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 study (Note) Recommendation: BUY
Target price: 4.50 EUR
Last rating change:
Analyst: Marcel Goldmann, Cosmin Filker

FY 2023 closed with solid sales performance; strong new customer business ensured significant organic growth; return to dynamic growth path expected; price target raised to € 4.50; buy rating confirmed  
Sales and earnings development 2023
 
On 29 February 2029, Media and Games Invest SE (MGI) published its preliminary business figures for the past financial year 2023. According to these figures, the technology company achieved solid revenue growth compared to the previous year (PY: € 324.44 million) with its fully integrated advertising software platform (ad tech platform), generating revenue of € 321.98 million. The majority of revenue was generated by the traditionally largest advertising segment 'Supply Side Platform' (revenue share of SSP: 93.6%) with revenue totalling € 301.39 million (PY: € 298.88 million).
 
On a comparable basis, the company reports a moderate increase in consolidated sales of 5.0%, which achieved a particularly high growth rate of 16.0% in the final quarter, traditionally the strongest quarter in terms of sales. The sales growth achieved was mainly due to an increase in the software customer base and the volume of advertising placed. The number of customers on MGI's digital ad tech platform increased dynamically by 18.9% year-on-year to 2,276 at the end of the fourth quarter (number of customers at the end of Q4 2022: 1,915). At the same time, the volume of digital advertising delivered increased significantly by 19.1% to 206 billion at the end of the fourth quarter (advertising ads at the end of Q4 2022: 173 billion).
 
Thanks to the significant expansion of the software customer base and the substantial increase in advertising volume, the company was able to hold its own and even gain market share despite a previously difficult market situation (low CPMs, subdued advertising budgets, etc.). The company's further improved market position in the mobile sector is also reflected in the market-leading positions on iOS and Android with a market share of 12.0% and 12.0% respectively, according to the industry experts at Pixalate. Accordingly, we believe that MGI has outperformed the advertising industry as a whole and the overall advertising market.  
In terms of earnings, 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 51.6% to € 128.46 million (PY: € 84.75 million) compared to the previous year. Adjusted for special effects (e.g. M&A and restructuring costs or revaluations of balance sheet items), adjusted EBITDA (Adj. EBITDA) totalled € 95.20 million, a slight increase compared to the previous year (PY: € 93.20 million).
 
The adjusted EBITDA margin (Adj. EBITDA margin) increased to 29.6% (PY: 28.7%). This increase in profitability reflects the first positive effects of the savings programme launched last year, which is expected to generate annual cost savings of around € 10.0 million once successfully implemented. We believe that the majority of the planned savings effects should already materialise in the current 2024 financial year.  
In terms of net performance, a consolidated result (after minority interests) of € 46.73 million was achieved, which was significantly above the previous year's level (PY: € -20.32 million). 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. In addition, a relatively low tax expense ratio also favoured their positive earnings development.
 
The company guidance adjusted by MGI management in the third quarter of 2023 (sales of € 303 million and adjusted EBITDA of € 93.0 million) was therefore exceeded. Our sales estimate (sales: € 303.21 million) and adjusted EBITDA forecast (adjusted EBITDA: € 93.07 million) were also exceeded.
 
Forecasts and evaluation
 
With the publication of the preliminary figures, MGI's management has also provided a rough outlook for the current financial year, although this guidance will be further specified as the year progresses. In view of a strong fourth quarter (organic growth Q4 2023: 16.0%) and an even more dynamic start to the year (organic growth Jan. 2024: 18.0%), MGI expects double-digit percentage growth in consolidated sales for the current financial year 2024. At the same time, an improvement in earnings is also expected.
 
In light of the positive company outlook, the increased (organic) growth momentum and the expected recovery of the advertising market, we have adjusted our previous sales and earnings estimates upwards. Accordingly, we now expect revenue of € 352.18 million (PY: € 324.74 million) and EBITDA of € 100.08 million (PY: € 95.56 million) for the current financial year. For the following financial year 2025, we are forecasting sales of € 389.51 million (PY: € 357.66 million) and EBITDA of € 113.35 million (PY: € 108.49 million). With regard to the 2026 financial year, which we have included in our detailed forecast period for the first time, we anticipate a further increase in sales and EBITDA to € 437.03 million and € 130.67 million respectively.
 
Overall, we therefore assume that MGI will succeed in returning to a dynamic growth trajectory with its leading ad tech platform. The company's strong positioning in the in-app and CTV segment in particular should prove to be one of the main growth drivers. In terms of earnings, the cost-cutting programme launched by the company last year should take full effect from the current financial year onwards and thus provide an additional boost to future earnings.
 
As part of our DCF valuation model, we have raised our price target to € 4.50 (previously: € 4.05) per share due to our increased sales and earnings estimates. An even higher price target increase was counteracted by higher capital costs (risk-free interest rate currently 2.50%, instead of 2.00% previously). In view of the current share price level, we therefore continue to give the stock a 'BUY' rating and see significant upside potential.
 
 

You can download the research here:
http://www.more-ir.de/d/29049.pdf

Contact for questions
GBC AG
Halderstrasse 27
86150 Augsburg
0821 / 241133 0
research@gbc-ag.de
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Date (time) of completion: 04/03/2024 (8:20 am) Date (time) of first distribution: 04/03/2024 (10:00 am)

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