Märkte & Kurse

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Original-Research: Verve Group SE - from GBC AG

09.09.2024 / 09:00 CET/CEST
Dissemination of a Research, transmitted by EQS News - a service of EQS
Group AG.
The issuer is solely responsible for the content of this research. The
result of this research does not constitute investment advice or an
invitation to conclude certain stock exchange transactions.

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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:               6.60 EUR
     Last rating change:
     Analyst:                    Marcel Goldmann, Cosmin Filker

HY1 2024: Dynamic sales development thanks to strong organic growth;
disproportionately high earnings growth due to the onset of economies of
scale and savings effects; GBC estimates and price target also raised
following guidance increase

Business performance in the first half of 2024

Verve Group SE (Verve) published its Q2 and half-year figures for the
current financial year 2024 on 30 August 2024. In the first six months of
the year, the ad-tech platform group continued its growth strategy at a high
growth rate in the context of a further recovery in the advertising industry
and was able to grow significantly faster than the industry as a whole.
Group digital revenue increased dynamically by 23.5% year-on-year to EUR
179.04 million (HY1 2023: EUR 144.93 million).

The positive Group sales performance was primarily driven by the high-volume
Supply Side Platform business unit with a significant increase in segment
sales of 28.1% to EUR 167.64 million (HY1 2023: EUR 130.84 million). By
contrast, revenue in the essentially smaller DSP business area, which was
significantly strengthened and expanded by this year's Jun acquisition
(takeover in June 2024), fell to EUR 11.41 million (HY1: EUR 14.10 million).

In line with their dynamic sales development, EBITDA increased
disproportionately by 29.0% to EUR 48.27 million (HY1 2023: EUR 37.41 million)
compared to the same period of the previous year due to economies of scale
and cost optimisation effects (resulting from the cost-cutting programme
introduced in 2023). Adjusted for one-off costs and special effects (e.g.
M&A or consulting costs), adjusted EBITDA (Adj. EBITDA) for the first half
of 2024 totalled EUR 51.10 million (HY1 2023: EUR 40.40 million), an increase of
26.5% compared to the same period of the previous year. At the same time,
the adjusted EBITDA margin increased slightly to 28.5% (HY1 2023: 27.9%).

Earnings growth also continued at net level (consolidated earnings after
minority interests) with a jump in earnings to EUR 6.86 million (HY1 2023: EUR
2.57 million).

Business performance in Q2 2024

Due to their accelerated (internal) growth momentum over the past quarters,
a high growth rate was recorded in the second quarter in particular. In Q2,
Group sales increased significantly by 26.8% to EUR 96.57 million compared to
the same quarter of the previous year (Q2 2023: EUR 76.18 million). Adjusted
for currency effects, organic growth of 26.0% was achieved.

The main growth drivers here proved to be the strong customer demand for
privacy-first targeting solutions from new customers and the expansion of
(digital) advertising budgets (net dollar expansion rate Q2 2023: 82% vs. Q2
2024: 109%) with existing customers. The growth achieved was also reflected
in a 33.0% increase in larger software customers (annual revenue of more
than USD 100,000) to 851 (Q2 2023: 642), with the total number of customers
also increasing significantly to 2,518 software customers at the end of the
second quarter (Q2 2023: 1,976). At the same time, the number of adverts
delivered to digital customers increased significantly by 23.8% to 224
billion (Q2 2023: 181.0 billion).

According to the company, the ad-tech company once again succeeded in
further increasing its market share in the past quarter, particularly
through innovative AI-based customer solutions such as ATOM 3.0, Moments.AI
and ML-driven optimisations (for SKAN), thereby expanding its existing
market position.

In terms of operating earnings development, Verve achieved a significantly
disproportionate increase in EBITDA of 40.5% to EUR 28.08 million (Q2 2023: EUR
19.99 million) due to the strong organic quarterly growth recorded and a
reduced structural fixed cost base. Group EBITDA adjusted for one-off and
special effects (e.g. M&A and consulting costs) increased by 36.6% to EUR
29.10 million (Q2 2023: EUR 21.30 million). At the same time, the adjusted
EBITDA margin increased significantly to 30.1% (Q2 2023: 28.0%).

In view of the high profitability and strong operating cash flow, the Verve
Group was able to improve its leverage ratio (net debt/adj. EBITDA) to 2.8x
(end of FY 2023: 3.1x) and is aiming for a further improvement to 2.4x by
the end of the 2024 financial year. In the medium and long term, the
technology company is even aiming to further reduce its leverage ratio to
1.5x to 2.5x.

Forecasts and evaluation

With the publication of its quarterly and half-year figures, the Verve Group
has also revised its previously raised corporate guidance upwards again. In
view of the positive half-year performance and its visibility in August
regarding the further course of the financial year, the technology company
now expects Group sales in a range of EUR 400.0 million to EUR 420.0 million
(previously: EUR 380.0 million to EUR 400.0 million) and an adjusted EBITDA
(Adj. EBITDA) of EUR 125.0 million to EUR 135.0 million (previously: EUR 115.0
million to EUR 125.0 million).

It should be noted here that the adjusted company guidance does not include
any potential (additional) advertising income from the upcoming US election
campaign, which is expected to occur between the end of the third quarter
and the fourth quarter of 2024 in particular and thus opens up significant
upside potential for revenue. It should be emphasised at this point that the
US presidential candidate Kamala Harris is aiming for record spending on
digital election advertising as part of her election campaign (according to
media reports, around USD 200 million for digital advertising or digital
advertising channels) and is therefore planning the strongest digital
advertising campaign in US history.

At the same time, the technology company has also adjusted its previous
medium-term financial targets upwards in the form of an average annual
(adjusted) EBITDA margin of 30.0% to 35.0% (previously: 25.0% to 30.0%) due
to the significant increase in the Group's size and profitability following
the Jun acquisition. At EBIT margin and net leverage level, an improvement
to 20.0% to 25.0% (previously: 15.0% to 20.0%) and a reduced leverage ratio
(net debt/adj. EBITDA) of 1.50x to 2.50x (previously: 2.0x to 3.0x) is
expected. In terms of medium-term growth ambitions, Verve continues to
expect an average annual growth rate of 25.0% to 30.0% (CAGR).

In view of the convincing half-year performance and the raised corporate
guidance and increased medium-term financial outlook, we have adjusted our
previous sales and earnings forecasts for the current financial year 2024
and also for the following years upwards. For the current financial year, we
now expect consolidated sales of EUR 401.24 million (previously: EUR 380.12
million) and EBITDA of EUR 119.29 million (previously: EUR 108.92 million).
Based on conservative assumptions, we expect sales of EUR 502.11 million

(previously: EUR 475.91 million) and EBITDA of EUR 156.84 million (previously: EUR

148.77 million) for the following financial year 2025.

Overall, we continue to assume that the Verve Group will be able to
dynamically continue its growth trajectory thanks to its strong market
position in the digital advertising market and innovative technologies
(privacy-first customer solutions, etc.). The recently acquired Jun company
(effective from 1 August 2024) should lead to an even stronger pace of
growth and improved Group profitability thanks to the expected synergy
effects as part of the Group integration and strong positioning on the
demand side.

In light of our increased sales and earnings forecasts, we have raised our
previous price target to EUR 6.60 (previously: EUR 6.00) per share. The onset of
the roll-over effect (price target based on the following financial year
2025 instead of 2024) also had the effect of increasing the price target. In
view of the current share price level, we therefore assign a 'BUY' rating
and continue to see significant upside potential in the Verve share.



You can download the research here: http://www.more-ir.de/d/30731.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: 06/09/2024 (8:25)
Date (time) of first distribution: 09/09/2024 (9:00)

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1983363 09.09.2024 CET/CEST

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