GBC AG: The NAGA Group AG | Rating: BUY

Original-Research: The NAGA Group AG - von GBC AG

Einstufung von GBC AG zu The NAGA Group AG

Unternehmen: The NAGA Group AG
ISIN: DE000A161NR7

Anlass der Studie: Research FactSheet
Empfehlung: BUY
Kursziel: 3.60 EUR
Kursziel auf Sicht von: 31.12.2023
Letzte Ratingänderung:
Analyst: Cosmin Filker

First positive effects from initiated restructuring visible; Break-even expected in the current financial year; Target price: € 3.60; Rating: BUY  
Communication with the financial market of NAGA Group AG (NAGA for short) in the past 2022 financial year was characterised by the postponement of the 2021 annual report. Part of the delay was related to the clarification of valuation issues. In the opinion of the auditors, the cryptocurrency holdings now had to be accounted for at acquisition cost and part of the customer acquisition costs could no longer be capitalised. Although the company was in a position to continue on its previous growth path with an increase in total revenues of 117.1% to € 52.88 million (previous year: € 24.35 million), the changes in the balance sheet led to a significant decline in EBIT to € -9.55 million (previous year: € 0.94 million).  
Due to the delayed publication of the annual report, the 2022 half-year report was also published late on 30 December 2022. In this report, the NAGA management paints a picture of a turbulent first half of 2022, characterised in particular by the collapse of the crypto markets, a decline in turnover resulting from their withdrawal from the UK and the overall decline in transaction activity on the capital markets in the wake of the war in Ukraine. However, due to the still high level of customer acquisition activities, turnover continued to grow dynamically by 50.1% to € 35.02 million (previous year: € 23.22 million), but EBIT was significantly below the previous year's level at € -18.63 million (previous year: € -1.95 million). Among other things, the necessary valuation adjustments of the crypto assets held in the amount of around € -12.00 million were a significant factor in the sharp decline in earnings.   
The NAGA Board of Directors has taken the development of the first half of 2022 as an opportunity to initiate a complete change in strategy and a restructuring since July 2022. On the basis of the product areas that have now been expanded and introduced to the market (NAGA Trader; NAGAX; NAGA Pay), the focus has been shifted away from strong customer and revenue growth towards reaching the break-even point. This is to be exceeded sustainably from the second quarter of 2023.  
Their focus on their trading business and on reducing their operating cost base and acquisition costs is already bearing fruit, according to the company. With the improvement in marketing costs, staff reductions and their cut in R&D expenses, the cost base was reduced to €14 million in the second quarter of 2022 and further to €12 million in the fourth quarter of 2022. In the first quarter of 2022, this was still at €20 million. This reduction is partly driven by an improvement in customer acquisition costs. In Q3, these were € 816, a significant reduction compared to the first two quarters (Q1: € 1,343; Q2: € 1,609). In Q4 2022, these fell further to € 613. At the same time, an increase in revenue per customer is to be achieved through geographical diversification.  
These measures should only become clearly visible in the current financial year 2023, but will only have a full impact in 2024. The past financial year 2022 should still be characterised by a clearly negative result.  
The expected high negative operating cash flow should be partly offset by a positive investment cash flow. This is primarily related to the sale of money market funds in which NAGA had temporarily parked the liquid funds raised from the capital increases. A free cash flow of € -3.22 million was reported at the end of the first half of 2022.  
A key aspect of the company's further development is likely to be their planned strategic transaction with a multinational brokerage company. As reported by NAGA on 19 January 2023, discussions are currently taking place with an unnamed brokerage company with the aim of merging the two companies. The transaction should be completed by the fourth quarter of 2023, subject to a positive due diligence review and other approvals. In our view, NAGA would be taken over in this case, but their independent stock exchange listing would be maintained. Obviously, the current valuation of NAGA is considered low and, on the other hand, the now fully developed NAGA product range is considered attractive. In the event of an acquisition, NAGA could benefit from the existing licences of the brokerage company, which would allow it to enter new markets without having to first obtain a time-consuming licence.
 
The current financial year 2023 will be characterised by a focus on improving the key earnings figures, as described above. In addition, the company plans to re-enter the UK, where the largest traded volume was in 2021, by Q2 2023. The reactivation of the former customer base (180,000 leads) is to be carried out at lower profit costs, which would have an immediate effect on earnings. In addition, the company plans to grow more strongly outside Europe. In this respect, the recently granted licence in the Seychelles is of great importance. Finally, the introduction of the NAGA Institutional Desk, planned for the beginning of 2023, is intended to address volume traders more strongly.
 
After an expected negative EBIT of € -29.77 million for the past financial year, with sales revenues of € 52.08 million, in particular due to the losses in value of cryptocurrencies held, the break-even point should be reached in the current financial year. With a 30% increase in turnover to € 67.42m, we expect EBIT to improve to € 0.79m. The effects of the UK re-entry and the further regional expansion should be fully reflected positively in the coming 2024 financial year. We expect revenue growth of 25% to € 84.27 million in 2024 and consider EBIT of € 10.46 million to be realistic.
 
Within the framework of our DCF valuation model, we have determined a target price of € 3.60 (previously: € 12.75). The significant lowering of the target price is a consequence of the significantly reduced forecasts for the concrete estimation period (2022e - 2024e), which provides a lower basis for the continuity phase of our valuation model. On the other hand, we take into account the market-related increase in the risk-free interest rate and thus visibly raise the weighted average cost of capital (WACC) to 10.34% (previously: 9.33%). Based on the current share price of € 1.84, we assign the rating BUY.
 

Die vollständige Analyse können Sie hier downloaden: http://www.more-ir.de/d/26351.pdf

Kontakt für Rückfragen
GBC AG
Halderstrasse 27
86150 Augsburg
0821 / 241133 0
research@gbc-ag.de
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Offenlegung möglicher Interessenskonflikte nach § 85 WpHG und Art. 20 MAR. Beim oben analysierten Unternehmen ist folgender möglicher Interessenkonflikt gegeben: (5a,11); Einen Katalog möglicher Interessenkonflikte finden Sie unter: http://www.gbc-ag.de/de/Offenlegung
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Date (time) Completion: 03/02/23 (08:24 pm) Date (time) first transmission: 03/02/23 (11:30 am)

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