Original-Research Media and Games Invest plc (von GBC AG): 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
Anlass der Studie: Research Comment
Kursziel: 2.10 EUR
Kursziel auf Sicht von: 31.12.2020
Analyst: Dario Maugeri, Cosmin Filker
Strong enhancement in gamigo numbers in FY 2019, revenues up 30% and EBITDA up 47.8%; organic growth doubled from 5% to 10% through the launch of new games and updated contents, EUR 16.39m cash
generation from operating cash flows
For the financial year ending in 2019, gamigo AG clearly increased its financial figures. Total revenues improved to EUR 58.92m (FY 2018: EUR 45.29m) driven by organic growth and by the integration of Trion World and WildTangent. The double digit organic growth was related to regular content updates in existing games such as in Fiesta Online and Last Chaos, the relaunch of their desert operations game (e.g. graphic update), the participation in game events (e.g. gamescom fair) as well as an optimized game/user support system.
A significant highlight was the launch of the buy-to-play version of ArcheAge Unchained. The company enjoyed a massive influx of players for this new version, to the point of having to increase the number of servers. For the whole FY 2019, gamigo total investments in strategic products and platforms amounted to EUR 8.5m.
During this period, the company improved its efficiency and internal organization. On the one hand, it reduced its tech spending, moving most of the services from bare-metal data centres into cloud systems. The latter increases manageability, reduces down-times and allows for a fast reaction to changing demand. Tech spending was even reviewed in the acquired companies, which, on average, after acquisition decreased their spending from 30-40% to 5-10% of sales. On the other hand, advertising and media sales teams were grouped under one team. This integration might improve costs and technical optimizations.
Despite the increase in personal expenses ratio from 32.5% to 36.6% on an annual basis, the EBITDA was improved by 47.8% to EUR 16.33m in 2019 (2018: EUR 8.65m thus higher than the turnover rate. This shows management skills in a developing economy of scale and synergies from the new acquisition. Adjusted EBITDA for one-off items related to M&A transactions, financing, legal and IT costs would be even higher to EUR 18.2m. The operating result was somewhat offset by a EUR 1.61m increase in depreciation (mainly purchase-price allocation depreciation) and around EUR 3.01m interests expenses related to gamigo's bond, which after EUR 0.82m in tax, led to a double-digit growth of 21.8% in net income to EUR 1.97m (2018: EUR 1.62m).
The operating cash flow has also developed very positively. The operating cash flow rose significantly in the reporting period from EUR 10.48m (FY 2018) to EUR 16.39m. Basically, gamigo AG was thus able to finance the investments made in 2019. After the investments for acquisitions and in infrastructure (e.g. IT), the company had a positive free cash flow of EUR 4.53m (previous year: EUR 4.14m). For enhancing the financing position, two further senior secured corporate bond tranches were issued on the Nasdaq Stockholm in 2019. The value of these issues amounted to EUR 18m (current whole bond value of EUR 50m), which were partly used to cover the inorganic expansion. Cash position on balance at the end of 2019 amounted to EUR 21.96m, an amount that leaves flexibility for new strategic growth.
Since the gamigo numbers were within our expectations, we confirm our forecasts for Media and Games Invest plc, last published on 20.02.20. With a target price of EUR 2.10, we continue to assign our BUY rating.
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Date (Time) completion: 06.03.2020 (11:10 am)
Date (Time) first distribution: 09.03.2020 (10:00 am)
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