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

Original-Research: Media and Games Invest plc - von GBC AG

Einstufung von GBC AG zu Media and Games Invest plc

Unternehmen: Media and Games Invest plc ISIN: MT0000580101

Anlass der Studie: Research Note
Empfehlung: BUY
Kursziel: 2.85 EUR
Letzte Ratingänderung:
Analyst: Marcel Goldmann, Cosmin Filker

HY1 2020 Continued dynamic revenue growth; strong organic growth in the gaming segment; GBC estimates increased

Media and Games Invest plc (MGI) has achieved a very dynamic development of revenues in the first six months of the current fiscal year. Compared to the same period of the previous year, consolidated revenues jumped by 98.0% to EUR 56.60 million (H1 2019: EUR 28.60 million). This was mainly due to the booming gaming segment. In addition, M&A activities in the media division contributed to the positive development of group sales. Parallel to this, the consolidated operating result (EBITDA) also increased significantly by 54.0% to EUR 11.60 million (H1 2019: EUR 7.50 million) compared to the same period last year.

At the cash flow level, the operating cash flow in the first half of 2020 increased significantly by 86.0% to EUR 10.80 million (H1 2019: EUR 5.80 million) compared to the same period of the previous year. This enabled a strong reduction of net leverage by 14.0% to 3.6x in the second quarter of 2020 (1st quarter of 2020: 4.2x).

Especially in the gaming segment, MGI has significantly increased its business volume in the second quarter of the current fiscal year and achieved an organic growth of 35.0% in this business segment compared to the first quarter of 2020. In addition to the lockdown effects due to COVID-19 in conjunction with increased marketing efficiency and higher marketing expenses, the game expansions in particular led to a significant increase in the number of new players (up to 75.0%) and player activity (up to 31.0%). According to the company, the game expansions for the titles ArcheAge and Trove in particular led to particularly high revenue growth. These two gaming titles were acquired in the course of the Trion Worlds takeover (asset deal) at the end of 2018 and once again underline the successful MGI Group M&A strategy.

In the second business division media, MGI had to accept a decline in sales in the second quarter by 11.0% to EUR 11.20 million compared to the first quarter (Q1 2020: EUR 12.60 million). However, it should be mentioned here that according to the company's announcement, this development was significantly better than the overall market, which posted a decline of more than 30.0%. The outperformance of the media segment compared to the overall market is based on the less cyclical segments of gaming and ecommerce, which enabled the division to achieve a relatively satisfactory performance under the difficult market conditions for media companies, which were caused by the beginning of the coronavirus crisis.

Despite the decline in sales, however, the media segment achieved an increase in operating earnings of 26.0% to EUR 1.00 million in the second quarter of the current fiscal year (Q1 2020: EUR 0.80 million) due to implemented cost synergies. In addition, the company announced that the media segment has made a very good start in the current third quarter and that this business unit has returned to the sales level previous to COVID-19 with a sustainable margin improvement.

At net earnings level, MGI had to accept a decline in earnings in the first half of the current fiscal year compared to the same period of the previous year due to PPA write-offs (caused by M&A activities) and higher interest expenses. Thus, the net result in this business period decreased by about 44.0% to EUR 0.50 million compared to the same period of the previous year (H1 2019: EUR 0.90 million).

Against the background of the very positive half-year business development, the sustainable organic growth and the strong M&A pipeline, the MGI management recently decided to increase the previous company guidance. For the current fiscal year 2020, MGI now expects revenues in a range of EUR 115.0 to EUR 125.0 million and EBITDA in a range of EUR 20.0 to EUR 23.0 million.

All in all, it can be stated that the sales and earnings development of the MGI Group in the first half of 2020 was satisfactory due to its good business development. Especially the gaming division contributed to the good overall performance due to its significant organic growth. In addition, the group should also be able to profit from the corona effects in the long term through the traditionally long-term retention of the players won and the increasing importance of digital business models, which also includes the company's digitally-supported media division.

After MGI's very good start in fiscal year 2020 and after having raised its previous corporate guidance due to this convincing performance, we expect a clearly positive business development for the second half of 2020 as well.

In view of their convincing half-year business development and their very positive business outlook, we have also raised our previous forecasts for the current fiscal year. From a conservative perspective, we now expect consolidated revenues of EUR 116.16 million (previously: EUR 110.23 million) and EBITDA of EUR 21.74 million (previously: EUR 21.26 million). For the current fiscal period, we expect the majority of revenues to be generated in the gaming business. In addition, we also expect a consolidated revenue contribution of EUR 5.00 million from the newly acquired Platform 161 (takeover in the media segment in July 2020) on an inorganic revenue level for the current financial year.

We expect the successful growth strategy to continue in the coming years and anticipate significant increases in revenues and earnings in both the gaming and media divisions. After the gaming sector was significantly strengthened in the past by an M&A series and thus now enjoys a good market position, MGI should be able to profit sustainably from the booming global gaming sector and therefor significantly increase sales revenues in this business segment in the coming years.

With regard to the media sector, we also expect dynamic sales growth in the coming years. Here, the division should be able to benefit in particular from the less cyclical segments of gaming and e-commerce and from the expected synergy effects from the integration of media companies acquired in the past. As a result of the M&A transactions completed in the recent past, the media division also has a strong market position and a critical business size, which should enable the company to achieve sustained dynamic growth in this business segment.

Specifically, we expect sales revenues of EUR 132.28 million for fiscal year 2021. In the following year 2022, sales revenues should then be able to increase again to EUR 152.12 million.

With regard to the perspective revenue composition, we expect a fairly balanced revenue mix from the games and media segment in the medium and long term. Both divisions should be able to profit from significant synergy effects among themselves in the future as well, and at the same time, both divisions should be able to achieve significant synergy effects on the revenue and cost level.

Our expected dynamic sales development is also reflected in our earnings forecasts. For example, we expect a significant increase in the operating result (EBITDA) in the coming years. At the same time, we also expect a significant increase in the EBITDA margin to around 20.0% in the long term due to the expected onset of economies of scale. EBITDA in the region of EUR 30.69 million should be generated in 2022.

We also expect significant earnings growth at net level in the coming financial periods. Specifically, we expect net earnings (after minority interests) for the current fiscal year, taking into account depreciation, financing and tax effects, to amount to EUR 1.64 million. In the following years, 2021 and 2022, this should increase further to EUR 4.04 million and EUR 6.87 million respectively.

All in all, we believe that MGI is well positioned in its two business segments, gaming and media, to continue its previous dynamic growth course in the growth areas online/mobile gaming and digital media at a high rate of growth in the future. As in the past, the company should be able to support the organic growth of the company through targeted acquisitions and at the same time noticeably increase the profitability of the group. As the forecast increase we have made for 2020 is only marginal and therefore has no significant impact on the results of our DCF valuation model, we are maintaining our previous price target of EUR 2.85. Based on the current price level, we continue to assign the BUY rating.

Die vollständige Analyse können Sie hier downloaden: http://www.more-ir.de/d/21477.pdf

Kontakt für Rückfragen
Jörg Grunwald
Vorstand
GBC AG
Halderstrasse 27
86150 Augsburg
0821 / 241133 0
research@gbc-ag.de
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Date (Time) completion: 25.08.2020 (09:46 am) Date (Time) first distribution: 25.08.2020 (10:00 am)

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