Original-Research: Verve Group SE - from GBC AG

Classification of GBC AG to Verve Group SE

Company Name: Verve Group SE

ISIN: SE0018538068

Reason for the research: Research study (Note)

Recommendation: BUY

Target price: 6.00 EUR

Last rating change:

Analyst: Marcel Goldmann, Cosmin Filker

Jun acquisition ensures significant sales and earnings growth and a

significant strengthening of the demand side; the integration of the

acquisition opens up considerable sales synergies; significant increase in

forecasts and price target; 'BUY' rating confirmed


On 18 June 2024, Verve Group SE (Verve) announced the signing of an

agreement to fully acquire Jun Group, a leading mobile advertising

technology company with a focus on the demand side and strong business

relationships with leading US brands and media agencies.


The Jun Group's mobile-first demand-side business with direct access to

more than 230 Fortune 500 advertisers and US agencies is a perfect

complement to the market-leading US-centred mobile supply-side platform,

according to the company. The acquisition will result in a more balanced

sales model with 30.0% demand-side business (previous demand-side share:

approximately 10.0%) and 70.0% supply-side business (previous supply-side

share: approximately 90.0%). The Jun Group has a highly diversified

customer base (including Amazon, McDonalds and Dell), which is growing



This transformative transaction will significantly increase the size and

profitability of the Verve Group. The acquisition of the Group is expected

to contribute approximately 23.0% in revenue and approximately 43.0% in

adjusted operating profit (Adj. EBITDA), which on a pro forma basis should

lead to expected Group revenue of approximately EUR 447.0 million and

adjusted EBITDA of approximately EUR 151.0 million in the current FY 2024.


The agreed total purchase price for the transaction amounts to EUR 170

million. According to the company, EUR 120 million of the purchase price will

be paid from existing cash funds, whereby a cash capital increase with

gross issue proceeds of around EUR 40.0 million (27.11 million new shares at

an issue price of around EUR 1.48) was recently carried out for this purpose.

The remaining EUR 50.0 million of the purchase price payment is to be made in

two annual instalments in 12 and 18 months after the planned closing in

September 2024. The completed capital measure is intended to achieve the

targeted capital structure with a medium-term pro forma net leverage ratio

of 1.50 to 2.50.


According to the company, the purchase price including expected synergy

effects thus amounts to 3.8x EBITDA. In addition to the significant cost

synergies (approximately EUR 2.0 million in FY 2024), the Verve Group

primarily expects extensive synergies at revenue level (approximately EUR 9.0

million in FY 2024). Extensive sales synergies are to be realised primarily

through the combination of product and customer structures and the various

platforms. In the medium term, Verve anticipates sales synergy potential of

between EUR 30.0 million and EUR 40.0 million. In view of the high

profitability (50.0% EBITDA margin from USD 72.0 million in sales in FY

2023) and the significant growth and synergy potential of the Jun Group, we

consider the purchase price for the transaction to be extremely favourable.


With regard to future financing structure and conditions, Verve assumes

that the ability to reduce debt will improve significantly in the future

due to the strong (expected) cash EBITDA (approximately 80.0% in FY 2025

according to the company's forecast). Accordingly, the technology group

anticipates that the expected improvement in debt ratios will reduce future

financing costs as soon as the existing financial debt is refinanced. At

the present time, declines in bond yields can already be observed for the

existing longer-term bonds (see e.g. Verve Group bond with ISIN:

SE0019892241), which indicates significantly lower financing conditions in

the future.


Forecasts and evaluation


Based on the announced transformative acquisition and the strong first half

of the current financial year, Verve's management has significantly revised

its previous guidance upwards. For the current financial year 2024, the

company now expects consolidated sales of EUR 380.0 million to EUR 400.0

million (previously: EUR 350.0 million to EUR 370.0 million) and adjusted

EBITDA (Adj. EBITDA) of EUR 115.0 million to EUR 125.0 million (previously: EUR

100.0 million to EUR 110.0 million).


As a result of the significant increase in the Group's size and

profitability, Verve has also updated its medium-term guidance. The

technology company expects a sales CAGR of 25.0% to 30.0% (unchanged from

previously) and an EBITDA margin of 30.0% to 35.0% (previously: 25.0% to

30.0%) and an EBIT margin of 20.0% to 25.0% (previously: 15.0% to 20.0%).


Against the backdrop of the improved company outlook and the increased

medium-term financial targets, we have adjusted our previous sales and

earnings estimates upwards. Accordingly, we now expect sales of EUR 380.12

million (previously: EUR 352.18 million) and EBITDA of EUR 108.92 million

(previously: EUR 100.08 million) for the current 2024 financial year. For the

following years 2025 and 2026, we are forecasting sales of EUR 475.91 million

(previously: EUR 389.51 million) and EUR 596.79 million (previously: EUR 437.03

million). At the same time, operating earnings (EBITDA) should increase to

EUR 148.77 million (previously: EUR 113.35 million) and EUR 191.58 million

(previously: EUR 130.67 million).


Overall, the Jun acquisition represents a good strategic step towards

better balancing the Group's demand- and supply-side-specific business

model and utilising the resulting advantages profitably. In addition, this

transaction will take the Verve Group to the 'next level' in terms of

consolidated sales and profitability. The integration of the acquisition

will also result in considerable synergy effects, particularly in terms of

sales, which can be gradually realised.


As part of our DCF valuation model, we have also significantly increased

our price target to EUR 6.00 (previously: EUR 4.50) per share due to our

increased sales and earnings estimates. However, the dilution effect

resulting from the capital increase (increase in the number of shares by

0.27 million to 186.36 million) reduced the target price. In view of the

current share price level, we therefore continue to assign a 'BUY' rating

and see significant upside potential in the Verve share.


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Date (time) of completion: 24/06/2024 (10:29)

Date (time) of first distribution: 24/06/2024 (12:00)

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The result of this research does not constitute investment advice

or an invitation to conclude certain stock exchange transactions.