Re­se­arch | 24 Juni 2024 00:00

Ori­gi­nal-Re­se­arch: Ver­ve Group SE – from GBC AG Clas­si­fi­ca­ti­on of GBC AG to Ver­ve Group SE

Com­pa­ny Name: Ver­ve Group SE
ISIN: SE0018538068

Re­ason for the re­se­arch: Re­se­arch stu­dy (Note)
Re­com­men­da­ti­on: BUY
Tar­get pri­ce: 6.00 EUR
Last ra­ting ch­an­ge:
Ana­lyst: Mar­cel Gold­mann, Cos­min Fil­ker

Jun ac­qui­si­ti­on en­su­res si­gni­fi­cant sa­les and ear­nings growth and a si­gni­fi­cant streng­thening of the de­mand side; the in­te­gra­ti­on of the ac­qui­si­ti­on opens up con­sidera­ble sa­les syn­er­gies; si­gni­fi­cant in­crease in fo­re­casts and pri­ce tar­get; ‚BUY‘ ra­ting con­firm­ed.

On 18 June 2024, Ver­ve Group SE (Ver­ve) an­noun­ced the sig­ning of an agree­ment to ful­ly ac­qui­re Jun Group, a lea­ding mo­bi­le ad­ver­ti­sing tech­no­lo­gy com­pa­ny with a fo­cus on the de­mand side and strong busi­ness re­la­ti­onships with lea­ding US brands and me­dia agen­ci­es.

The Jun Group’s mo­bi­le-first de­mand-side busi­ness with di­rect ac­cess to more than 230 For­tu­ne 500 ad­ver­ti­sers and US agen­ci­es is a per­fect com­ple­ment to the mar­ket-lea­ding US-cent­red mo­bi­le sup­p­ly-side plat­form, ac­cor­ding to the com­pa­ny. The ac­qui­si­ti­on will re­sult in a more ba­lan­ced sa­les mo­del with 30.0% de­mand-side busi­ness (pre­vious de­mand-side share: ap­pro­xi­m­ate­ly 10.0%) and 70.0% sup­p­ly-side busi­ness (pre­vious sup­p­ly-side share: ap­pro­xi­m­ate­ly 90.0%). The Jun Group has a high­ly di­ver­si­fied cus­to­mer base (in­clu­ding Ama­zon, Mc­Do­nalds and Dell), which is gro­wing ste­adi­ly.

This trans­for­ma­ti­ve tran­sac­tion will si­gni­fi­cant­ly in­crease the size and pro­fi­ta­bi­li­ty of the Ver­ve Group. The ac­qui­si­ti­on of the Group is ex­pec­ted to con­tri­bu­te ap­pro­xi­m­ate­ly 23.0% in re­ve­nue and ap­pro­xi­m­ate­ly 43.0% in ad­jus­ted ope­ra­ting pro­fit (Adj. EBITDA), which on a pro for­ma ba­sis should lead to ex­pec­ted Group re­ve­nue of ap­pro­xi­m­ate­ly € 447.0 mil­li­on and ad­jus­ted EBITDA of ap­pro­xi­m­ate­ly € 151.0 mil­li­on in the cur­rent FY 2024.

The agreed to­tal purcha­se pri­ce for the tran­sac­tion amounts to € 170 mil­li­on. Ac­cor­ding to the com­pa­ny, € 120 mil­li­on of the purcha­se pri­ce will be paid from exis­ting cash funds, wher­eby a cash ca­pi­tal in­crease with gross is­sue pro­ceeds of around € 40.0 mil­li­on (27.11 mil­li­on new shares at an is­sue pri­ce of around € 1.48) was re­cent­ly car­ri­ed out for this pur­po­se. The re­mai­ning € 50.0 mil­li­on of the purcha­se pri­ce pay­ment is to be made in two an­nu­al in­st­al­ments in 12 and 18 months af­ter the plan­ned clo­sing in Sep­tem­ber 2024. The com­ple­ted ca­pi­tal me­a­su­re is in­ten­ded to achie­ve the tar­ge­ted ca­pi­tal struc­tu­re with a me­di­um-term pro for­ma net le­vera­ge ra­tio of 1.50 to 2.50.

Ac­cor­ding to the com­pa­ny, the purcha­se pri­ce in­clu­ding ex­pec­ted syn­er­gy ef­fects thus amounts to 3.8x EBITDA. In ad­di­ti­on to the si­gni­fi­cant cost syn­er­gies (ap­pro­xi­m­ate­ly € 2.0 mil­li­on in FY 2024), the Ver­ve Group pri­ma­ri­ly ex­pects ex­ten­si­ve syn­er­gies at re­ve­nue le­vel (ap­pro­xi­m­ate­ly € 9.0 mil­li­on in FY 2024). Ex­ten­si­ve sa­les syn­er­gies are to be rea­li­sed pri­ma­ri­ly th­rough the com­bi­na­ti­on of pro­duct and cus­to­mer struc­tures and the va­rious plat­forms. In the me­di­um term, Ver­ve an­ti­ci­pa­tes sa­les syn­er­gy po­ten­ti­al of bet­ween € 30.0 mil­li­on and € 40.0 mil­li­on. In view of the high pro­fi­ta­bi­li­ty (50.0% EBITDA mar­gin from USD 72.0 mil­li­on in sa­les in FY 2023) and the si­gni­fi­cant growth and syn­er­gy po­ten­ti­al of the Jun Group, we con­sider the purcha­se pri­ce for the tran­sac­tion to be ex­tre­me­ly fa­voura­ble.

With re­gard to fu­ture fi­nan­cing struc­tu­re and con­di­ti­ons, Ver­ve as­su­mes that the abili­ty to re­du­ce debt will im­pro­ve si­gni­fi­cant­ly in the fu­ture due to the strong (ex­pec­ted) cash EBITDA (ap­pro­xi­m­ate­ly 80.0% in FY 2025 ac­cor­ding to the company’s fo­re­cast). Ac­cor­din­gly, the tech­no­lo­gy group an­ti­ci­pa­tes that the ex­pec­ted im­pro­ve­ment in debt ra­ti­os will re­du­ce fu­ture fi­nan­cing cos­ts as soon as the exis­ting fi­nan­cial debt is re­fi­nan­ced. At the pre­sent time, de­cli­nes in bond yields can al­re­a­dy be ob­ser­ved for the exis­ting lon­ger-term bonds (see e.g. Ver­ve Group bond with ISIN: SE0019892241), which in­di­ca­tes si­gni­fi­cant­ly lower fi­nan­cing con­di­ti­ons in the fu­ture.

Fo­re­casts and eva­lua­ti­on

Ba­sed on the an­noun­ced trans­for­ma­ti­ve ac­qui­si­ti­on and the strong first half of the cur­rent fi­nan­cial year, Verve’s ma­nage­ment has si­gni­fi­cant­ly re­vi­sed its pre­vious gui­dance up­wards. For the cur­rent fi­nan­cial year 2024, the com­pa­ny now ex­pects con­so­li­da­ted sa­les of € 380.0 mil­li­on to € 400.0 mil­li­on (pre­vious­ly: € 350.0 mil­li­on to € 370.0 mil­li­on) and ad­jus­ted EBITDA (Adj. EBITDA) of € 115.0 mil­li­on to € 125.0 mil­li­on (pre­vious­ly: € 100.0 mil­li­on to € 110.0 mil­li­on).

As a re­sult of the si­gni­fi­cant in­crease in the Group’s size and pro­fi­ta­bi­li­ty, Ver­ve has also up­dated its me­di­um-term gui­dance. The tech­no­lo­gy com­pa­ny ex­pects a sa­les CAGR of 25.0% to 30.0% (un­ch­an­ged from pre­vious­ly) and an EBITDA mar­gin of 30.0% to 35.0% (pre­vious­ly: 25.0% to 30.0%) and an EBIT mar­gin of 20.0% to 25.0% (pre­vious­ly: 15.0% to 20.0%).

Against the back­drop of the im­pro­ved com­pa­ny out­look and the in­creased me­di­um-term fi­nan­cial tar­gets, we have ad­jus­ted our pre­vious sa­les and ear­nings esti­ma­tes up­wards. Ac­cor­din­gly, we now ex­pect sa­les of € 380.12 mil­li­on (pre­vious­ly: € 352.18 mil­li­on) and EBITDA of € 108.92 mil­li­on (pre­vious­ly: € 100.08 mil­li­on) for the cur­rent 2024 fi­nan­cial year. For the fol­lo­wing ye­ars 2025 and 2026, we are fo­re­cas­ting sa­les of € 475.91 mil­li­on (pre­vious­ly: € 389.51 mil­li­on) and € 596.79 mil­li­on (pre­vious­ly: € 437.03 mil­li­on). At the same time, ope­ra­ting ear­nings (EBITDA) should in­crease to € 148.77 mil­li­on (pre­vious­ly: € 113.35 mil­li­on) and € 191.58 mil­li­on (pre­vious­ly: € 130.67 mil­li­on).

Over­all, the Jun ac­qui­si­ti­on re­pres­ents a good stra­te­gic step towards bet­ter ba­lan­cing the Group’s de­mand- and sup­p­ly-side-spe­ci­fic busi­ness mo­del and uti­li­sing the re­sul­ting ad­van­ta­ges pro­fi­ta­b­ly. In ad­di­ti­on, this tran­sac­tion will take the Ver­ve Group to the ’next le­vel‘ in terms of con­so­li­da­ted sa­les and pro­fi­ta­bi­li­ty. The in­te­gra­ti­on of the ac­qui­si­ti­on will also re­sult in con­sidera­ble syn­er­gy ef­fects, par­ti­cu­lar­ly in terms of sa­les, which can be gra­du­al­ly rea­li­sed.

As part of our DCF va­lua­ti­on mo­del, we have also si­gni­fi­cant­ly in­creased our pri­ce tar­get to € 6.00 (pre­vious­ly: € 4.50) per share due to our in­creased sa­les and ear­nings esti­ma­tes. Ho­we­ver, the di­lu­ti­on ef­fect re­sul­ting from the ca­pi­tal in­crease (in­crease in the num­ber of shares by 0.27 mil­li­on to 186.36 mil­li­on) re­du­ced the tar­get pri­ce. In view of the cur­rent share pri­ce le­vel, we the­r­e­fo­re con­ti­nue to as­sign a ‚BUY‘ ra­ting and see si­gni­fi­cant up­si­de po­ten­ti­al in the Ver­ve share.

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Hal­der­stras­se 27
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0821241133 0
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Date (time) of com­ple­ti­on: 24/06/2024 (10:29)
Date (time) of first dis­tri­bu­ti­on: 24/06/2024 (12:00)

Ori­gi­nal-Re­se­arch: Ver­ve Group SE (von GBC AG): BUY

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