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Original-Research: Verve Group SE - from GBC AG
05.12.2024 / 10:30 CET/CEST
Dissemination of a Research, transmitted by EQS News - a service of EQS
Group AG.
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.
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Classification of GBC AG to Verve Group SE
Company Name: Verve Group SE
ISIN: SE0018538068
Reason for the research: Research study (Comment)
Recommendation: BUY
Target price: 6.70 EUR
Last rating change:
Analyst: Marcel Goldmann, Cosmin Filker
9M 2024: Dynamic sales and earnings performance; mobile in-app advertising
and ID-less advertising solutions drive strong organic growth; GBC estimates
and price target raised
Business performance 9M 2024
On 28 November 2024, the Verve Group (SE) published its nine-month and Q3
figures for the current financial year. Thanks to its strong market
positioning, particularly with innovative customer solutions (e.g. ATOM or
Moments.AI) in the mobile advertising segment, the ad tech group was able to
benefit significantly from the advertising market recovery in the past nine
months and achieve a dynamic increase in consolidated digital revenue of
31.1% to EUR 292.78 million (9M 2023: EUR 223.27 million).
Growth was mainly driven by increased demand for ID-less targeting solutions
from new advertising customers and increased budgets from existing customers
(net USD expansion rate at the end of Q3 2024: 108% vs. 93.0% at the end of
Q3 2023) as well as increased revenue from mobile full-screen and video
advertising formats. Accordingly, the number of large software customers
(annual gross revenue > USD 100,000) increased significantly by 55.9% to
1,076 at the end of the third quarter (including Jun acquisition; end of Q3
2023: 690). At the same time, the volume of digital advertising delivered
increased significantly by 31.2% to 244 billion at the end of the third
quarter (advertisements at the end of Q3 2023: 186 billion).
The revenue generated, which resulted in particular from the US market (US
revenue share at the end of Q3: approximately 80.0%), was mainly driven by
the traditionally largest advertising segment 'Supply Side Platform' with
digital revenue totalling EUR 258.99 million (9M 2023: EUR 200.35 million). This
main business segment recently accounted for around 88.5% of Group revenue.
The above-average growth achieved has enabled the Verve Group to maintain
its leading market position and even gain market share. Their strong market
position in the US market and the technology company's positive customer
response are also reflected in Pixalate's current Top Mobile SSP Index
(Seller Trust Index), where Verve recently achieved a top ranking with 99.0
index points (SPO score).
In parallel to their positive sales development, Verve also achieved a
pleasing result at operating earnings level with EBITDA of EUR 84.45 million.
Compared to EBITDA in the same period of the previous year (9M 2023: EUR
101.15 million), which was significantly positively influenced by the
revaluation of the AxesInMotion earn-out payment liability (positive one-off
effect of EUR 62.76 million), there was a significant decline in earnings.
Adjusted for such special effects (e.g. M&A and restructuring costs or
revaluations of balance sheet items), however, adjusted EBITDA (Adj. EBITDA)
of EUR 84.80 million was generated, which was significantly higher than in the
same period of the previous year (9M 2023: EUR 63.50 million).
In terms of operating profitability, a slight increase in profitability to
29.0% (9M 2022: 28.4%) was achieved on the basis of the adjusted EBITDA
margin (Adj. EBITDA margin) despite high investments in the sales team and
platform structures. In addition, the currently still rather low CPMs
(cost-per-mile) in the advertising industry prevented a stronger increase in
profitability.
The significant increase in earnings and high profitability were also
reflected in an even stronger increase in operating cash flow of 152.5% to EUR
81.46 million (9M 2023: EUR 32.26 million). As a result, the leverage ratio
(net debt/adj. EBITDA) also improved to 2.6x at the end of the third quarter
(net leverage FY 2023: 3.1x). The company is forecasting a further
improvement to 2.4x by the end of the year.
Consolidated net profit (after minority interests) of EUR 14.49 million was
generated after the first nine months, which was below the previous year's
level (9M 2023: EUR 41.83 million) due to the significant one-off effect in
the previous financial year described above.
Business performance Q3 2024
The growth momentum achieved was particularly evident in the third quarter
as it was by far the strongest quarter in the current financial year to
date. In the third quarter, Verve achieved dynamic sales growth of 45.2%
year-on-year to EUR 113.74 million, of which 31.0% was attributable to organic
growth effects (excluding currency effects and the Jun Group acquisition).
The significant (organic) sales growth resulted primarily from increased new
customer acquisition and expanded advertising budgets from existing software
customers. In particular, ID-less advertising solutions fuelled growth among
new and existing customers.
The inorganic growth effects recorded in the third quarter resulted from the
Jun Group acquisition carried out in the summer (closing at the end of July
2024). According to the company, the Jun Group integration started as
planned in the third quarter and the estimated positive synergy effects from
this are mainly expected for the 2025 financial year. In the third quarter
of 2024, the Jun Group already achieved year-on-year sales growth of 7.0%,
which is significantly higher than in the previous second quarter (YoY
growth: 2.0%). In October, the company achieved a further significant
acceleration in growth compared to the third quarter with a recorded growth
rate of 13.0%, generating a high EBITDA margin of 49.0%.
At the same time, a significant increase in adjusted EBITDA (Adj. EBITDA) of
45.5% to EUR 33.60 million (Q3 2023: EUR 23.10 million) was achieved at
operating earnings level. At the same time, the adjusted EBITDA margin
improved slightly to 30.0% (Q3 2023: 29.0%) thanks to the onset of economies
of scale.
Forecast and price target
In view of the extremely positive company performance in the first nine
months and the expected strong profitable growth for the fourth quarter and
subsequent financial years, management has reaffirmed its previously raised
guidance (revenue of EUR 400.0 million to EUR 420.0 million and Adj. EBITDA of EUR
125.0 million to EUR 135.0 million) for the current financial year 2024 and
its medium-term guidance (revenue CAGR: 25.0% to 30.0%; Adj. EBITDA margin:
30.0% to 35.0%). Accordingly, Verve expects continued high growth momentum
in the form of double-digit profitable growth rates in the future as the
advertising market continues to recover.
In light of the strong company results and the confirmed outlook, we have
adjusted our estimates for the current 2024 financial year upwards.
Accordingly, we now expect sales of EUR 410.02 million (previously: EUR 401.24
million) and EBITDA of EUR 121.51 million (previously: EUR 119.29 million) for
the current financial period. Our sales and earnings forecasts for
subsequent financial years remain unchanged.
Based on our increased estimates for the current financial year and our
confirmed forecasts for the following years, we have raised our previous
price target slightly to EUR 6.70 per share (previously: EUR 6.60 per share). In
relation to 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/31495.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: 05/12/2024 (9:01)
Date (time) of first distribution: 05/12/2024 (10:30)
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