Verve Group — Another substantial upgrade

Verve Group (OMX: VER)

Last close As at 15/08/2024

EUR2.73

−0.03 (−1.09%)

Market capitalisation

EUR434m

More on this equity

Research: TMT

Verve Group — Another substantial upgrade

Verve’s AI-driven, privacy-first advertising solutions are gaining good traction and market share is increasing, with a 33% uplift in the number of larger software clients and 24% more ad impressions served in Q224. Management has issued new full year guidance indicating year-on-year revenue growth of between 24% and 30%, earning an adjusted EBITDA margin of over 30%, reflecting the leverage on a lower fixed cost base. We have adjusted our forecasts accordingly. The acquisition of Jun Group will be included from August 2024. Full H124 figures will be released on 29 August at Verve’s scheduled capital markets day (CMD) in Stockholm.

Fiona Orford-Williams

Written by

Fiona Orford-Williams

Director, TMT

TMT

Verve Group

Another substantial upgrade

Increased guidance

Media

13 August 2024

Price

€2.73

Market cap

€509m

€0.087/SEK

Net debt (€m) at 31 March 2024

319

Shares in issue (including new shares)

186.4m

Free float

71.0%

Codes

VER (Nasdaq)/M8G (Xetra)

Primary exchanges

Deutsche Börse Scale, OTCQX

Secondary exchange

Nasdaq Stockholm First North Premier Growth

Share price performance

%

1m

3m

12m

Abs

20.4

75.3

101.2

Rel (local)

27.3

85.6

79.7

52-week high/low

€2.78

€0.78

Business description

Verve Group operates a software platform for the automated buying and selling of digital advertising spaces in real time. It is the market leader in in-app advertising in the US and among the largest providers in Europe. Verve also serves substantial CTV volumes, plus channels such as mobile web and digital out-of-home.

Next events

Half-year results/ CMD

29 August 2024

Q3 report

28 November 2024

Analysts

Fiona Orford-Williams

+44 (0)20 3077 5739

Milo Bussell

+44 (0)20 3077 5700

Verve Group is a research client of Edison Investment Research Limited

Verve’s AI-driven, privacy-first advertising solutions are gaining good traction and market share is increasing, with a 33% uplift in the number of larger software clients and 24% more ad impressions served in Q224. Management has issued new full year guidance indicating year-on-year revenue growth of between 24% and 30%, earning an adjusted EBITDA margin of over 30%, reflecting the leverage on a lower fixed cost base. We have adjusted our forecasts accordingly. The acquisition of Jun Group will be included from August 2024. Full H124 figures will be released on 29 August at Verve’s scheduled capital markets day (CMD) in Stockholm.

Year end

Revenue
(€m)

Adjusted
EBITDA (€m)

PBT*
(€m)

EPS*
(c)

EV/EBITDA
(x)

P/E
(x)

12/22

324.4

93.2

38.6

13.4

9.4

20.3

12/23

322.0

95.2

26.8

35.8

9.2

7.7

12/24e

410.0

130.0

54.2

22.2

6.8

12.7

12/25e

505.0

181.8

118.5

42.9

5.0

7.4

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and sharebased payments.

Headline Q2 numbers show strong progress

Organic revenue growth in Q224 was 26% ahead of prior year (27% including forex benefit), giving a topline of €96.6m for the period. Given the quoted increase in ad impressions, there is some slight sign of improvement in pricing, which may partly reflect mix. The close attention to the cost base has given Verve better operating leverage and the adjusted EBITDA margin of a shade over 30% looks to us to be sustainable. At the time of the FY23 results, guidance was for FY24 revenue of €350–370m (Edison forecast €355m). This was lifted to €380–400m earlier in the summer, with this continued good trading now raising the target window to €400–420m. Our revised number sits at mid-range. Expectations for adjusted EBITDA have similarly been upgraded, from €100–110m to €125m–135m, which represents an increase of 32–42% over the prior year. We maintain our growth expectations into FY25, lifting forecast revenue by 5% and adjusted EBITDA by 7%.

Upcoming CMD should clarify Jun potential

The CMD at the end of this month should give more colour on the Jun acquisition and how the group’s demand-side offering (ie serving advertisers and agencies) is developing. We do not expect Google’s recent change of heart on the final deprecation of cookies to fundamentally shift the drive towards privacy-first, responsible advertising solutions, particularly at the high-quality end of the market.

Valuation: Well below peers, DCF

The share price is up 173% year-to-date, reflecting the strong trading news. However, the rating still sits at a discount to peers and to the value derived in our discounted cash flow (DCF). Looking at peer average EV/revenue and EV/EBITDA multiples across FY24 and FY25, parity now suggests a share price of €4.22, up from €4.10 as calculated in June. Our DCF (weighted average cost of capital 10%, terminal growth of 2%) points to €4.97 (previously €4.64).

Exhibit 1: Financial summary

€000s

2022

2023

2024e

2025e

31-December

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

324,444

321,981

410,000

505,000

Operating costs excl. D&A

(239,691)

(193,523)

(285,113)

(332,113)

Adj. EBITDA

 

 

93,202

95,171

130,000

175,000

EBITDA

 

 

84,753

128,458

124,887

172,887

Operating profit (before amort. and excepts.)

 

 

76,556

76,943

110,104

151,782

Amortisation of acquired intangibles

(14,853)

(11,229)

(11,229)

(11,229)

Exceptionals

(27,100)

(6,500)

(3,500)

(500)

Share-based payments

(1,613)

(1,613)

(1,613)

(1,613)

Reported operating profit

34,886

57,601

93,763

138,441

Net Interest

(37,959)

(50,171)

(55,939)

(49,024)

Joint ventures & associates (post tax)

0

0

0

0

Exceptionals

0

0

0

0

Profit Before Tax (norm)

 

 

38,597

26,771

54,165

102,758

Profit Before Tax (reported)

 

 

(3,073)

7,430

37,824

89,417

Reported tax

(9,064)

(2,718)

(12,482)

(29,507)

Profit After Tax (norm)

21,085

57,220

36,291

68,848

Profit After Tax (reported)

(12,137)

46,113

25,342

59,909

Minority interests

(88)

(513)

(520)

(525)

Discontinued operations

0

0

0

0

Net income (normalised)

20,947

56,933

36,811

69,374

Net income (reported)

(12,049)

46,626

25,862

60,434

Average Number of Shares Outstanding (m)

156.2

159.2

166.0

186.4

EPS - basic normalised (c)

 

 

13.41

35.75

22.17

37.23

EPS - normalised fully diluted (c)

 

 

12.01

32.08

19.98

33.91

EPS - basic reported (c)

 

 

(7.71)

29.28

15.58

32.43

Dividend (c)

0.00

0.00

0.00

0.00

Revenue growth (%)

28.7

(0.8)

27.3

23.2

Adjusted EBITDA Margin (%)

28.7

29.6

31.7

34.7

Normalised Operating Margin (%)

23.6

23.9

26.9

30.1

BALANCE SHEET

Fixed Assets

 

 

823,637

813,515

960,794

1,018,039

Intangible Assets

791,284

796,608

945,446

1,004,250

Tangible Assets

5,522

3,963

2,404

845

Investments & other

26,831

12,944

12,944

12,944

Current Assets

 

 

221,022

193,514

166,745

198,960

Stocks

0

0

0

0

Debtors

52,229

32,281

39,315

51,192

Cash & cash equivalents

149,992

121,740

87,937

108,276

Other

18,801

39,493

39,493

39,493

Current Liabilities

 

 

219,471

240,768

253,081

269,519

Creditors

68,711

80,335

100,241

116,679

Short term borrowings

31,903

34,510

58,390

58,390

Other financial liabilities

97,515

104,402

74,402

74,402

Other non-financial liabilities

21,342

21,521

20,048

20,048

Long Term Liabilities

 

 

503,443

413,804

478,804

466,804

Long term borrowings

389,386

348,038

413,038

406,038

Other long term liabilities

114,057

65,766

65,766

60,766

Net Assets

 

 

321,745

352,457

395,654

480,676

Minority interests

1,211

(182)

(182)

(182)

Shareholders' equity

 

 

322,956

352,275

395,472

480,494

CASH FLOW

Operating Cash Flow

(12,137)

46,113

25,342

59,909

Depreciation & amortisation

58,135

29,402

31,125

34,447

Working capital

68,140

31,572

12,872

4,562

Exceptional & other

(15,611)

(85,443)

1,613

1,613

Tax

6,002

2,718

0

0

Net finance cost

37,959

50,171

55,939

49,024

Net operating cash flow

 

 

142,488

74,533

126,890

149,554

Capex

(46,007)

(42,878)

(38,404)

(41,691)

Acquisitions/disposals

(138,000)

0

(130,000)

(50,000)

Equity financing

27,900

0

40,050

0

Dividends

0

0

0

0

Other

(53,413)

(52,301)

(37,439)

(30,524)

Net Cash Flow

(67,032)

(20,646)

(38,903)

27,339

Opening net debt/(cash)

 

 

198,600

273,900

297,427

396,237

FX

0

(2,881)

0

0

Other non-cash movements

(8,268)

0

(59,907)

0

Closing net debt/(cash)

 

 

273,900

297,427

396,237

368,898

Source: Company accounts, Edison Investment Research

General disclaimer and copyright

This report has been commissioned by Verve Group and prepared and issued by Edison, in consideration of a fee payable by Verve Group. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2024 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

General disclaimer and copyright

This report has been commissioned by Verve Group and prepared and issued by Edison, in consideration of a fee payable by Verve Group. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2024 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

London │ New York │ Frankfurt

20 Red Lion Street

London, WC1R 4PS

United Kingdom

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