 Edison -
Team Internet’s H1 earnings showed resilience despite continued headwinds in online marketing. Going into the typically seasonally stronger H2, we expect the company’s initiatives in product innovation, vertical integration and international to increasingly influence growth and margin expansion. At 8.8x FY24 earnings, Team Internet continues to trade at a significant discount to peers on our unchanged earnings estimates. We believe this rating remains attractive given the company’s track record, prospects and cash generation. Year end Revenue (US$m) EBITDA (US$m) PBT* (US$m) EPS* (c) DPS (p) EV/EBITDA (x) P/E (x) Yield (%) 12/22 728.2 86.0 64.3 14.7 0.0 5.6 14.6 N/A 12/23 836.9 96.4 77.6 22.5 2.0 5.6 9.5 1.2 12/24e 939.2 110.2 91.0 26.3 2.3 5.6 8.2 1.3 12/25e 1037.7 119.5 101.8 28.3 2.5 5.6 7.6 1.5 Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments. Earnings resilience despite headwinds H1 gross revenues of $409.7m (+3% y-o-y) were essentially flat excluding $10.7m from Shinez, acquired 29 April. A weak adverting market continues to suppress Online Marketing, particularly Search, but as this is the lowest gross profit business, net revenues (gross profit) grew 7% y-o-y at $97.7m, with gross margin expanding by 80bp y-o-y. EBITDA expanded by 4% to $46.6m. Net debt was $109.9m, reflecting the Shinez acquisition and operating cash conversion at 87%. However, with cash conversion expected to normalise close to 100% in H2 and no share buybacks scheduled, we expect net debt to reduce to $66m by year end. This includes the payment of an inaugural interim dividend of 1p. On track, strategic initiatives coming into play Our P&L estimates are essentially unchanged from the net revenue/gross profit level and below, with gross revenue pared back by c 4.5%, more in line with consensus. While we do not expect a near-term recovery in click rates, events such as the Olympics and particularly the US elections should support the online advertising market into the seasonally stronger H2. Key strategic initiatives should start to have an impact in FY25. These include vertical integration initiatives, such as including Tonic or Vergleich ads on Shinez content, the expansion of Vergleich beyond Germany and new product launches as well as competitive and efficiency initiatives in Online Presence. Valuation: Discount looks unjustified Team Internet trades at an EV/EBITDA multiple of 6.0x and a P/E of 8.2x with a 14% free cash flow yield. On a fundamental basis, we believe that this remains too low for a business with Team Internet’s track record, prospects and cash generation. The group’s rating is a c 45% P/E ratio discount to ad-tech peers of the online marketing business and a 47% discount to the online presence peers (albeit a small subset). A recovery in online advertising, accretive M&A and/or a resumption of buybacks could drive EPS upside. |
Fair enough. Let's see how they address it
I've long thought that the way to get a multiple rerating here is to maximise on transparency. Hardly any investor will look at their accounts or the way they describe their business and say its very clear. The problem is, if anything I find it to be getting more complicated, rather than less!
Hopefully the management or advisors can add more clarity and precision
Eric |
This is the way that acquisitions work - within the regulatory framework there are ways in which costs and revenues can be adjusted so as to fall within pre or post-acquisition accounting. Now, it may also be that H1 Shinez trading was worse to some extent than last year, so that should be addressed.
However, TIG have definitively stated that they WILL meet expectations this year.
So let's not miss the forest from the trees - even despite a challenging advertising click price environment, TIG are increasing margins, increasing visitor sessions and meeting expectations. |
How does this make any sense. TIG were talking about how they only paid 4x 2023 EBITDA. And today we learn that the half year's EBITDA has been miserly which unless the second half is incredible, does not make this look like a good value acquisition. Or at worse, something has gone wrong in the first half of the year (surely they'd know about it?)
"Shinez were only acquired on 26th April, so their H1 contribution is immaterial. If I were TIG, I'd have ensured that Shinez front-loaded their pre-acquisition results split with as many costs as possible."
I think at a minimum, this is something they're going to have to explain at results presentations.
Eric |
That's what the one-liner contributors were saying at 40p, then 70p, then 120p, then 140p. Etc.
Encouraging that Zeus say the following:
"We estimate Team Internet needs to grow Adjusted EBITDA by only 3.4% organically yoy in H2 2024 to meet our full year Adjusted EBITDA estimate of $105.4m, assuming Shinez’s Adjusted EBITDA contribution is flat across 2024.
Valuation: Team Internet remains the cheapest company in the Zeus Smallcap Technology index based on its 2025E P/E of 7.7x (Zeus estimates). Its other 2025 ratios are also highly attractive at only 5.4x EV/EBITDA and 14.9% FCF yield."
They summarise as follows:
"The company grew Adjusted EBITDA by 4% and Adjusted EPS by 12%, accelerated by
share buybacks, and improved gross and Adjusted EBITDA margins. Organic revenue
growth for TTM accelerated slightly to 9%, driven by Online Marketing. The Online
Marketing division grew visitor sessions over the TTM, more than offsetting falling click prices in an ongoing tough market. The Board also intends to declare an interim dividend of 1.0p per share, marking its first interim dividend.
Going forward, Team Internet expects to meet full year market expectations driven by product innovation, vertical integration and international expansion. With the acquisition of Shinez in April, Team Internet now provides marketing platforms to support the consumer journey from awareness (Shinez) to consideration (TONIC) to conversion (VGL). Over time, the company plans to further integrate and supplement the platforms to realise further synergies. Despite this strong medium-term outlook, Team Internet’s shares trade on the lowest PE in the Zeus Smallcap Technology Index." |
Cheap for a reason.Zeus state that "Team Internet remains the cheapest company in the Zeus Smallcap Technology index based on its 2025E P/E of 7.7x (Zeus estimates)" |
A good, solid H1 from TIG overall, confirming again that they expect to meet expectations.
Zeus's forecast is for 28.5c EPS this year, with a 2.2p dividend, so TIG are extremely cheap on this basis.
Shinez were only acquired on 26th April, so their H1 contribution is immaterial. If I were TIG, I'd have ensured that Shinez front-loaded their pre-acquisition results split with as many costs as possible. So (1) I'm rather unsurprised that Shinez' mostly pre-acquisition H1 EBITDA is less than inspiring (!), and (2) I trust TIG's management to deliver on their aim to leverage Shinez for further growth via Tonic and VGL - they've always delivered on such promises to date.
The initial drop today has already partially reversed. No doubt there were the usual traders who for some reason have to bet on pre-results run-ups (I can't believe many of these make much of a living!). Also some may have been flustered by the increase in debt due to the Shinez acquisition etc. This is more understandable, but given that $31.4m cash from operating activities was generated in H1 alone then it won't take long for debt to be cleared. And Zeus's forecast is for net debt to reduce hugely to $61.7m by the end of this year.
Zeus state that "Team Internet remains the cheapest company in the Zeus Smallcap Technology index based on its 2025E P/E of 7.7x (Zeus estimates)". |
Agreed. Stinks. I'm out. |
Shinez - acquired for $43m up front with potentially another $12m of contingent consideration
In 2023 it did gross revenue of $111m and $10.4m of adjusted EBITDA
First half of 2023, we find out today in the small print that it only did $1.2m of adj. EBITDA:
"If the acquisition had been made on 1 January 2024 the contribution to the Group's results, for the six months ended 30 June 2024, would have been revenues of USD 39.3m, adjusted EBITDA of USD 1.2m and a profit after tax of USD nil, including amortisation of acquired intangibles."
So the current year EV/EBITDA paid on annualising the first half was 18x... I'm not sure there should be such significant second half seasonality for Shinez?
Eric |
can someone explain why th share price is retracing- zeus note is fair |
Cavendish -
Team Internet Group Strong H1, FY24E & FY25E forecasts reiterated H1 24 results show net revenue growth of +7%, adjusted EBITDA growth of +4% to $47m, proposed interim DPS of 1.0p, and a positive outlook with the Board confident that the group will meet market expectations for FY24. At this point, we reiterate our FY24E and FY25E revenue, adjusted EBITDA, EFCF, and net debt, and we expect that any improvement in the macro environment will drive upside to our revenue forecasts, which would gear strongly to adjusted EBITDA and cash. At 190p, TIG is trading on 12-month forward multiples of only 6x EV/EBITDA with +13% EBITDA growth and EFCF yield of 12%, which compares to Cavendish T40 peers trading on 13x 12-month forward EV/EBITDA with +10% EBITDA growth and EFCF yield of 5%. We reiterate our 350p target price, and look forward to strong operating and financial momentum through FY24, further updates on shareholder returns, and attractively valued acquisitions. H1 24 results H1 24 revenue growth of +3% to $409.7m reflects trailing twelve month (TTM) organic revenue growth of +9%, with +9% in Online Marketing and +8% in Online Presence. H1 24 Online Presence revenue growth of +6% yoy to $97.2m demonstrates the division benefitting from the H1 Online Marketing growth of +3% yoy to $312.5m reflects continued pressure on pricing in the currently challenging advertising market, and +$10.7m of Q2 revenue from the April 2024 acquisition of Shinez. Adjusted EBITDA growth of +4% yoy to $46.6m shows continued control of operating costs, and the Shinez acquisition contributed +$0.1m of adjusted EBITDA. Following the initial cash consideration of $31.8m for the acquisition, $12.6m of share repurchases, and $7.2m of dividend payment, H1 net debt DPS of 1.0p. We reiterate our FY24E and FY25E forecasts outlook that the Board is confident that the group will meet market expectations for the FY, at this point we reiterate our FY24E and FY25E revenue, adjusted EBITDA, EFCF, and net debt, which are +1-5% ahead of consensus. The acquisition of Shinez offers the potential for upside as management integrates the operations, with the acquisition enhancing diversifying , and creating cross-selling opportunities. The strengthened platform can then capitalise on an improving macro environment with stronger ad pricing, and we expect that any revenue upside to our forecasts would gear strongly to adjusted EBITDA, EFCF, and shareholder returns. Strong organic and inorganic growth from a robust marketplace platform As we explain in more depth in our initiation, TIG is capitalising upon the complementary opportunity for its Online Presence and Online Marketing divisions. Following investment over the past three years, the group is primed to benefit from platform economies of scale, which can be accelerated by its proven ability to acquire companies at attractive multiples, generate cost savings, and drive cross-selling. Its strong cash generation provides excellent scope to reduce net debt, expand shareholder returns, and/or fund future M&A. |
Zeus-
Solid H1 results in a challenging market, interim dividend proposed
The company grew Adjusted EBITDA by 4% and Adjusted EPS by 12%, accelerated by share buybacks, and improved gross and Adjusted EBITDA margins. Organic revenue growth for TTM accelerated slightly to 9%, driven by Online Marketing. The Online Marketing division grew visitor sessions over the TTM, more than offsetting falling click prices in an ongoing tough market. The Board also intends to declare an interim dividend of 1.0p per share, marking its first interim dividend. Going forward, Team Internet expects to meet full year market expectations driven by product innovation, vertical integration and international expansion. With the acquisition of Shinez in April, Team Internet now provides marketing platforms to support the consumer journey from awareness (Shinez) to consideration (TONIC) to conversion (VGL). Over time, the company plans to further integrate and supplement the platforms to realise further synergies. Despite this strong medium-term outlook, Team Internet’s shares trade on the lowest PE in the Zeus Smallcap Technology Index.
H1 results: Team Internet grew Group gross revenue by 3% to $409.7m, gross profit by 7% to $97.7m, Adjusted EBITDA by 4% to $46.6m and Adjusted EPS by 12% to 10.7 US cents, accelerated by share buybacks. The Board intends to declare an interim dividend of 1.0p, subject to bank approval. This marks the Group’s first interim dividend and follows a 2023 dividend of 2.0p.
Slight acceleration in organic growth, driven by Online Marketing: Group organic gross revenue growth rose slightly to 9% for the trailing twelve months ended 30 June 2024 (TTM 2024) from 8% in TTM March 2024, driven by Online Marketing organic gross revenue growth accelerating to 9% for TTM from 7% in TTM March 2024. Click prices (RPM - revenue per thousand sessions) declined by 12% for TTM, but this was more than offset by TTM visitor sessions rising 16%. Online Presence organic gross revenue growth moderated to 8% for the TTM from 14% in the TTM to March 2024 due to tougher comparisons when the division began implementing price increases. The number of processed domain registration years decreased by 3% in in TTM 2024, offset by the average revenue per domain year rising by 13%.
Margin improvements and cash generation: Both Online Marketing and Online Presence increased H1 gross margin yoy. Online Marketing/ Online Presence gross margin rose to 33.6%/ 20.8% from 32.0%/ 20.3% a year ago. Group Adjusted EBITDA margin increased slightly to 11.4% from 11.3% a year ago. Net debt would have fallen by $15.8m over the half, if we exclude acquisition payments ($31.8m), share buybacks (12.6m) and dividends ($7.2m). Adjusted operating cash conversion was 87% compared to 96% a year ago due temporary working capital timings. As a result, net debt at the end of H1 2024 was $109.9m, implying $48.0m of net cash generation required to meet our year end forecast of $61.9m. The company expects cash conversion to improve significantly in H2 2024.
In line outlook: Team Internet expects product innovation, vertical integration, and international expansion to allow the company to meet market expectations for the full year. We estimate Team Internet needs to grow Adjusted EBITDA by only 3.4% organically yoy in H2 2024 to meet our full year Adjusted EBITDA estimate of $105.4m, assuming Shinez’s Adjusted EBITDA contribution is flat across 2024.
Valuation: Team Internet remains the cheapest company in the Zeus Smallcap Technology index based on its 2025E P/E of 7.7x (Zeus estimates). Its other 2025 ratios are also highly attractive at only 5.4x EV/EBITDA and 14.9% FCF yield. |
Just read the 6 month report. It all just uninspiring , overall a small 4% increase in net profit overall to £9.8mMy question is how can they afford to pay of the net debt of 109m from the net profit above?Also share buy backs and dividend payments is not something they really need to do |
What am I missing. Aren't the GAAP earnings also included? |
The amount of obfuscation this management team go through to avoid telling us the simple pre-acquisitions organic growth is quite incredible. The accounts and complexity is nearly impenetrable to me.
Instead we get pro forma, TTM organic growth...
Pretty sizeable red flag still in my book
It's so complicated even management are making errors and having to restate accounts
"Contingent consideration - correction of errors"
Eric |
Fair enough. For me, increasing the divi beyond current levels won't materially impact the share price. There is a yield here so some funds which require that can hold it, but people seeking a high yield are never going to get comfortable with this sort of company so ramping it more won't have much impact.
Then having a balance between sensibly priced acquisitions, buyback and debt reduction is good with me.
Given there is a large quasi-PE fund holding such a large %, TIG is never going to be debt free though so need to be realistic about the extent that it will come down |
Hi adamB1978,
Yes, that's the question. |
What's the question Azaman - what our preference would be for cash usage? |
point taken. |
Hi Azaman,
Debt level does not greatly concern me either, but still happy to see it reducing, if there are no better options. |
Hi McDougall1,
Thank you for your post; I had forgotten to include debt reduction in my list.
However, what I read about debt is that TIG's current debt is quite manageable and should not be a concern , given the cash generative nature of the business. |
4. Reduce debt |
Lets have a little guess regarding the cash usage.
Please post your guess, chosen from the l1st below:
1. Buy back share
2. More acquisition
3. Dividend |
Thanks for posting that Rivaldo. Looking forward to the figures next week and seeing what they say about uses of cash. I like the CEO and trust him to make sensible decisions with the company's capital. |
The latest from Mark Watson-Williams at Master Investor (from Monday):
"Team Internet (LON:TIG) – Interims Due Next Week Could Further Identify Under Rating Of Shares
Next Monday, 12th August, this £500m capitalised global internet services group will declare its half-time results for the six months to end-June.
They should be good enough to keep the shares trotting higher in price.
They have been up above the 200p level in the last few trading days, having touched 207.50p at one stage last Thursday, before drifting back to 200p.
Despite the slower advertising market depressing its Online Marketing returns, market analysts are still expecting that the year to end-December will show a significant increase in full-year revenues to $960m ($837m), with adjusted EBITDA of $107.60m, taking earnings up to about 28c per share, plus paying a 2.2p dividend.
For the coming year, some $1,050m revenue could see about $116.20m of EBITDA, worth 30c a share in earnings and easily covering a 2.5p dividend.
In 2026, some estimates already suggest close to $1.1bn of revenues, with EBITDA of $130.5m, earnings of 36.5c and a dividend of 2.6p per share.
For such a long time I have been boring readers with my description of this business as being a ‘money machine’ – well looking at those analyst views continues to confirm my theory.
On 22nd May, when the shares were around 180p, I noted that
“With the current momentum I would suggest that 200p really is not that far away now.”
That occurred within days.
The recent share price strength has been set against a much heavier dealing turnover, with volumes over 1.1m shares for two days running, late last week.
The increased activity could well be in advance of the group’s forthcoming Results and Trading Statement.
I continue to like this stock and suggest that, unless there is bad news, the shares are not for selling, instead they are for buying on any price dips." |
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