German Startups Group — Profitable disposal of Exozet

SGT German Private Equity (DB: SGF)

Last close As at 01/11/2024

1.22

0.01 (0.83%)

Market capitalisation

74m

More on this equity

Research: Financials

German Startups Group — Profitable disposal of Exozet

On 17 December, German Startups Group (GSG) announced that it has sold its 50.8% stake in the digital agency Exozet to Endava, a US-listed technology service provider headquartered in London. GSG will receive c €11.2m in gross cash proceeds (€10.8m after deducting M&A commissions), translating into a disposal gain of around €6.1m (or €0.54 per share). The gain represents c 40% of GSG’s market capitalisation calculated on the closing price of €1.46 on 16 December. GSG had been considering the sale of Exozet for some time and has now achieved an exit price ahead of its initial assumptions.

Milosz Papst

Written by

Milosz Papst

Head of Content, Investment Trusts

Financials

German Startups Group

Profitable disposal of Exozet

Financials

Scale research report - Update

19 December 2019

Price

€1.73

Market cap

€19m

Share price graph

Share details

Code

GSJ

Listing

Deutsche Börse Scale

Shares in issue

10.9m

Last reported net debt at 30 June 2019

€8.3m

Business description

German Startups Group is a Berlin-based venture capital investment company primarily focused on providing investment to technology businesses in German-speaking countries. With the launch of its secondary shares trading platform, the company started the transition to a wider business model, including a marketplace.

Bull

Success of new business model may result in narrowing/closing the valuation gap to NAV and realising additional shareholder value.

Listed exposure to a diversified portfolio of technology start-ups in Germany.

Successful sale of Exozet translates into significant cash proceeds, which may be used for share buybacks.

Bear

Low liquidity.

VC investments are inherently high risk.

Longer periods when start-ups remain private may delay GSG’s exits.

Analyst

Milosz Papst

+44 (0)20 3077 5700

On 17 December, German Startups Group (GSG) announced that it has sold its 50.8% stake in the digital agency Exozet to Endava, a US-listed technology service provider headquartered in London. GSG will receive c €11.2m in gross cash proceeds (€10.8m after deducting M&A commissions), translating into a disposal gain of around €6.1m (or €0.54 per share). The gain represents c 40% of GSG’s market capitalisation calculated on the closing price of €1.46 on 16 December. GSG had been considering the sale of Exozet for some time and has now achieved an exit price ahead of its initial assumptions.

Disposal price ahead of previous expectations

GSG announced in 2018 that it was in negotiations to sell its majority stake in Exozet, but without conclusion. At the time, GSG expected a revaluation gain vs book value of around €1.0m (and a €1.5m profit on the initial acquisition price), as well as a cash inflow in the low single-digit million euros. Subsequently, Exozet’s revenues increased by 38% y-o-y to €7.3m in H119, generating an EBIT of €0.9m (vs a €0.4m loss in H118). Exozet has recently made good progress in its new order intake, particularly in the virtual/augmented reality segment. We understand that this – together with the structured tender procedure that was used to complete the transaction – may have contributed to the more attractive sale price.

Significant positive impact on FY19 results

Simultaneously, GSG’s management has guided to FY19 net profit of €3–5m (ie €0.27–0.44 per share). It also expects IFRS-based equity per share to reach €2.90–3.10 (versus the closing price of €1.71 on 17 December). Importantly, management estimates that this will include cash and short-term financial assets of more than €1.00 per share. GSG does not intend to reinvest the proceeds from Exozet’s disposal in its original business model (VC) and will instead use them for share buybacks, given the shares continue to trade below the NAV estimated by the company. In 2019 to date, the company has repurchased 7.7% of the end-2018 number of shares outstanding.

Valuation: Trading at a deep discount to NAV

GSG’s current share price of €1.73 represents a 31% discount to NAV at end-H119 (based on the book value of equity ex-minorities) and a 42% discount to the midpoint of the equity per share range for end 2019 estimated by the company.

Company financials

Year
end

Revenue
(€m)

PBT
(€m)

EPS
(€)

DPS
(€)

P/E
(x)

Yield
(%)

12/15

5.6

3.6

0.49

0.0

3.5

N/A

12/16

10.9

(5.4)

(0.29)

0.0

N/A

N/A

12/17

9.6

1.8

0.14

0.0

12.4

N/A

12/18

12.5

1.2

(0.05)

0.0

N/A

N/A

Source: German Startups Group accounts

General disclaimer and copyright

Any Information, data, analysis and opinions contained in this report do not constitute investment advice by Deutsche Börse AG or the Frankfurter Wertpapierbörse. Any investment decision should be solely based on a securities offering document or another document containing all information required to make such an investment decision, including risk factors. This report has been commissioned by Deutsche Börse AG and prepared and issued by Edison for publication globally.

Edison Investment Research standard fees are £49,500 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 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1,185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison Investment Research provides qualitative research coverage on companies in the Deutsche Börse Scale segment in accordance with section 36 subsection 3 of the General Terms and Conditions of Deutsche Börse AG for the Regulated Unofficial Market (Freiverkehr) on Frankfurter Wertpapierbörse (as of 1 March 2017). Two to three research reports will be produced per year. Research reports do not contain Edison analyst financial forecasts.

More on SGT German Private Equity

View All

Latest from the Financials sector

View All Financials content

Research: TMT

Keywords Studios — A trinity of acquisitions to round off the year

Keywords has rounded off the year with three small acquisitions, very much in line with its stated M&A strategy: Kantan, a Dublin-based machine translation technology company (€7m); Ichi, a London-based video games creative and marketing services agency (£3.2m); and Syllabes, a Montreal-based audio recording studio (C$0.5m). Together, they have reported revenues of c €4.8m and have been acquired on a trailing multiple of c 2.3x revenues. As we approach year-end, we retain our view that Keywords remains strongly positioned as the only public games service provider at a global scale. The company’s P/E rating (25.7x FY20e) reflects its leading market position, track record and potential, and should fall further as Keywords continues its buy-and-build strategy successfully.

Continue Reading

Subscribe to Edison

Get access to the very latest content matched to your personal investment style.

Sign up for free