GBC AG: Media and Games Invest SE | Rating: BUY

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

Financial year 2023 with solid operating performance finalised; Return to organic growth is expected for the 2024 financial year; Expansion of the digital advertising platform business should enable significantly profitable growth in future; Target price: € 4.50 (previously: € 4.50); Rating: BUY
 
According to its published business figures, the MGI Group achieved a solid sales performance in the past financial year 2023 despite a difficult environment and market situation, generating sales of € 321.98 million (PY: € 324.44 million). On a comparable basis, organic sales even increased by 5.0% compared to the previous year. A particularly high organic sales growth rate of 16.0% was achieved in the final quarter, which is traditionally the strongest quarter in terms of sales. The main contributors to this growth were the 18.9% increase in the software customer base to 2,276 customers at the end of the financial year (end of 2022: 1,915) and the 19.1% increase in the volume of digital advertising delivered to 206 billion (advertising ads at the end of FY 2022: 173.0 billion). The renewed improvement in MGI's market position in the mobile sector is also reflected in the market-leading positions on iOS and Android with a US market share of 12.0% on both platforms according to the industry experts at Pixalate. This means that the previously adjusted company guidance (sales of € 303.0 million) and our sales estimate (GBCe: € 303.21 million) were exceeded.
 
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). Accordingly, 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, which was slightly above the previous year's level (PY: € 93.20 million). The adjusted EBITDA margin (Adj. EBITDA margin) also increased to 29.6% (PY: 28.7%). This increase in profitability reflected the first positive effects of the cost-cutting programme initiated last year, which should enable annual cost savings of around € 10.0 million once successfully implemented. Accordingly, the adjusted earnings guidance (adjusted EBITDA: € 93.0 million) and our earnings estimate (adjusted EBITDA: € 93.07 million) were exceeded.  
In view of a strong fourth quarter (organic growth Q4 2023: 16.0%) and an even stronger performance in the first quarter (organic growth Q1 2024: 21.0%), MGI's management is positive about the current financial year 2024 and expects double-digit growth and an improvement in the earnings situation. Based on the recent concretisation of the guidance with the publication of the Q1 business figures, MGI now expects sales revenues in a range of € 350.0 million to € 370.0 million and an adjusted EBITDA (Adj. EBITDA) of between € 100.0 million and € 110.0 million.  
As part of the publication of our research study on the preliminary annual results for 2023, we adjusted our previous sales and earnings forecasts upwards due to the positive outlook, the increased (organic) growth momentum and the expected recovery of the advertising market. In view of their strong Q1 performance, their sustained high growth momentum and the confirmation of the positive outlook, we are confirming our previous sales and earnings estimates for the current financial year and subsequent years. Accordingly, we continue to expect sales of € 352.18 million and EBITDA of € 100.08 million for the current financial year 2024. For the subsequent financial years 2025 and 2026, we expect sales (EBITDA) of € 389.51 million (€ 113.35 million) and € 437.03 million (€ 130.67 million) respectively.  
MGI recently announced its intention to change the company name to Verve. The media business is already operating under this name. The name change marks the successful completion of MGI's transformation into a leading digital media company. At the same time, plans were announced to expand the Board by one person and to appoint two new Board members with proven media expertise. Greg Coleman (USA) was President and Board Member at the Huffington Post, BuzzFeed and Criteo, among others, and Peter Huijboom (Netherlands) was CEO Global Media and CEO Global Clients at the advertising agency Dentsu. Both announcements reflect the clear focus on the further expansion of the advertising business, but are still subject to the approval of the Annual General Meeting.  
Overall, the MGI Group should be able to significantly increase the pace of growth compared to the previous year thanks to its good market positioning (especially in the US market) and the expected recovery of the advertising market. Its innovative customer solutions (AI targeting solutions, etc.) in particular should make a significant contribution to boosting its customer base and ad tech platform revenue in the future.  
Based on our unchanged forecasts for the current financial year 2024 and the following years, we have maintained our previous price target of € 4.50 (previously: € 4.50). In view of the current share price level, we therefore continue to assign a 'BUY' rating and see significant upside potential in the MGI share. The results of our peer group analysis (see p. 20) also support our assessment of the attractiveness and upside potential of MGI shares.
 

You can download the research here:
http://www.more-ir.de/d/29777.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: 16/05/2024 (8:20 am) Date (time) of first distribution: 16/05/2024 (11:00 am)

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The issuer is solely responsible for the content of this research. The result of this research does not constitute investment advice or an invitation to conclude certain stock exchange transactions.