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

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 € 292.78 million (9M 2023: € 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 € 258.99 million (9M 2023: € 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 € 84.45 million. Compared to EBITDA in the same period of the previous year (9M 2023: € 101.15 million), which was significantly positively influenced by the revaluation of the AxesInMotion earn-out payment liability (positive one-off effect of € 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 € 84.80 million was generated, which was significantly higher than in the same period of the previous year (9M 2023: € 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 € 81.46 million (9M 2023: € 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 € 14.49 million was generated after the first nine months, which was below the previous year's level (9M 2023: € 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 € 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 € 33.60 million (Q3 2023: € 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 € 400.0 million to € 420.0 million and Adj. EBITDA of € 125.0 million to € 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 € 410.02 million (previously: € 401.24 million) and EBITDA of € 121.51 million (previously: € 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 € 6.70 per share (previously: € 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)