Original-Research: Media and Games Invest SE (von GBC AG): BUY

Research | 7 Dezember 2023 00:00

Original-Research: Media and Games Invest SE – from GBC AG

Classification of GBC AG to Media and Games Invest SE

Company Name: Media and Games Invest SE
ISIN: SE0018538068

Reason for the research: Research Comment
Recommendation: BUY
Target price: 4.05 EUR
Last rating change:
Analyst: Marcel Goldmann, Cosmin Filker

Nine months 2023: Solid sales and operating earnings performance despite challenging conditions; positive effects from the initiated savings programme enabled an increase in profitability; GBC estimates and price target confirmed

Business performance 9M 2023

Media and Games Invest (SE) published its nine-month and Q3 figures for the current financial year on 30 November 2023. Based on these figures, the ad tech group saw a moderate decline in digital Group revenue of 3.6% to € 223.27 million in the past nine months (9M 2022: € 231.55 million), primarily due to divestments (in the games segment) and unfavourable exchange rate developments. The revenue generated was primarily driven by the traditionally largest advertising segment ‚Supply Side Platform‘ (revenue share: 89.7%), which generated revenue of € 200.35 million (9M 2022: € 209.65 million).
According to the company, an organic increase in consolidated sales was achieved on a comparable basis. This revenue growth is primarily the result of an increase in the software customer base and the volume of advertising placed. The number of customers on MGI’s digital advertising platform increased significantly by 9.0% to 2,068 software customers at the end of the third quarter compared to the same quarter of the previous year (software customers at the end of Q3 2022: 1,898). At the same time, the digital advertising volume delivered increased significantly by 8.0% to 186 billion at the end of the third quarter (advertising ads at the end of Q3 2022: 172 billion).

Thanks to the noticeable expansion of the software customer base, the Ad-Tech Group was able to perform well amid the challenging market situation and thus slightly overcompensate for negative market aspects such as reduced customer advertising budgets and lower CPMs (cost-per-mile).

In addition, further market share was gained, enabling this technology company to further expand its leading market position. According to a recent Pixalate market study, MGI’s subsidiary Verve Group remains the market leader on Android and iOS in the US market with a market share of 11.0% and 28.0% respectively. In Europe, Verve recently achieved a market-leading position on Android (No. 2 with a market share of 15.0%) and iOS (No. 3 with a market share of 9.0%). In our view, MGI has thus outperformed the general advertising market and the advertising industry as a whole.

In contrast to the sales trend, MGI achieved growth at all earnings levels, primarily due to the revaluation of the AxesInMotion earn-out payment liability (positive one-off effect of € 62.76 million). EBITDA increased dynamically by 73.6% to € 101.15 million compared to the same quarter of the previous year (9M 2022: € 58.28 million). Adjusted for one-off effects (e.g. M&A and restructuring costs or revaluations of balance sheet items), adjusted EBITDA (Adj. EBITDA) totalled € 63.50 million, which was slightly higher than in the same period of the previous year (9M 2022: € 61.70 million).

In terms of operating profitability, an increase in profitability to 28.4% (9M 2022: 26.6%) was achieved on the basis of the adjusted EBITDA margin (Adj. EBITDA margin). This improvement in profitability reflects the first positive effects of the company’s cost-cutting programme, which is expected to generate annual cost savings of around € 10.0 million once successfully implemented.

After the first nine months of the financial year, consolidated net income (after minority interests) totalled € 41.83 million (9M 2022: € 8.77 million), which was significantly higher than the previous year’s level. This significant increase in net income was mainly due to the positive one-off effect from the revaluation of an M&A‑related payment obligation described above.

Business development Q3 2023

The negative effects of divestments and unfavourable exchange rate developments were particularly noticeable in the third quarter. Accordingly, the MGI Group suffered a significant year-on-year decline in digital Group sales of 10.6% to € 78.34 million (Q3 2022: € 87.62 million). Adjusted for these negative currency effects, however, organic sales growth of 1.0% was achieved at Group level, according to the company. This revenue growth was primarily the result of an increase in the software customer base and the volume of advertising delivered.

At operating earnings level, adjusted EBITDA (Adj. EBITDA) of € 23.10 million was achieved, mainly thanks to efficiency gains from the cost-saving programme that has been initiated, thus confirming the high earnings level of the previous year (Q3 2022: € 23.00 million). At the same time, the adjusted EBITDA margin increased significantly to 29.5% (Q3 2022: 26.3%)

Forecast and price target

Against the backdrop of the company’s solid performance in the first nine months of 2023, MGI’s management has confirmed its previously adjusted guidance (dated 31 August 2023) for the current 2023 financial year with the publication of its nine-month and Q3 figures. Accordingly, the technology company continues to expect consolidated sales of around € 303.0 million and Adj. EBITDA of € 93.0 million. At the same time, the company has also confirmed its medium-term guidance (Revenue CAGR: 25.0% to 30.0%; Adj. EBITDA margin: 25.0% to 30.0%). As a result, MGI anticipates significantly higher growth momentum again in the medium term on the basis of an expected recovery in the advertising market.

Overall, we remain convinced that the ad tech group will be able to return to growth from the 2024 financial year onwards, based on the gradual recovery of the advertising market that we expect. In particular, the MGI Group’s strong positioning in the growth areas of programmatic advertising and connected TV (CTV) in combination with innovative advertising solutions (Moments.AI, ATOM etc.) should ensure further market share gains and a significant outperformance compared to the general advertising industry in the future. The significant expansion of their software customer base achieved in recent quarters also provides a good basis for driving (organic) growth even more strongly.

In light of the company’s solid performance, the confirmed outlook and their promising growth strategy, we confirm our previous revenue and earnings estimates for the current financial year and subsequent years. Accordingly, we also confirm our previous price target of € 4.05 per share. With regard to the current share price level, we therefore continue to assign a ‚buy‘ rating and see significant upside potential in the MGI share.

Die vollständige Analyse können Sie hier downloaden:
http://www.more-ir.de/d/28503.pdf

Kontakt für Rückfragen
GBC AG
Halderstrasse 27
86150 Augsburg
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research@gbc-ag.de
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Date (time) of completion: 07/12/2023 (9:35 am)
Date (time) of first distribution: 07/12/2023 (10:30 am)

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