CATENA MEDIA. Generates leads online An acquisition machine to reckon with Risks and opportunities ahead REMIUM EQUITY RESEARCH

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1 CATENA MEDIA NASDAQ OMX Mid Cap Generates leads online An acquisition machine to reckon with Risks and opportunities ahead Generates leads online. Catena Media is a rapidly growing company that generates leads online. Although the company has historically concentrated on the igaming industry, a new vertical within the financial sector has recently been added to the mix. Catena Media s vision is to be the world s leading provider of value-creating online leads. The strategy is focused on organic growth, through geographical expansion for example, and acquisitions. Catena Media holds a strong position in Europe and has taken positions in the US, Japan and Australia. The company s main competitor is XLMedia PLC, which is listed on the London Stock Exchange. An acquisition machine to reckon with. The global online gambling market is expected to be worth about USD 47 billion in 17 and to grow by an average of 9.4% a year between 16 and. A solid acquisition history is one of Catena Media s main strengths, with more than 25 acquisitions for a total purchase price of more than EUR 25 million. In addition to a rapid integration process, Catena Media has done very well at retaining the sellers/founders in the companies it acquires. We consider this a positive factor and a prerequisite for maximising synergy effects and increasing the likelihood of sustaining the growth trends that often prevail in the acquired companies. Risks and opportunities ahead. The affiliate market is still fragmented. We expect further consolidation and that Catena Media will be one of the leaders of this development. Beyond acquisitions, we see triggers in further regulation of the American market, where Catena Media has taken an early market position, as well as opportunities to scale up the business in Japan. A major bugaboo mentioned in connection with forthcoming gaming regulation in Sweden is that the operators will be less inclined to work with affiliates in a regulated market. We take that into account, but regulated markets are already the source of about 6 percent of Catena Media s revenues. We consider this proof that the company can do business in a regulated environment. For 16-19e, sales are estimated at 44.6% and EBIT-CAGR at 41.4%, partly driven by the future acquisitions we are expecting. COMPANY DESCRIPTION Catena Media s vision is to be the world s leading provider of highvalue online leads. Focus is on organic growth combined with geographical expansion and acquisitions in hopes of changing the industries the company does business in by offering a range of choices. Analyst: Stefan Knutsson stefan.knutsson@remium.com, +46 () Price (SEK): 99, Consumer goods & services KEY DATA SHARE PERFORMANCE Market Cap (SEKm) m (%) 16,8 Net Debt (SEKm) m (%) 28,6 Enterprise Value (SEKm) m (%) 14,5 Equity Ratio (%) 33,5 YTD (%) 13,1 No. of shares basic (m) 52, 52-W High 114, No. of shares diluted (m) 53,1 52-W Low 7, Free Float (%) 86, Ticker CTM 16A 17E 18E 19E Sales (EURm) 4, 66,6 1,1 121 EBITDA (EURm) 22,1 36,3 57,9 7,2 EBIT (EURm) 21, 32,1 49,6 59,4 EBT (EURm) 19,9 27,1 42,7 52,5 EPS (just.eur),36,51,71,84 DPS (EUR),,,, Revenue growth (%) 168,1 66,3 5,3,9 EPS growth (%) 93,9 49,2 54,2 19,3 EBIT-margin (%) 52,5 48,1 49,6 49,1 16A 17E 18E 19E P/E (x) Adj. 29,5 21,7 14,1 11,8 P/BV (x) 8,8 5,6 3,9 2,8 EV/S (x) 11,7 9,4 6,3 5,3 EV/EBITDA (x) Adj. 21,6 17,2 1,8 9,2 EV/EBIT (x) 22,6 19,5 12,6 1,8 Div Yield (%),,,, SHARE PERFORMANCE CTM OMXSPI (re-based) Sources: Infront, Company reports, Remium Nordic, Holdings MAJOR SHAREHOLDERS CAPITAL VOTES Optimizer Invest Ltd 14,%, ,% Swedbank Robur Fonder 9,3% 9,3% Aveny Ltd 8,7% 8,7% Investment AB Öresund 7,2% 7,2% MANAGEMENT FINANCIAL CALENDER COB K. Moore Baker 4Q-report CEO Henrik P. Ekdahl 1Q-report CFO Claes Wenthzel 2Q-report Important information: Please see the attached disclaimer at the end of this document Remium 1

2 INCOME STATEMENT EURm 1Q16A 2Q16A 3Q16A 4Q16A 1Q17A 2Q17A 3Q17A 4Q17E 14A 15A 16A 17E 18E 19E Sales 7,5 9,6 1,7 12,3 14,6 14,6 17,3,1 3,9 14,9 4, 66,6 1,1 121,1 o/w organic 5,6 6,3 7, 9,1 1,7 11,6 12,5 14, 3,9 13,9 28,1 48,8 74,6 11,1 o/w communicated acquisitions 1,8 3,2 3,7 3,2 3,9 3,1 4,8 6,1, 1,1 12, 17,8,3, o/w expected acquisitions,,,,,,,,,,,, 5,2 1,9 Other income,,,,,6,5,,,,, 1,1,, COGS -3,1-4,3-4,8-5,8-7,7-7,1-7,8-8,8-1,6-4,6-18, -31,4-42,3-5,8 EO-items -1,,1-1,1 -,4 -,3-1,7 -,7,, -1,2-2,4-2,7,, Adj. EBITDA 4,3 5,3 6, 6,5 7,6 8, 9,5 11,3 2,3 1,3 22,1 36,3 57,9 7,2 D&A -,2 -,2 -,3 -,3 -,6 -,9-1,2-1,6 -,1 -,1-1, -4,3-8,2-1,8 Adj. EBIT 4,2 5, 5,7 6,2 7, 7,1 8,3 9,8 2,2 1,1 21, 32,1 49,6 59,4 Net financials,6 -,2 -,3-1,3-2,,4-1,7-1,7,, -1,1-5, -6,9-6,9 EBT 4,8 4,8 5,4 4,9 5, 7,5 6,6 8,1 2,2 1,2 19,9 27,1 42,7 52,5 Taxes -,3 -,3 -,5 -,4 -,3 -,5 -,5 -,6 -,8 -,7-1,4-1,9-3,5-4,7 Net result 3,5 4,6 3,9 4,1 4,7 7, 6, 7,5 1,4 8,3 16,1 25,2 39,2 47,8 EPS basic (EUR),9,9,1,9,1,17,13,14 nmf nmf,36,52,72,86 EPS diluted (EUR),9,9,1,9,1,16,13,14 nmf nmf,36,51,71,84 Revenue growth Q/Q 26,5% 28,4% 12,% 14,5% 19,1%,1% 17,9% 16,4% N/A N/A N/A N/A N/A N/A Revenue growth Y/Y 281% 217% 164% 18% 96% 53% 61% 64% N/A 284% 168% 66,3% 5,3%,9% Adj. EBITDA margin 57,9% 54,9% 55,6% 53,1% 51,7% 54,3% 55,% 56,3% 59,1% 68,9% 55,1% 54,5% 57,8% 58,% Adj. EBIT margin 55,7% 52,3% 53,% 5,3% 47,8% 48,3% 47,8% 48,6% 57,2% 67,9% 52,5% 48,1% 49,6% 49,1% Adj. EBT margin 64,4% 5,2% 5,4% 39,6% 34,1% 51,1% 38,% 4,2% 56,9% 68,% 49,7% 4,7% 42,7% 43,4% CASH FLOW PER SHARE DATA & RETURN ON CAPITAL EURm 14A 15A 16A 17E 18E 19E EUR 14A 15A 16A 17E 18E 19E Cash flow b.f. ch. in work.cap EPS N/A N/A,31,46,71,84 Change in working capital Adj. EPS N/A N/A,36,51,71,84 Cash flow from operating activities BVPS N/A N/A 1,5 1,77 2,55 3,53 Cash flow from investments CEPS N/A N/A,21,51,85 1,17 Free cash flow DPS N/A N/A,,,, Cash flow from financing ROE 113% 66% 3% 26% 28% 24% Net cash flow Adj. ROE 113% 75% 34% 29% 28% 24% BALANCE SHEET EURm 14A 15A 16A 17E 18E 19E Solidity 39% 44% 39% 4% 53% 62% SHARE STRUCTURE Intanglible assets Class A (m) - Cash and cash equivalent Class B (m) 52, Total assets No. of shares (m) 52, +35() Equity Net debt Net working capital Sources: Company reports, Remium Nordic COMPANY CONTACT Quantum Place, Triq ix-xatt, Ta Xbiex, Gzira GZR 152 ESTIMATE CHANGES 3Q 17A 17E 18E EURm Estimate Actual Difference (%) Prev. New Change (%) Prev. New Change (%) Sales 17,7 17,3-2% % % Adj. EBIT 7,8 8,3 5% 31,6 32,1 1% 45,2 49,6 1% Adj. EPS (SEK),11,13 18%,53,52-2%,68,72 7% Remium 2

3 INCOME STATEMENT, YEAR & QUARTER SALES & OPERATING INCOME, Y/Y (EURm) SALES & OPERATING MARGIN, Q/Q (EURm) A 15A 16A 17E 18E 19E Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4E % 8% 7% 6% 5% 4% 3% % 1% % Sales EBIT Sales EBIT margin GROWTH & BALANCE SHEET SALES GROWTH, Y/Y NET DEBT & NET DEBT/EBITDA 35% 1 3,X 3% 25% % 15% 1% A 15A 16A 17E 18E 19E 2,5X 2,X 1,5X 1,X,5X,X -,5X 5% % Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4E Net Debt ND/EBITDA Target 1,5-2,5x ND/EBITDA MARGIN DEVELOPMENT, ROLLING 12m EBITDA MARGIN (R12m) EBIT MARGIN (R12m) 8% 7% 6% 5% 4% 3% % 1% % Q1 Q2 Q3E Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4E 8% 7% 6% 5% 4% 3% % 1% % Q1 Q2 Q3E Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4E EBITDA margin EBIT margin Remium 3

4 BUSINESS MODEL Catena Media's Website igaming operators Potential Depositing Customer Lead Player Player looking to change casino Catena Media s business model starts with a lead in the form of a potential gambler. The goal is to persuade the lead to become a depositing customer of one of the igaming operators the company works with. Catena Media uses various channels to, first off, funnel the lead into one of the company s websites. The most common channels are Search Traffic, , AdWords and Social Media. Once they have entered a Catena Media website, the potential gambler can, for instance, compare casino offers and read betting advice. If the lead shows interest in an offer and want to use it, they are redirected to the providing operator. Search traffic, , AdWords & Social media are the most common channels A business relationship between Catena Media and the operator is not created until the potential gambler deposits funds with the operator. The revenue model has four different designs: revenue sharing, Cost-Per-Acquisition (CPA), a hybrid of the first two, and a fixed annual charge. Revenue sharing has become increasingly common lately, since Catena Media changed its long-term strategy. Revenue sharing accounted for 66% of revenues in Q3 17, CPA for 28% and fixed charges for 6%. Revenue share more common Catena Media has also zeroed in on diversifying the revenue mix. Historically, the majority of revenues have come from casino gambling, but acquisitions and internal focus have grown the sports betting segment to 21% of revenues in Q3 17. This will be a key factor in 18 when the World Football Championships kick off. The company has also recently added a new vertical by moving into the financial sector through acquisitions. Larger share of sports income nowadays Revenue model 7% 6% 5% 4% 3% % 1% % 54% 55% Source: Remium, Company reports 51% 35% 35% 41% 11% 1% 9% 65% 66% 29% 28% 6% 6% Q3 Q4 Q1 Q2 Q Revenue share CPA Fixed fee Revenue distribution sport vs casino 1% 8% 6% 4% % % 95% 91% 86% 8% 79% 5% 9% 14% % 21% Q3 Q4 Q1 Q2 Q Sport Casino Source: Remium, Company reports Remium 4

5 Acquisition multiples (Sales & EBT) and average multiples THE GROUP 7,x 6,x 5,x 4,x 3,x 2,x 1,x,x P/S inc P/EBT inc Avg P/S inc Avg P/EBT inc Källa: Remium, bolagsrapporter Catena Media has made several acquisitions in the past two years. The chart above illustrates the multiples at which this has occurred, as well as the average cost. The multiples include earnouts and the expected sales growth required to trigger them, but the difference is small compared to the multiples paid at acquisition. There has been some concern in the market that these acquisition multiples are going to rise as the affiliate market becomes more consolidated, something we have not seen to any major extent. But we do see a somewhat higher price tag among the larger acquisition, Baybets, Bettingpro, Online Media and AskGamblers, except for the US assets, where several political decisions must come to pass before full potential can be achieved, which has probably kept the acquisition multiples down. As we described earlier, Catena Media does not enter into a business relationship with the operators until the customer deposits funds with them. Revenue sharing is Catena Media s preferred revenue model, because it generates the most long-term value. In this model, the operator and Catena Media share the revenues generated by the customer for life, which provides good potential to earn recurring revenues. As the customer contract is lifelong, it becomes very interesting to monitor Catena Media s capacity to attract New Depositing Customers (NDC), as this can give an indication of future revenue generation. Catena Media has done this very successfully in the past few years. In addition to the core business, search revenues, Catena Media also generates revenues from paid media, mainly Google AdWords. This component of the business model is bumpier, more event-driven than search revenues and the operating margin is often lower because Google takes a big piece of the pie. Analysing the recent trend, it looks like Catena Media has softened its focus on paid media, but we expect the company to push harder in the segment in connection with major events like the World Football Championships. Acquisition cost remaines low NDCs can provide an indication of future growth Paid Media is volatile and event driven New Depositing Customers (thousand) ,7 91,2 8,4 67, 56,4 47,5 32,3 24,8 15,3 19,3 9,9 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q Source: Remium, Company reports Revenue per segment (EURm) 25 Search Paid Media,1 17,3 3, 14,6 14,6 15 2,8 12,3 1,7 3,7 3,1 9,6 1 7,5 3,5 2,8 5,9 2,3 14,5 17,1 4,1 2, 5 3, 1,1 7,3 7,9 8,8 1,9 11,5 2, 2, 3, 4,1 4,8 5,5 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4E Source: Remium, Company reports Remium 5

6 HISTORICAL KEY FIGURES Sales (EURm) EBIT (EURm) EPS (EUR) 14A 15A 16A 17E 18E 19E CAGR L3Y L5Y 3,9 14,9 4, 66,6 1,1 121,1 ###### ###### 2,2 1,1 21, 32,1 49,6 59,4 ###### ######,4,16,31,48,72,86 ###### ###### AVG. L3Y L5Y P/E (x) 29,5 21,7 14,1 11,8 29,5 29,5 EV/EBITDA (x) 21,6 17,2 1,8 9,2 21,6 21,6 EV/EBIT (x) 22,6 19,5 12,6 1,8 22,6 22,6 EV/SALES (x) 11,7 9,4 6,3 5,3 11,7 11,7 P/FCF (x) neg. neg. neg. neg. nmf nmf P/BV (x) 8,8 5,6 3,9 2,8 8,8 8,8 ROA (%) 39,7% 33,2% 13,5% 11,4% 14,6% 14,8% 28,8% 28,8% ROE (%) 112,8% 75,% 34,4% 28,6% 27,7% 23,9% 74,1% 74,1% ROCE (%) 176,1% 89,5% 22,5% 17,4%,4% 19,7% 96,% 96,% ROC (%) 313,7% 11,9% 39,3% 18,6% 21,7%,5% 151,6% 151,6% FCF YIELD (%) DIV. YIELD (%) -6,5% -17,4% -,4% -2,6% -6,5% -6,5%,%,%,%,%,%,% No. of shares (m) Market Cap (SEKm) EV (SEKm) 33,7 51,4 51,4 53,9 54,4 55, P/E (x) *Avg. = 29,5 EV/EBIT (x) *Avg. = 22, A 17E 18E 19E 16A 17E 18E 19E P/E (x) Average EV/EBIT (x) Average *Medelvärdet baseras på historiska nyckeltal PEER GROUP Capital IQ* Revenue Revenue growth EBIT margin EV/EBIT Catena Media(REM) Catena Media* XLMedia* (GBP) % 5% 21% 48% 5% 49% 19,5 12,6 1, % 41% 15% 46% 48% 48% 19,3 13,3 11, % 7,7% 12% 29% 29% 28% 12, 11,5 1,5 Like Catena Media, XLMedia is active in affiliate marketing with focus on the online gambling market. XLMedia is listed on the London Stock Exchange and paid media, where direct costs are higher, has historically been its biggest business area, which explains their lower EBIT margin. Unlike Catena Media, the company has no express acquisition targets and has focused more on organic growth, which may explain the lower expected growth rate. Remium 6

7 CATENA MEDIA Affiliate with a leading position in igaming Catena Media is a rapidly growing online lead generator. The company has historically focused on igaming, but recently added a new vertical in the financial sector. Their vision is to be the world s leading provider of value-creating online leads. The strategy focuses on organic growth, through geographical expansion for example, and acquisitions. Muscle in the market and focus on acquisition Catena Media s principal business involves using net-based marketing techniques to attract users. The primary techniques are Search Engine Optimisation (SEO) and Pay Per Click (PPC) marketing, but other channels, including social media and s, are also used. The company then aims to channel the leads to its customers, mainly igaming operators. Towards that end, Catena Media owns and operates more than 3, specialised, multi-language websites focused on high-quality content. Some of the more well-known are AskGamblers, JohnSlots and RightCasino. Catena Media has a strong market position in the online casino segment and their offering in the online sports betting segment is growing by leaps and bounds. The business is run from Malta, with primary focus on regulated markets in the US, Europe, Japan and Australia. The revenue model is built on two main variants: revenue sharing and CPA. The group has successfully acquired several affiliate marketing firms in the past two years and has extensive experience integrating the acquired assets to maximise synergies and boost revenues. Acquisitions are considered a strong driver of further growth, and the board of directors believes Catena Media is in prime position to acquire additional affiliate marketers and benefit from greater economies of scale and future synergy effects. Operates over 3, specialized web pages Acquisitions strong driving force for future growth Remium 7

8 CATENA MEDIA Structural growth in the affiliate market Catena Media does business in the online casino market, which has delivered strong growth in recent years. Catena Media believes that demand for lead-generators and affiliates is going to increase in pace with the underlying online casino market. H2 Gambling Capital predicts an compounded annual growth rate of 9.4% from 16 to. Market growth is being driven mainly by the entry of new online casino operators and expansion of old brands into new markets. Along with established customers in existing markets, these operators are driving growth in the affiliate market by investing more heavily in digital marketing. The commercial Pay-Per-Performance (P4P) model offered by Catena Media is one of the fairest revenue models available to operators, where the performance marketing agency assumes considerable responsibility. Growing in line with the underlying online casino market There are only a handful of firms in the fragmented affiliate market capable of generating a significant number of NDCs for operators. The strongest competitors are active in the same geographical markets as Catena Media, and there seems to be a persistent trend of launching new casino operators with primary focus on using the affiliate sales channel. This is giving Catena Media opportunities to expand geographically as these operators enter new markets, and to acquire other affiliates in a fragmented market. New vertical in the financial sector Catena opened the door to a new vertical in 17 by acquiring BeyondBits Media, which operates in the financial sector. According to the company, the reasons Catena Media specifically chose to enter the financial sector are: a similar price structure to igaming, high margins, regulatory clarity, market stability, geographical distribution compatible with current business, management expertise in the industry, customer demographics similar to igaming and the ongoing offline-to-online transformation of the industry. Catena Media will be focusing primarily on the FX, equity and CFD markets. Compared to the igaming industry, the lifetime value of each customer is three or four times higher in those markets, leading to a higher CPA attributable to Catena Media. The competition includes forexbrokers.com, stockbrokers.com, stocktrader.com, markets.com, investing.com, money.co.uk and brokerchooser.com. Financial targets Catena Media is aiming to achieve EBITDA above EUR 1 million by, driven by annual double-digit percentages for organic revenue growth and acquisitions. The debt target is in the range of x net debt/ebitda, although the company has the latitude to step outside the range for limited periods. Moreover, cash flows generated over the next few years will be reinvested in the company, so no dividends will be distributed before. Future acquisitions will be made exclusively in regulated markets, where the markets Catena Media is interested are the US, UK, Germany, France, Spain, Portugal, Italy, Japan and Australia. Financial target of achieving EBITDA of EUR 1 million by Issued by: Arash Hakimi Fard, Remium Nordic AB (Remium) Analyst: Stefan Knutsson, Remium. DISCLAIMER - Remium 8