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 Note
Kursziel: 5.15 EUR
Analyst: Marcel Goldmann, Cosmin Filker
KingsIsle M&A provides leap in revenue and earnings and significantly
strengthens US business; Internationalisation of acquired games IPS and
expansion of these online games to further end devices opens up significant
revenue potential; Increase in forecasts and price target
On 18/01/2021, Media and Games Invest plc (MGI) announced the signing of an
agreement for the full acquisition of US game developer KingsIsle
(KingsIsle) Entertainment Inc. KingsIsle, based in Austin, Texas (USA), is
a leading game developer and publisher. KingsIsle's wholly owned MMO games
Wizard101 and Pirate101 (including mobile IP rights) will be transferred to
MGI's gaming portfolio. Both online games have loyal communities and
therefore very sustainable revenues and have generated the majority of
revenues in the US market to date.
The FY2021 revenue guidance for the acquired KingsIsle includes expected
revenue of $32.0 million and expected Adjusted EBITDA of $21.0 million with
an expected EBITDA margin of 68.0%.
MGI has agreed with the KingsIsle owners on a fixed purchase price of USD
126.0 million and a performance-based purchase price component (earn out)
of up to USD 84.0 million. To finance the M&A, Oaktree Capital, which has a
high level of expertise in the media and gaming sector, has agreed to a
capital increase of EUR 25.0 million, as a result of which this company
will hold a stake of approx. 9.0% in the MGI Group in the future. In our
view, MGI has not only gained a new shareholder, but also a strategic
partner who should provide significant support for the group's further
growth course on the 'financing side'.
According to the company, taking into account the earn-out component, the
EV/EBITDA multiple from the acquisition will be in the range of 5.8x -
7.3x, depending on the growth of KingsIsle in 2021. This valuation is based
on higher revenues, which also generate higher EBITDA, and includes
additional EBITDA that may result from a higher revenue base if an earn-out
becomes due. In light of the potential multiples to be incurred or paid, we
rate the purchase price as favourable.
For us, the KingsIsle acquisition represents a very good strategic step to
once again significantly increase the growth rate in the group's gaming
division and at the same time to leverage significant synergy potentials
within the MGI group (e.g. utilisation of the large player base in North
America & EU or access to particularly efficient in-house marketing). In
addition, this will also significantly strengthen the market position of
the gaming segment in the USA.
Through the acquisition, the company acquires Wizard101 and Pirate101, two
strong online games that have so far generated revenues primarily in the
USA. We are convinced that MGI will succeed in growing significantly,
especially through the increased internationalisation of the acquired
KingsIsle games portfolio. In this context, the strong market position in
Europe with a large player base (cross-selling) should pay off for the
company in particular, opening up considerable additional business
potential. Furthermore, KingsIsle should also be able to benefit from the
cooperation with the media companies of the MGI Group with regard to
targeted and efficient advertising. Furthermore, an expansion of the games
portfolio to other end devices such as consoles or even smartphones offers
additional growth opportunities, especially in Asia.
In view of the very significant KingsIsle acquisition and the expected
positive effects (including synergy effects), we have adjusted our previous
revenue and earnings forecast for the 2021 and 2022 financial years
upwards. In addition, the increased expansion of the mobile gaming business
(e.g. recently announced licensing of the Tripe-A games 'Golf Champions'
and 'Heroes of Twilight') and the promotion of the Asian gaming business
through cooperation with local publishers (e.g. in the case of Trove,
recently launched in closed beta in South Korea) also contributed to the
positive forecast adjustment.
For the current financial year, we now expect revenues of EUR 173.55
million (previously: EUR 145.62 million) and an EBITDA of EUR 47.42 million
(previously: EUR 28.88 million). For the following year 2022, we expect
revenues of EUR 199.88 million (previously: EUR 163.05 million) and an
EBITDA of EUR 55.92 million (previously: EUR 33.90 million).
Within the framework of our DCF valuation model, we have determined a new
target price of EUR5.15 (previously: EUR3.20). In addition to the
significantly raised forecasts, a reduction of the WACC to 7.11%
(previously: 7.70%) has a target price-increasing effect. This reduction is
related to the general lowering of the risk-free interest rate in our
valuation models sine 01/01/2021 to the new lower limit of 0.25%
(previously: 1.00%). An even stronger price target increase is countered by
the dilution effect due to the completed capital increase to finance the
M&A transaction. In view of the current share price level, we continue to
assign a Buy rating and see significant upside potential.
Overall, we see the MGI Group in a good starting position to continue the
successful dynamic growth course within the growth sectors of online gaming
and digital marketing/digital media. The KingsIsle acquisition should
provide additional growth impetus within the gaming segment and also have a
clearly positive effect on the earnings situation due to the expected high
synergy effects. In addition, the Group's own media division provides a
significant competitive advantage and should additionally favour the
expansion of the market position in the gaming segment.
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Date (Time) completion: 01/02/2021 (09:09 am)
Date (Time) first distribution: 01/02/2021 (10:00 am)
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