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Research: TMT
While the weak advertising market suppressed growth in Online Marketing in the (seasonally quiet) Q1, Online Presence continues to perform robustly and group margins continue to expand. The acquisition of Shinez is now complete and should add further robustness to Team Internet’s revenue profile, diversifying its partnership base and creating good opportunities to capture more value in the conversion funnel. We leave our standalone estimates unchanged, but upgrade FY24 and FY25 EPS by 5% and 7% to reflect the acquisition of Shinez.
Team Internet |
Upgrading FY25 EPS by 7% on Shinez |
Q1 results and acquisition |
Software and comp services |
13 May 2024 |
Share price performance
Business description
Next event
Analyst
Team Internet is a research client of Edison Investment Research Limited |
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While the weak advertising market suppressed growth in Online Marketing in the (seasonally quiet) Q1, Online Presence continues to perform robustly and group margins continue to expand. The acquisition of Shinez is now complete and should add further robustness to Team Internet’s revenue profile, diversifying its partnership base and creating good opportunities to capture more value in the conversion funnel. We leave our standalone estimates unchanged, but upgrade FY24 and FY25 EPS by 5% and 7% to reflect the acquisition of Shinez.
Year end |
Revenue (US$m) |
EBITDA* (US$m) |
PBT* |
Diluted EPS* (c) |
DPS |
EV/EBITDA |
P/E |
12/22 |
728.2 |
86.0 |
64.3 |
15.4 |
1.0 |
6.6 |
12.2 |
12/23 |
836.9 |
96.4 |
80.1 |
22.4 |
2.0 |
5.8 |
8.4 |
12/24e |
983.6 |
109.8 |
89.6 |
27.1 |
2.3 |
5.1 |
7.0 |
12/25e |
1,081.8 |
116.8 |
96.6 |
29.0 |
2.5 |
4.8 |
6.5 |
Note: *EBITDA, PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.
Steady start, changing mix, expanding margins
Team Internet’s Q1 results reflect a shift in mix towards the company’s higher-margin businesses. Gross revenues grew by 1% to $195.9m, with Online Marketing reducing by 2.5% y-o-y to £145.9m, suppressed by the weak advertising market, while Online Presence grew 10.6% to $50.0m. EBITDA grew by 4% to $22.2m (11.3% margin vs 10.9% in Q123) and operating profit by 44% to $11.1m. Operating cash conversion at 80% was affected by cash receipts from a major customer being collected in April, but is expected to normalise to 100% for the rest of the year. With $11.5m worth of shares bought back over the quarter, net debt was $80.6m (vs $74.1m at FY23).
Shinez boosts EPS, scope for revenue synergies
Our underlying estimates are largely unchanged, with the Shinez acquisition adding 5% and 7% to FY24 and FY25 EPS respectively. This does require an element of catch up from Online Marketing operations, but key events such as the US elections and the Olympics are expected to boost the advertising market. Visitor sessions increased by 19% in Q1, so Team Internet looks to be in a good position once demand recovers. We see good scope for revenue synergies from Shinez and between other online marketing entities through greater vertical integration through the e-commerce conversion cycle as the company develops its Omni-media, Omni-monetisation (OM2) strategy.
Valuation: Discount valuation looks unjustified
On our revised estimates, Team Internet trades at an EV/EBITDA multiple of 5.2x and a P/E of 7x. On a fundamental basis, we believe that this is remains too low for a business with Team Internet’s track record, prospects and cash generation. It is at a slight discount to global ad-tech peers to the online marketing business and a very significant discount to the online presence peers (albeit a small subset).
Shinez: Diversification and vertical integration
The acquisition of Shinez was completed on 29 April and we have updated our forecasts to reflect this. Strategically, the acquisition looks a good fit as the company executes its OM2 strategy, diversifying the company’s partner base and providing comprehensive online marketing solutions across the entire customer journey.
Shinez is a digital content production and promotion company. It operates a network of niche content sites (eg ourfashiontrends.com, falafelandcaviar.com and travelerdreams.com) and listicles (eg how to guides, top 10, 5 tips for…), which are hosted on either the company’s demand-side partner’s platforms (Facebook, Instagram, X) or on native platforms (Yahoo, Taboola, Google). The company monetises its audience through leveraging its media buying, ad-exchange relationships and programmatic technology platform to display targeted advertising from supply-side partners and charging on a per impression basis.
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Exhibit 1: Shinez business model |
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Source: Team Internet |
From a diversification point of view, the key media platform partners of Shinez are Instagram, Meta and X, with indirect native access via Taboola, Yahoo and Google. This expands and deepens Team Internet’s key platform relationships (via Tonic) with Meta, TikTok and Instagram. With direct relationships with key brands, the Shinez acquisition also more than doubles the Online Marketing segment's revenue generated independently of Google.
Shinez also gives Team Internet capability in the earlier ‘awareness’ or brand building stage of converting consumers to brands, complementing Tonic, which comes in at the ‘consideration’ stage, and VGL, for conversion. Management believes that this diversification will also support revenue stability in that budget is allocated to different stages of the funnel depending on seasonality (eg early in the year focus on branding, focus on conversion for the festive season) and economic cycle.
Management also sees good opportunities for creating revenue synergies through vertical integration. These include, for example, 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.
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Exhibit 2: Team Internet’s Omni-media, Omni-monetisation (OM2) strategy |
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Source: Team Internet |
Q1 results review
Management is confident that Team Internet will meet market expectations for the full year, and our estimates are essentially unchanged excluding Shinez.
Q1’s muted growth but continued margin expansion reflect movement in the company’s key growth drivers over the period and highlight the benefits of the company’s diversification strategy.
Gross revenues grew by 1% to $95.9m, while net revenues (gross profit) grew 4% to $47.6m. EBITDA grew by 4% to $22.2m (11.3% margin vs 10.9%) and operating profit by 44% to $11.1m. albeit supported by a $1.3m foreign exchange gain versus a $1.5m loss last year.
Weak advertising suppresses Online Marketing, but well placed for a recovery
Gross revenues in Online Marketing reduced by 2.5% y-o-y $145.9m, suppressed by the weak advertising market, with gross profit essentially flat at $30.5m. Performance has been affected by the weak advertising market and advertiser uncertainty with TikTok (eg Universal Music dispute and potentially competitors using the threat of a US ban to gain share). As a result, Meta overtook TikTok as the company’s largest demand supply partner over the quarter.
Over the trailing 12 months to Q124 (TTM), visitor sessions increased by 19% to 6.0bn, while revenue per thousand sessions (RPM) decreased by 10% to $91, indicating that revenues could recover strongly as demand improves. Key events such as the Olympics and the US elections are seen as good catalyst to drive demand later in FY24.
We also understand that VGL is now performing more strongly, having shifted its strategy towards more paid search in the face of regularly changing algorithms at Google. VGL is now also scaling in France and is expected to generate a small profit in FY24, expanding iinto FY25, which we see as a positive indicator for the unit economics of this business as it internationalises its footprint. Management is now assessing which other market or markets to enter beyond Germany and France.
Online Presence: Robust performance continues
Online Presence sustained its double-digit growth trajectory from last year, with revenues growing by 10.6% to $50.0m driven by the structural shift in demand towards top level domains, where Team Internet is competitively strong, as well as price optimisation initiatives. Gross margins expanded to 34.2% from 33.4% and while the company does not disclose segmental operating margins, management comments that they have improved substantially year-on-year.
Cash conversion expected to normalise
Operating cash conversion at 80% was affected by cash receipts from a major customer being collected in April, but is expected to normalise to 100% for the rest of the year. With the company buying back $11.5m worth of shares over the quarter (average price £1.33), net debt stood at $80.6m versus $74.1m at end FY23. Net debt/EBITDA was 0.95x on a TTM basis pre the Shinez acquisition, and with strong cash generation, we expect it to drop to well below 1x (0.66x) by FY24Y leaving plenty of scope for accretive acquisition, further share repurchases or dividend increases.
Estimate changes
Our estimate changes are set out below. Our underlying estimates are largely unchanged, with Shinez providing mid to high single-digit EPS accretion in FY24 and 25. Our FY24 estimates do require an element of catch up from Online Marketing operations but, as discussed, key events such as the US elections and the Olympics should provide a boost and management is confident of meeting consensus estimates.
Looking further forward, we see good scope for revenue synergies from Shinez and between other online marketing entities through greater vertical integration through the e-commerce conversion cycle, as the company develops its OM2 strategy.
Exhibit 3: Estimate changes
Reported |
Old |
New |
Old |
New |
||||||||
US$'000 |
2023 |
Y-o-y growth |
2024e |
2024e |
Change |
Y-o-y growth |
2025e |
2025e |
Change |
Y-o-y growth |
||
Gross revenue |
836,900 |
15% |
909,572 |
983,572 |
8.1% |
18% |
964,461 |
1,081,806 |
12.2% |
10% |
||
Net revenue |
191,100 |
8% |
203,363 |
218,913 |
7.6% |
15% |
209,255 |
225,492 |
7.8% |
3% |
||
Adjusted EBITDA |
96,400 |
12% |
103,017 |
109,767 |
6.6% |
14% |
106,091 |
116,835 |
10.1% |
6% |
||
EBITDA Margin |
12% |
11% |
11% |
11% |
11% |
|||||||
Profit Before Tax (norm) |
81,100 |
26% |
87,683 |
89,646 |
2.2% |
11% |
90,682 |
96,626 |
6.6% |
8% |
||
Profit Before Tax (reported) |
29,300 |
98% |
45,083 |
46,046 |
2.1% |
57% |
48,082 |
54,026 |
12.4% |
17% |
||
Net income (normalised) |
67,100 |
62% |
70,147 |
71,717 |
2.2% |
7% |
72,546 |
77,301 |
6.6% |
8% |
||
Basic average number of shares outstanding (m) |
272 |
262 |
257 |
258 |
258 |
|||||||
EPS - basic normalised (c) |
23.22 |
49% |
26.76 |
27.94 |
4.4% |
20% |
28.12 |
29.97 |
6.6% |
7% |
||
EPS - diluted normalised (c) |
22.41 |
45% |
25.79 |
27.06 |
4.9% |
21% |
27.09 |
29.02 |
7.2% |
7% |
||
Revenue growth (%) |
14.9 |
9.1 |
17.5 |
6.0 |
10.0 |
|||||||
Gross Margin (%) |
22.8 |
22.9 |
21.5 |
21.7 |
20.8 |
|||||||
Adjusted EBITDA margin (%) |
11.5 |
11.3 |
11.2 |
11.0 |
10.8 |
|||||||
Adjusted EBITDA/net revenue (%) |
50.4 |
49.5 |
50.1 |
50.7 |
51.8 |
|||||||
Closing net debt/(cash) |
74,127 |
15% |
35,109 |
71,964 |
(23,618) |
5,852 |
Source: Edison Investment Research, Team Internet data
Valuation
On our revised estimates, Team Internet trades at an FY24 EV/EBITDA multiple of 5.2x and a P/E of 7x, with the shares re-rating upwards only slightly, as earning upgrades have offset the 21% rally in the shares since the start of FY24. 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 estimated FY24 unlevered free cash flow yield is 16%.
The net debt/EBITA rating of 1x means the company has plenty of scope to deliver further accretion through further buybacks or additional accretive acquisitions or dividend increases, while a market recovery or revenue synergies could drive organic upside. Management’s upper threshold for Net debt / EBITDA is 2x.
The valuation is a substantial discount to the company’s global ad-tech peers, which trade at a median forward year EV/EBITDA of 8.4x and a P/E of 12x. The relative outperformance of Online Presence is also interesting given the higher peer multiples of this segment, at 16.5x EBITDA and 25x P/E on a one-year forward basis.
Exhibit 4: Financial summary
$'k |
2021 |
2022 |
2023 |
2024e |
2025 |
||
31-December |
IFRS |
IFRS |
IFRS |
IFRS |
IFRS |
||
INCOME STATEMENT |
|||||||
Gross Revenue |
|
|
410,540 |
728,237 |
836,900 |
983,572 |
1,081,806 |
Cost of Sales |
(292,041) |
(550,541) |
(645,800) |
(764,659) |
(856,314) |
||
Gross Profit (net revenue) |
118,499 |
177,696 |
191,100 |
218,913 |
225,492 |
||
EBITDA |
|
|
46,251 |
86,024 |
96,400 |
109,767 |
116,835 |
Normalised operating profit |
|
|
42,737 |
83,045 |
93,100 |
105,331 |
112,311 |
Amortisation of acquired intangibles |
(18,291) |
(36,399) |
(38,800) |
(38,100) |
(38,100) |
||
Exceptionals |
(7,087) |
(7,395) |
(8,500) |
(1,000) |
0 |
||
Share-based payments |
(5,006) |
(5,698) |
(4,500) |
(4,500) |
(4,500) |
||
Reported operating profit |
12,353 |
33,553 |
41,300 |
61,731 |
69,711 |
||
Net Interest |
(10,798) |
(18,736) |
(13,000) |
(15,685) |
(15,685) |
||
Joint ventures & associates (post tax) |
0 |
0 |
0 |
0 |
0 |
||
Exceptionals |
0 |
0 |
0 |
0 |
0 |
||
Profit Before Tax (norm) |
|
|
31,939 |
64,309 |
80,100 |
89,646 |
96,626 |
Profit Before Tax (reported) |
|
|
1,555 |
14,817 |
28,300 |
46,046 |
54,026 |
Reported tax |
(5,097) |
(16,895) |
(5,000) |
(17,929) |
(19,325) |
||
Profit After Tax (norm) |
25,551 |
41,409 |
67,100 |
71,717 |
77,301 |
||
Profit After Tax (reported) |
(3,542) |
(2,078) |
23,300 |
28,117 |
34,701 |
||
Minority interests |
0 |
0 |
0 |
0 |
0 |
||
Net income (normalised) |
25,551 |
41,409 |
67,100 |
71,717 |
77,301 |
||
Net income (reported) |
(3,542) |
(2,078) |
23,300 |
28,117 |
34,701 |
||
Basic average number of shares outstanding (m) |
227 |
266 |
272 |
257 |
258 |
||
EPS - basic normalised (c) |
|
|
11.24 |
15.59 |
23.22 |
27.94 |
29.97 |
EPS - diluted normalised (c) |
|
|
10.91 |
15.44 |
22.41 |
27.06 |
29.02 |
EPS - basic reported (c) |
|
|
(1.56) |
(0.78) |
8.56 |
10.95 |
13.45 |
Dividend (p) |
0.00 |
1.00 |
2.00 |
2.33 |
2.50 |
||
Revenue growth (%) |
71.0 |
77.4 |
14.9 |
17.5 |
10.0 |
||
Gross Margin (%) |
28.9 |
24.4 |
22.8 |
22.3 |
20.8 |
||
EBITDA Margin (%) |
11.3 |
11.8 |
11.5 |
11.2 |
10.8 |
||
EBITDA/Net Revenue (%) |
39.0 |
48.4 |
50.4 |
50.1 |
51.8 |
||
Normalised Operating Margin |
10.4 |
11.4 |
11.1 |
10.7 |
10.4 |
||
BALANCE SHEET |
|||||||
Fixed Assets |
|
|
271,830 |
365,062 |
347,196 |
366,464 |
336,483 |
Intangible Assets |
254,169 |
347,938 |
327,038 |
343,838 |
311,738 |
||
Tangible Assets |
8,601 |
7,358 |
7,258 |
9,726 |
11,845 |
||
Investments & other |
9,060 |
9,766 |
12,900 |
12,900 |
12,900 |
||
Current Assets |
|
|
128,391 |
193,650 |
199,603 |
206,962 |
283,868 |
Stocks |
895 |
646 |
200 |
237 |
265 |
||
Debtors |
71,363 |
98,231 |
106,730 |
107,789 |
118,554 |
||
Cash & cash equivalents |
56,133 |
94,773 |
92,673 |
94,636 |
160,748 |
||
Other |
0 |
0 |
0 |
4,300 |
4,300 |
||
Current Liabilities |
|
|
137,129 |
197,712 |
208,300 |
214,101 |
227,340 |
Creditors |
117,016 |
190,348 |
187,800 |
193,601 |
206,840 |
||
Tax and social security |
0 |
0 |
0 |
0 |
0 |
||
Short term borrowings |
18,276 |
5,456 |
18,900 |
18,900 |
18,900 |
||
Lease liabilities |
1,837 |
1,908 |
1,600 |
1,600 |
1,600 |
||
Long Term Liabilities |
|
|
149,110 |
193,667 |
184,692 |
180,892 |
180,494 |
Long term borrowings |
119,251 |
145,872 |
147,700 |
147,700 |
147,700 |
||
Other long term liabilities |
29,859 |
47,795 |
36,992 |
33,192 |
32,794 |
||
Net Assets |
|
|
113,982 |
167,333 |
153,807 |
178,433 |
212,517 |
Minority interests |
0 |
0 |
0 |
0 |
0 |
||
Shareholders' equity |
|
|
113,982 |
167,333 |
153,807 |
178,433 |
212,517 |
CASH FLOW |
|||||||
Op Cash Flow before WC and tax |
23,360 |
54,195 |
70,400 |
88,581 |
96,650 |
||
Working capital |
4,091 |
7,245 |
(7,700) |
11,705 |
2,646 |
||
Exceptional & other |
15,804 |
24,434 |
17,300 |
20,185 |
20,185 |
||
Tax |
(2,230) |
(8,399) |
(5,600) |
(17,929) |
(19,325) |
||
Net operating cash flow |
|
|
41,025 |
77,475 |
74,400 |
102,543 |
100,155 |
Capex |
(4,810) |
(6,543) |
(10,200) |
(7,967) |
(8,006) |
||
Acquisitions/disposals |
(18,344) |
(81,396) |
(5,600) |
(53,200) |
(200) |
||
Interest paid |
(8,695) |
(7,766) |
(12,100) |
(15,685) |
(15,685) |
||
Equity financing |
0 |
58,187 |
(39,700) |
(14,730) |
0 |
||
Change in borrowing |
24,721 |
34,691 |
15,000 |
0 |
0 |
||
Dividends |
0 |
0 |
(3,600) |
(6,529) |
(7,635) |
||
Other |
(3,700) |
(30,730) |
(24,500) |
(2,468) |
(2,517) |
||
Net Cash Flow |
30,197 |
43,918 |
(6,300) |
1,963 |
66,112 |
||
Opening net debt/(cash) |
|
|
84,985 |
81,394 |
56,555 |
74,127 |
71,964 |
FX |
(2,718) |
(5,278) |
3,200 |
0 |
0 |
||
Other non-cash movements |
(23,888) |
(13,801) |
(15,272) |
0 |
0 |
||
Closing net debt/(cash) |
|
|
81,394 |
56,555 |
74,127 |
71,964 |
5,852 |
Source: Team Internet, Edison Investment Research
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Research: Healthcare
SIGA’s Q124 results were marked by material BARDA and international TPOXX deliveries and highlighted the company’s strategic push towards international expansion, reflected in its revised deal terms with partner Meridian. Robust product revenues of $23.9m (not including $1.6m in R&D income) made up of high margin oral TPOXX deliveries (gross margin upwards of 85%), translated to strong operating profitability of $11.3m compared to an operating loss of $2.1m in Q123. We expect the remaining c $140m option from BARDA for TPOXX to be exercised this year. Despite the $43m dividend payout in April 2024, SIGA retains a healthy balance sheet (pro-forma, post-dividend cash of c $100m and no debt), which we expect will improve further in FY24 with anticipated product deliveries. Reflecting the Q124 results, dividend payout and adjustments to our near-term estimates (to capture the slight uncertainty in IV TPOXX deliveries), we readjust our valuation to $16.01/share ($16.51/share previously).