Media and Games Invest — Swedish re-domicile going ahead

Media and Games Invest (XETRA: M8G)

Currency in EUR

Last close As at 03/02/2023

EUR1.65

−0.03 (−1.90%)

Market capitalisation

EUR268m

Research: TMT

Media and Games Invest — Swedish re-domicile going ahead

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.

Fiona Orford-Williams

Written by

Fiona Orford-Williams

Director, TMT

TMT

Media and Games Invest

Swedish re-domicile going ahead

EGM result and Q222 results

Media

10 November 2022

Price

€1.67

Market cap

€266m

$1.00/€

Net debt (€m) at end June 2022

299

Shares in issue

159.2m

Free float

70.1%

Code

M8G

Primary exchange

Nasdaq Stockholm First North Premier Growth

Secondary exchange

Deutsche Börse Scale,
OTCQX

Share price performance

%

1m

3m

12m

Abs

13.1

(26.8)

(66.9)

Rel (local)

1.6

(27.5)

(61.2)

52-week high/low

€5.97

€1.40

Business description

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

Q322 report

15 November 2022

Analysts

Fiona Orford-Williams

+44 (0)20 3077 5739

Milo Bussell

+44 (0)20 3077 5700

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

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
(€m)

Adjusted
EBITDA* (€m)

PBT*
(€m)

EPS*
(€)

EV/adjusted
EBITDA* (x)

P/E
(x)

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

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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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.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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Sareum Holdings — SDC-1801 CTA application hits a roadblock

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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