Redeye provides a preview ahead of MGI’s Q2’2023 report, due on 31st of August. We make limited estimate revisions but update our valuation range on the back of higher uncertainty regarding the macro climate and higher financial risk based on its high leverage position.

For Q2’2023e, we expect net sales to grow 3% y/y and to reach EUR80.7m (78.1). As for the past quarters, we expect the DSP segment to be the strongest growth contributor (25% y/y), while we expect the SSP segment to grow 1% y/y, negatively affected by the closure of some PC/console games in 2022.&nbsp;

We believe its higher focus on cost efficiencies and synergies to proceed into the second quarter and expect the Adj EBIT margin to reach 23.8% (21.0) in the quarter, yielding an Adj EBIT of EUR19.2m (16.4). &nbsp;

Several large industry players have seen a market slowdown based on lower advertising budgets and recent IDFA issues. However, the market seems to bounce back gradually, and we expect MGI’s growth rates to follow and improve sequentially during the year.

Verve Group

* Lack of a diversified and wide revenue base, potentially exposing the company to risks associated with market fluctuations or customer loss.
* Possible cyclical nature of the advertising business, which could impact financial performance during economic downturns.

* Strong recurring revenue model based on advertising volumes, enhancing business stability and predictability.
* Asset-light business model allowing for efficient scaling with high incremental returns and minimal reinvestment needs.
* Clear competitive moat through extensive database and market leadership in the in-app advertising market.

* Lack of consistent earnings growth, with EPS growth not exceeding historical averages or maintaining stability over longer periods.
* Net debt exceeds two times operating cash flow, potentially indicating challenges in debt management.
* Absence of dividend payments or growth, limiting appeal for income-focused investors.
* Return on Equity (ROE) has not consistently reached 20% over the last five years, indicating potential room for improvement in capital utilization.

* Strong profitability with gross profit margin exceeding 40% and operating margin above 20%, indicating pricing power and competitive advantage.
* Consistent revenue growth above industry average over the last five years, suggesting market share gains and strong demand.
* High operating cash flow conversion (above 80%) over the past five years, demonstrating ability to generate real cash profits.

* EPS growth has been dampened by high debt and interest costs, potentially impacting overall financial performance.
* Lack of clear information about sustainability-related performance incentives in executive compensation plans.
* Insufficient information available to assess the CEO evaluation process and succession planning.

* Visionary CEO with long-term perspective and deep industry knowledge, consistently delivering on promises and creating shareholder value.
* Strong commitment to innovation and strategic planning, focusing on ID-less solutions and niche market segments.
* Clear and consistent investor communication, emphasizing long-term business value and transparency about mistakes.
* Founder-CEO owns a significant stake (c25%) in the company, aligning management interests with shareholders.

Media and Games Invest (MGI)
Estimate (EUR m)	Q1'22	Q2'22	Q3'22	Q4'22	Q1'23	Q2'23e
Net Sales	65.9	78.1	87.6	92.9	68.8	80.7

Other external expenses	-6.5	-8.0	-9.0	-9.5	-7.0	-6.5
Personnel expenses	-17.3	-17.5	-19.6	-21.8	-19.4	-19.9
Other expenditures	0.0	0.0	0.0	0.0	0.0	0.0
Total Opex	-23.8	-25.5	-28.6	-31.3	-26.4	-26.3

Adj EBITDA	17.6	21.1	23.0	31.5	19.0	22.9
One-offs	-0.7	-1.1	-1.6	-5.1	-1.6	0.0
EBITDA	16.9	20.0	21.4	26.5	17.4	22.9

D&A	-7.1	-8.1	-8.1	-34.9	-6.4	-6.4
D&A less PPA	-4.0	-4.7	-4.5	-3.5	-3.9	-3.6

Adj EBIT	13.6	16.4	18.5	28.1	15.1	19.2

EBIT	9.8	12.0	13.3	-8.4	11.0	16.5

Net financials	-6.6	-7.7	-8.8	-14.8	-10.5	-10.5

EBT	3.2	4.2	4.5	-23.2	0.6	6.0

Tax	-0.6	-1.2	-1.3	-5.9	-0.2	-2.1

Net Profit	2.5	3.0	3.1	-29.1	0.4	3.9
Adj Net Profit	6.4	7.5	8.4	2.3	3.1	6.7
Adj EPS	0.04	0.05	0.05	0.01	0.02	0.04
Source: MGI (Historical data), Redeye Research (Forecasts)

Q2 2023 expectations:

Estimate table:

Updated valuation range: