trading from Smaat and two months of AxesInMotion. In the medium term, management has stated its intention to reduce leverage back below 3.0x.
Guidance confirmed
Management confirmed FY22 guidance at the capital markets day at the end of August, indicating revenues in the range of €295–315m (growth of 17–25%), delivering adjusted EBITDA of €83–93m, implying an adjusted EBITDA margin of between 26% and 32%, compared with the 27% achieved in the first half. Given the inherent seasonality of the advertising industry and its weighting to Q4, a higher adjusted EBITDA margin would normally be expected in H2 and our forecasts imply 31% for H222, at the top end of the guided range. Our forecasts are unchanged from those published in July.
Medium-term guidance (which we take to mean to FY25) is for a revenue CAGR of 25–30%, maintaining adjusted EBITDA margins in the 25–30% range. Given the degree of economic uncertainty currently, we have been more cautious in our underlying assumptions for FY23, pencilling in revenue growth of 21%, with an adjusted EBITDA margin within the guided range.
Elements of resilience built into outlook
There are two key points of note when appraising the group’s short-term prospects. Firstly, free-to-play games tend to be reasonably robust in a downturn, particularly when compared to subscription packages (50% of the group’s EBITDA is earned from free-to-play games).
It is also worth noting that, while based out of Europe, this is very much an international business, generating around 70% of its advertising revenues from the United States, where the current economic indicators are looking considerably more benign than those in Europe.
Management aims to come out of the recession stronger. To do this, it must continue to invest and manage the cost base. With both the demand side and supply side catered to within the group’s market offering, new approaches can be developed, tested and brought to market faster, with the group being able to iterate as it goes along rather than having to rely on third parties. The availability of advertiser data gives a feedback loop in building into predictive modelling to optimise return on investment.
Valuation
As at the time of our initiation in July, we have evaluated 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 FY21, FY22e and FY23e. Were they to trade at parity to the averages of these peers across the three years, MGI’s share price would be €3.93, just below the level at which it started the year. When we carried out this same exercise in July, the equivalent value was €5.06 with the further poor share price performance across all three comparator sectors representing most of the difference, with some modest underperformance of the adtech and gaming sectors, and a slight outperformance of the ad-software and content stocks.
Exhibit 2: Peer valuations across adtech, ad software/content and gaming
|
Price |
YTD performance |
Market cap |
EV/sales (x) |
EV/EBITDA (x) |
P/E (x) |
|||||||
Company |
(local ccy) |
(%) |
(€m) |
FY0 |
FY1e |
FY2e |
FY0 |
FY1e |
FY2e |
FY0 |
FY1e |
FY2e |
|
Ad-tech |
|
|
|
|
|
|
|
|
|
|
|
|
|
The Trade Desk |
43.4 |
(53) |
21,024 |
19.0 |
12.8 |
10.3 |
47.1 |
32.5 |
27.3 |
61.0 |
42.2 |
36.8 |
|
Pubmatic |
16.2 |
(53) |
840 |
3.5 |
2.7 |
2.4 |
9.1 |
7.0 |
6.8 |
23.7 |
23.6 |
21.4 |
|
Viant Technology |
4.8 |
(50) |
295 |
0.5 |
0.4 |
0.4 |
3.4 |
14.4 |
3.6 |
- |
- |
- |
|
Magnite |
6.2 |
(64) |
821 |
3.3 |
2.4 |
2.1 |
9.9 |
7.3 |
6.4 |
12.9 |
9.0 |
7.0 |
|
AcuityAds Holdings |
2.0 |
(59) |
83 |
0.2 |
0.2 |
0.2 |
1.3 |
2.5 |
1.6 |
11.4 |
- |
48.7 |
|
DoubleVerify Holdings |
23.4 |
(30) |
3,817 |
12.3 |
8.1 |
6.5 |
39.0 |
26.4 |
21.0 |
183.9 |
91.3 |
70.5 |
|
Integral Ad Science Hold |
7.1 |
(68) |
1,095 |
4.4 |
3.2 |
2.7 |
14.1 |
10.1 |
8.2 |
- |
156.4 |
40.3 |
|
Quotient Technology |
2.6 |
(65) |
252 |
0.5 |
0.7 |
0.6 |
6.4 |
12.2 |
4.5 |
29.3 |
- |
- |
|
LiveRamp Holdings |
15.6 |
(67) |
1,041 |
1.4 |
1.0 |
0.8 |
23.4 |
11.7 |
8.2 |
86.8 |
33.5 |
23.7 |
|
Digital Turbine |
11.5 |
(81) |
1,132 |
5.9 |
1.3 |
1.9 |
24.2 |
8.2 |
7.3 |
19.9 |
7.4 |
7.9 |
|
Tremor |
354.6 |
(36) |
593 |
1.0 |
0.8 |
0.6 |
2.1 |
1.8 |
1.5 |
6.5 |
4.3 |
3.3 |
|
Criteo |
24.0 |
(38) |
1,434 |
1.1 |
1.0 |
0.9 |
3.3 |
3.7 |
3.3 |
9.1 |
9.3 |
9.2 |
|
YOC |
13.0 |
(3) |
45 |
2.4 |
- |
- |
19.8 |
- |
- |
32.4 |
- |
- |
|
Median |
|
(53) |
2.4 |
1.2 |
1.4 |
9.9 |
9.1 |
6.6 |
23.7 |
23.6 |
22.6 |
||
Ad-software and content |
|
|
|
|
|
|
|
|
|
|
|
||
AppLovin |
15.2 |
(84) |
5,586 |
2.9 |
2.5 |
2.1 |
11.2 |
6.3 |
5.2 |
111.0 |
- |
17.1 |
|
IronSource |
2.7 |
(65) |
1,895 |
2.5 |
- |
- |
7.3 |
- |
- |
49.1 |
- |
- |
|
Azerion |
6.7 |
(33) |
745 |
- |
0.8 |
0.7 |
- |
5.7 |
4.1 |
- |
47.3 |
24.9 |
|
Future |
1,377 |
(64) |
1,902 |
3.0 |
2.3 |
2.2 |
8.9 |
6.4 |
6.1 |
10.4 |
8.7 |
8.3 |
|
Median |
|
(64) |
2.9 |
2.3 |
2.1 |
8.9 |
6.3 |
5.2 |
49.1 |
28.0 |
17.1 |
||
Gaming |
|
|
|
|
|
|
|
|
|
|
|
||
Embracer Group |
53.9 |
(44) |
5,505 |
7.4 |
4.4 |
1.9 |
19.0 |
10.8 |
6.4 |
- |
- |
21.7 |
|
Stillfront Group |
19.0 |
(56) |
892 |
2.4 |
1.9 |
1.7 |
6.3 |
5.3 |
4.8 |
10.7 |
7.3 |
6.7 |
|
Paradox Interactive |
196.5 |
10 |
1,902 |
13.4 |
10.3 |
8.8 |
23.5 |
15.0 |
12.4 |
72.4 |
29.6 |
28.3 |
|
Modern Times Group |
87.1 |
24 |
1,004 |
2.3 |
2.3 |
2.1 |
13.6 |
9.7 |
8.9 |
97.4 |
15.4 |
19.0 |
|
Rovio Entertainment |
5.9 |
(10) |
445 |
1.2 |
1.1 |
1.1 |
6.8 |
6.5 |
6.1 |
13.5 |
13.7 |
13.9 |
|
Team17 |
445.0 |
(43) |
740 |
6.3 |
4.6 |
4.3 |
16.8 |
13.6 |
12.2 |
22.0 |
19.2 |
17.4 |
|
Median |
|
(20) |
4.3 |
3.4 |
2.0 |
15.2 |
10.2 |
7.6 |
22.0 |
15.4 |
18.2 |
||
Total average |
(46) |
3.2 |
2.3 |
1.8 |
11.3 |
8.6 |
6.5 |
31.6 |
22.3 |
19.3 |
|||
Media & Games Invest |
1.7 |
(60) |
266 |
1.8 |
1.5 |
1.3 |
6.5 |
5.0 |
4.5 |
10.0 |
7.5 |
7.0 |
|
Premium/(discount) to ad-tech |
(7) |
(25%) |
30% |
(13%) |
(34%) |
(45%) |
(32%) |
(58%) |
(68%) |
(69%) |
|||
Premium/(discount) to ad-software and content |
5 |
(37%) |
(35%) |
(40%) |
(27%) |
(21%) |
(14%) |
(80%) |
(73%) |
(59%) |
|||
Premium/(discount) to gaming |
(40) |
(57%) |
(55%) |
(37%) |
(57%) |
(51%) |
(41%) |
(55%) |
(51%) |
(61%) |
|||
Premium/(discount) to total |
|
(14) |
(43%) |
(34%) |
(32%) |
(43%) |
(41%) |
(31%) |
(68%) |
(66%) |
(64%) |
||
Source: Refinitiv. Note: Prices as at 8 November 2022.
Exhibit 3: Financial summary
€'k |
2019 |
2020 |
2021 |
2022e |
2023e |
||
Year end 31 December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
INCOME STATEMENT |
|||||||
Revenue |
|
|
83,893 |
140,220 |
252,166 |
307,000 |
370,000 |
Operating costs excl. D&A |
(66,965) |
(104,469) |
(180,950) |
(214,648) |
(267,000) |
||
EBITDA |
|
|
16,928 |
35,751 |
71,216 |
92,352 |
103,000 |
Operating profit (before amort. and excepts.) |
|
|
12,417 |
28,380 |
54,942 |
71,645 |
78,357 |
Amortisation of acquired intangibles |
(6,032) |
(8,137) |
(11,964) |
(14,357) |
(17,228) |
||
Exceptionals |
(1,386) |
(6,993) |
(4,708) |
(3,500) |
(3,500) |
||
Share-based payments |
0 |
(2,209) |
(1,466) |
(1,613) |
(1,774) |
||
Reported operating profit |
4,999 |
11,041 |
36,804 |
52,175 |
55,855 |
||
Net Interest |
(5,758) |
(7,140) |
(21,919) |
(23,728) |
(25,538) |
||
Joint ventures & associates (post tax) |
0 |
0 |
0 |
0 |
0 |
||
Exceptionals |
0 |
0 |
0 |
0 |
0 |
||
Profit Before Tax (norm) |
|
|
6,659 |
21,240 |
33,023 |
47,916 |
52,819 |
Profit Before Tax (reported) |
|
|
(759) |
3,901 |
14,885 |
28,447 |
30,317 |
Reported tax |
2,012 |
(1,194) |
1,169 |
(8,092) |
(8,624) |
||
Profit After Tax (norm) |
4,508 |
15,281 |
23,630 |
34,286 |
37,795 |
||
Profit After Tax (reported) |
1,253 |
2,707 |
16,054 |
20,355 |
21,693 |
||
Minority interests |
1,577 |
(352) |
(7) |
0 |
0 |
||
Discontinued operations |
0 |
0 |
0 |
0 |
0 |
||
Net income (normalised) |
2,931 |
15,633 |
23,637 |
34,286 |
37,795 |
||
Net income (reported) |
(324) |
3,059 |
16,061 |
20,355 |
21,693 |
||
Average Number of Shares Outstanding (m) |
60.4 |
85.5 |
141.7 |
154.5 |
159.2 |
||
EPS - basic normalised (€) |
|
|
0.05 |
0.18 |
0.17 |
0.22 |
0.24 |
EPS - normalised fully diluted (€) |
|
|
0.04 |
0.16 |
0.17 |
0.22 |
0.24 |
EPS - basic reported (€) |
|
|
(0.01) |
0.04 |
0.11 |
0.13 |
0.14 |
Dividend (€) |
0.00 |
0.00 |
0.00 |
0.00 |
0.00 |
||
Revenue growth (%) |
157.2 |
67.1 |
79.8 |
21.7 |
20.5 |
||
EBITDA Margin (%) |
20.2 |
25.5 |
28.2 |
30.1 |
27.8 |
||
Normalised Operating Margin (%) |
14.8 |
20.2 |
21.8 |
23.3 |
21.2 |
||
BALANCE SHEET |
|||||||
Fixed Assets |
|
|
256,593 |
293,466 |
650,495 |
765,803 |
762,273 |
Intangible Assets |
233,208 |
272,829 |
605,746 |
719,554 |
714,524 |
||
Tangible Assets |
3,521 |
1,742 |
4,681 |
6,181 |
7,681 |
||
Investments & other |
19,864 |
18,895 |
40,068 |
40,068 |
40,068 |
||
Current Assets |
|
|
55,856 |
92,376 |
283,598 |
273,212 |
305,887 |
Stocks |
0 |
0 |
0 |
0 |
0 |
||
Debtors |
17,047 |
37,009 |
97,497 |
89,544 |
109,986 |
||
Cash & cash equivalents |
32,984 |
46,254 |
180,156 |
177,723 |
189,956 |
||
Other |
5,825 |
9,113 |
5,945 |
5,945 |
5,945 |
||
Current Liabilities |
|
|
54,544 |
78,205 |
243,433 |
233,486 |
244,165 |
Creditors |
20,274 |
30,037 |
53,754 |
55,807 |
66,486 |
||
Short term borrowings |
1,409 |
6,089 |
32,027 |
32,027 |
32,027 |
||
Other financial liabilities |
17,948 |
30,155 |
137,604 |
125,604 |
125,604 |
||
Other non-financial liabilities |
14,913 |
11,924 |
20,048 |
20,048 |
20,048 |
||
Long Term Liabilities |
|
|
89,347 |
130,792 |
383,168 |
448,168 |
443,168 |
Long term borrowings |
69,916 |
98,104 |
346,382 |
406,382 |
406,382 |
||
Other long term liabilities |
19,431 |
32,688 |
36,786 |
41,786 |
36,786 |
||
Net Assets |
|
|
456,340 |
594,839 |
1,560,694 |
1,720,668 |
1,755,493 |
Minority interests |
70,490 |
60 |
59 |
59 |
59 |
||
Shareholders' equity |
|
|
526,830 |
594,899 |
1,560,753 |
1,720,727 |
1,755,552 |
CASH FLOW |
|||||||
Operating Cash Flow |
1,253 |
2,707 |
16,054 |
20,355 |
21,693 |
||
Depreciation & amortisation |
10,543 |
15,508 |
28,238 |
35,064 |
41,872 |
||
Working capital |
4,692 |
(4,543) |
(5,714) |
10,006 |
(9,763) |
||
Exceptional & other |
(5,079) |
4,072 |
1,167 |
1,613 |
1,774 |
||
Tax |
(822) |
112 |
1,514 |
0 |
0 |
||
Net finance cost |
5,612 |
7,347 |
23,583 |
23,728 |
25,538 |
||
Net operating cash flow |
|
|
16,199 |
25,203 |
64,842 |
90,766 |
81,113 |
Capex |
(12,611) |
(19,098) |
(39,844) |
(26,213) |
(34,183) |
||
Acquisitions/disposals |
2,831 |
(18,609) |
(255,790) |
(127,000) |
(5,000) |
||
Equity financing |
8,845 |
26,876 |
109,338 |
27,900 |
0 |
||
Dividends |
0 |
0 |
0 |
0 |
0 |
||
Other |
(13,415) |
(31,304) |
(24,920) |
(27,887) |
(29,697) |
||
Net Cash Flow |
1,849 |
(16,932) |
(146,374) |
(62,434) |
12,234 |
||
Opening net debt/(cash) |
|
|
32,593 |
38,341 |
57,939 |
198,253 |
260,686 |
FX |
0 |
0 |
0 |
0 |
0 |
||
Other non-cash movements |
(7,597) |
(2,666) |
6,060 |
1 |
0 |
||
Closing net debt/(cash) |
|
|
38,341 |
57,939 |
198,253 |
260,686 |
248,453 |
Source: Company accounts, Edison Investment Research
|
|
Research: Healthcare
Sareum has announced that the UK Medicines and Healthcare products Regulatory Agency (MHRA) has turned down the clinical trial authorisation (CTA) for SDC-1801 based on the submitted data package. While Sareum awaits the formal letter of non-acceptance, initial insights suggest that the MHRA will seek a review by the UK Good Laboratory Practice Monitoring Authority or request additional information to support the submitted non-clinical data. As a reminder, Sareum filed the CTA for SDC-1801 in July 2022 with the intention of commencing the Phase Ia trial in Q4 CY22. While the company is seeking further clarification from the MHRA on the requirements for resubmission, we now anticipate a delay in launching clinical activity.
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