RE: Berenberg say Buy with 130p target5 Oct 2016 11:29
FYI, here's a brief but revealing extract from Berenberg's note outlining XLM's large discount to (a) its sector peers and (b) Catena in particular:
"1) 50% discount versus gaming operators: The online gambling sector is growing rapidly and gaming companies are expected to see a 2016-18E revenue and EPS CAGR of 9% and 19%, respectively. This degree of growth has driven multiples in excess of 20x for many of these stocks. XLMedia, however, still trades on 11x, despite possessing a similar growth and margin profile, see key investment point 1.
While we understand that XLMedia is smaller in size, has more concentrated revenue streams and slightly less operating transparency, we still struggle to understand the 50% discount on a one-year forward P/E basis and would expect this gap to close over time.
2) 25% discount versus UK mid-cap media sector: We believe XLMedia’s 25% discount to the broader media sector (15x P/E 2017E) is unjustified when one considers its superior growth rate and margin profile. Specifically, XLMedia is expected to generate a top-line CAGR 2016-18E of 13% with an average EBIT margin of 24%. This is materially higher than the average sales growth and EBIT margin in the UK Mid-Cap media sector of 5% and 20%, respectively. Again this demonstrates a discrepancyhich we believe will eventually resolve."
"Catena Media is a real comparable
Before 2016, there was a lack of listed companies which operate a similar business model within the gaming/gambling sector, making peer comparison somewhat difficult and limited to the gaming operators and the broader media sector. However, an online customer acquisition platform within the online gaming sector, Cantena Media, listed on the Stockholm Stock Exchange in February 2016 provides a direct peer to XLMedia.
Since its IPO, Catena Media’s shares have done well, with their P/E multiple expanding from 15x to 21x. The business is expected to deliver 28% sales growth (albeit it from a materially lower base than XLMedia) on an EBIT margin of 49%.
Although Catena Media is a direct peer to XLMedia, its valuation multiple is not directly comparable as the supply and demand dynamics on the Stockholm Stock Exchange skew its valuation metric upwards given the mandatory investment of large sovereign wealth funds and asset managers into domestic stocks. However, as the OMX Nordic Mid Cap Index trades in line with Catena Media’s P/E multiple, it could be argued that XLMedia should trade at least in line with Mid-Cap media companies."
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