Original-Research: Verve Group SE - from GBC AG Classification of GBC AG to Verve Group SE Company Name: Verve Group SE ISIN: SE0018538068 Reason for the research: Research study (Note) Recommendation: BUY Target price: 6.00 EUR Last rating change: Analyst: Marcel Goldmann, Cosmin Filker Jun acquisition ensures significant sales and earnings growth and a significant strengthening of the demand side; the integration of the acquisition opens up considerable sales synergies; significant increase in forecasts and price target; 'BUY' rating confirmed On 18 June 2024, Verve Group SE (Verve) announced the signing of an agreement to fully acquire Jun Group, a leading mobile advertising technology company with a focus on the demand side and strong business relationships with leading US brands and media agencies.

Original-Research: Verve Group SE (von GBC AG): BUY

Original-Research: Verve Group SE - from GBC AG

Classification of GBC AG to Verve Group SE

Company Name: Verve Group SE
ISIN: SE0018538068

Reason for the research: Research study (Note)
Recommendation: BUY
Target price: 6.00 EUR
Last rating change: 
Analyst: Marcel Goldmann, Cosmin Filker

Jun acquisition ensures significant sales and earnings growth and a
significant strengthening of the demand side; the integration of the
acquisition opens up considerable sales synergies; significant increase in
forecasts and price target; 'BUY' rating confirmed
 
On 18 June 2024, Verve Group SE (Verve) announced the signing of an
agreement to fully acquire Jun Group, a leading mobile advertising
technology company with a focus on the demand side and strong business
relationships with leading US brands and media agencies.
 
The Jun Group's mobile-first demand-side business with direct access to
more than 230 Fortune 500 advertisers and US agencies is a perfect
complement to the market-leading US-centred mobile supply-side platform,
according to the company. The acquisition will result in a more balanced
sales model with 30.0% demand-side business (previous demand-side share:
approximately 10.0%) and 70.0% supply-side business (previous supply-side
share: approximately 90.0%). The Jun Group has a highly diversified
customer base (including Amazon, McDonalds and Dell), which is growing
steadily.
 
This transformative transaction will significantly increase the size and
profitability of the Verve Group. The acquisition of the Group is expected
to contribute approximately 23.0% in revenue and approximately 43.0% in
adjusted operating profit (Adj. EBITDA), which on a pro forma basis should
lead to expected Group revenue of approximately EUR 447.0 million and
adjusted EBITDA of approximately EUR 151.0 million in the current FY 2024.
 
The agreed total purchase price for the transaction amounts to EUR 170
million. According to the company, EUR 120 million of the purchase price will
be paid from existing cash funds, whereby a cash capital increase with
gross issue proceeds of around EUR 40.0 million (27.11 million new shares at
an issue price of around EUR 1.48) was recently carried out for this purpose.
The remaining EUR 50.0 million of the purchase price payment is to be made in
two annual instalments in 12 and 18 months after the planned closing in
September 2024. The completed capital measure is intended to achieve the
targeted capital structure with a medium-term pro forma net leverage ratio
of 1.50 to 2.50.
 
According to the company, the purchase price including expected synergy
effects thus amounts to 3.8x EBITDA. In addition to the significant cost
synergies (approximately EUR 2.0 million in FY 2024), the Verve Group
primarily expects extensive synergies at revenue level (approximately EUR 9.0
million in FY 2024). Extensive sales synergies are to be realised primarily
through the combination of product and customer structures and the various
platforms. In the medium term, Verve anticipates sales synergy potential of
between EUR 30.0 million and EUR 40.0 million. In view of the high
profitability (50.0% EBITDA margin from USD 72.0 million in sales in FY
2023) and the significant growth and synergy potential of the Jun Group, we
consider the purchase price for the transaction to be extremely favourable.
 
With regard to future financing structure and conditions, Verve assumes
that the ability to reduce debt will improve significantly in the future
due to the strong (expected) cash EBITDA (approximately 80.0% in FY 2025
according to the company's forecast). Accordingly, the technology group
anticipates that the expected improvement in debt ratios will reduce future
financing costs as soon as the existing financial debt is refinanced. At
the present time, declines in bond yields can already be observed for the
existing longer-term bonds (see e.g. Verve Group bond with ISIN:
SE0019892241), which indicates significantly lower financing conditions in
the future.
 
Forecasts and evaluation
 
Based on the announced transformative acquisition and the strong first half
of the current financial year, Verve's management has significantly revised
its previous guidance upwards. For the current financial year 2024, the
company now expects consolidated sales of EUR 380.0 million to EUR 400.0
million (previously: EUR 350.0 million to EUR 370.0 million) and adjusted
EBITDA (Adj. EBITDA) of EUR 115.0 million to EUR 125.0 million (previously: EUR
100.0 million to EUR 110.0 million).
 
As a result of the significant increase in the Group's size and
profitability, Verve has also updated its medium-term guidance. The
technology company expects a sales CAGR of 25.0% to 30.0% (unchanged from
previously) and an EBITDA margin of 30.0% to 35.0% (previously: 25.0% to
30.0%) and an EBIT margin of 20.0% to 25.0% (previously: 15.0% to 20.0%).
 
Against the backdrop of the improved company outlook and the increased
medium-term financial targets, we have adjusted our previous sales and
earnings estimates upwards. Accordingly, we now expect sales of EUR 380.12
million (previously: EUR 352.18 million) and EBITDA of EUR 108.92 million
(previously: EUR 100.08 million) for the current 2024 financial year. For the
following years 2025 and 2026, we are forecasting sales of EUR 475.91 million
(previously: EUR 389.51 million) and EUR 596.79 million (previously: EUR 437.03
million). At the same time, operating earnings (EBITDA) should increase to
EUR 148.77 million (previously: EUR 113.35 million) and EUR 191.58 million
(previously: EUR 130.67 million).
 
Overall, the Jun acquisition represents a good strategic step towards
better balancing the Group's demand- and supply-side-specific business
model and utilising the resulting advantages profitably. In addition, this
transaction will take the Verve Group to the 'next level' in terms of
consolidated sales and profitability. The integration of the acquisition
will also result in considerable synergy effects, particularly in terms of
sales, which can be gradually realised.
 
As part of our DCF valuation model, we have also significantly increased
our price target to EUR 6.00 (previously: EUR 4.50) per share due to our
increased sales and earnings estimates. However, the dilution effect
resulting from the capital increase (increase in the number of shares by
0.27 million to 186.36 million) reduced the target price. In view of the
current share price level, we therefore continue to assign a 'BUY' rating
and see significant upside potential in the Verve share.
 

You can download the research here:
http://www.more-ir.de/d/30089.pdf

Contact for questions
GBC AG
Halderstrasse 27
86150 Augsburg
0821 / 241133 0
[e-mail]
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Offenlegung möglicher Interessenskonflikte nach § 85 WpHG und Art. 20 MAR. Beim oben analysierten Unternehmen ist folgender möglicher Interessenkonflikt gegeben: (5a,7,11); Einen Katalog möglicher Interessenkonflikte finden Sie unter: http://www.gbc-ag.de/de/Offenlegung
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Date (time) of completion: 24/06/2024 (10:29)
Date (time) of first distribution: 24/06/2024 (12:00)

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