Key Financials
List: First North
Market Cap: 214 MSEK
Industry: Information Technology
CEO: Jonas Söderqvist
Chairman: Henrik Kvick
7.0 points 9.0 points 6.5 points 0.0 points 4.0 points
Share information
Share price (SEK) 12.9
Number of shares (m) 16.6
Market Cap (MSEK) 214
Net debt (MSEK) 13
Free float (%) 30 % Daily turnover (’000) 20 Analysts: Johan Ekström [email protected] Kristoffer Lindström [email protected]
myTaste, the name of the game
Because of the announced name change to myTaste and the ongoing rights issue we have written an analysis update focusing on the value of myTaste. Compared to other online recipe networks the valuation of 203 Web Group (myTaste) seems incomprehensibly low. We argue that this valuation gap will likely close when we approach the monetization of the app users.
Public online recipe networks and recent acquisitions value unique visitors at around 7 USD. The current valuation of 203 Web Group implies a multiple of 1.2 USD per unique visitor. We therefore see a significant valuation discrepancy between the instrict value and market value of 203.
Our conservative Fair Value estimate, in the Base case, of 23 SEK per share is unchanged and signals an attractive investment opportunity at today’s share price. 0 2 4 6 8 10 12 14
07-Apr 06-Jul 04-Oct 02-Jan OMXS 30 203 Web Group
Management Ownership Profit outlook Profitability Financial strength
Summary
203 Web Group
(203.ST)
Redeye Rating (0 – 10 points)
2014 2015 2016E 2017E 2018E
Revenue, MSEK 50 51 53 67 88 Growth 0% 1% 4% 28% 31% EBITDA -8 1 6 18 36 EBITDA margin -16% 3% 12% 27% 40% EBIT -13 -7 0 12 28 EBIT margin -26% -14% 0% 17% 32% Pre-tax earnings -12 -9 0 12 28 Net earnings -12 -9 0 12 28 Net margin -24% -17% 0% 17% 32%
2014 2015 2016E 2017E 2018E
P/E adj. -13.6 -15.6 1183.6 18.5 7.5
EV/S 3.4 2.9 4.4 3.3 2.2
EV/EBITDA -20.9 112.2 36.7 12.1 5.4
2014 2015 2016E 2017E 2018E
Dividend/Share 0.00 0.00 0.00 0.00 0.00
Redeye Rating: Background and definitions
The aim of a Redeye Rating is to help investors identify high-quality companies with attractive valuation.
Company Qualities
The aim of Company Qualities is to provide a well-structured and clear profile of a company’s qualities (or operating risk) – its chances of surviving and its potential for achieving long-term stable profit growth.
We categorize a company’s qualities on a ten-point scale based on five valuation keys; 1 – Management, 2 – Ownership, 3 – Profit Outlook, 4 – Profitability and 5 – Financial Strength.
Each valuation key is assessed based a number of quantitative and qualitative key factors that are weighted differently according to how important they are deemed to be. Each key factor is allocated a number of points based on its rating. The assessment of each valuation key is based on the total number of points for these individual factors. The rating scale ranges from 0 to +10 points.
The overall rating for each valuation key is indicated by the size of the bar shown in the chart. The relative size of the bars therefore reflects the rating distribution between the different valuation keys.
Management
Our Management rating represents an assessment of the ability of the board of directors and management to manage the company in the best interests of the shareholders. A good board and management can make a mediocre business concept profitable, while a poor board and management can even lead a strong company into crisis. The factors used to assess a company’s management are: 1 – Execution, 2 – Capital allocation, 3 – Communication, 4 – Experience, 5 – Leadership and 6 – Integrity.
Ownership
Our Ownership rating represents an assessment of the ownership exercised for longer-term value creation. Owner commitment and expertise are key to a company’s stability and the board’s ability to take action. Companies with a dispersed ownership structure without a clear controlling shareholder have historically performed worse than the market index over time. The factors used to assess Ownership are: 1 – Ownership structure, 2 – Owner commitment, 3 – Institutional ownership, 4 – Abuse of power, 5 – Reputation, and 6 – Financial sustainability.
Profit Outlook
Our Profit Outlook rating represents an assessment of a company’s potential to achieve long-term stable profit growth. Over the long-term, the share price roughly mirrors the company’s earnings trend. A company that does not grow may be a good short-term investment, but is usually unwise in the long term. The factors used to assess Profit Outlook are: 1 – Business model, 2 – Sale potential, 3 – Market growth, 4 – Market position, and 5 – Competitiveness.
Profitability
Our Profitability rating represents an assessment of how effective a company has historically utilised its capital to generate profit. Companies cannot survive if they are not profitable. The assessment of how profitable a company has been is based on a number of key ratios and criteria over a period of up to the past five years: 1 – Return on total assets (ROA), 2 – Return on equity (ROE), 3 – Net profit margin, 4 – Free cash flow, and 5 – Operating profit margin or EBIT.
Financial Strength
Focus on myTaste will drive value
203 Web Group has announced an upcoming name change to myTaste and also a rights issue to diversify the ownership of the company. We argue that an increased investor awareness of myTaste, through the name change and upcoming rights issue, will most likely enhance the valuation of the
company. Today 203 Web Group is valued at around 1.2x USD per active users. Most recent M&A acquisitions have been conducted at around 7.0x per user. We argue that myTaste will reach these valuation levels after the monetization of the app users start or if a larger player acquires the
company. In the diagram below we illustrate a likely valuation development of myTaste the coming years. With a valuation of 5.0x USD per user, myTaste market value would reach above SEK 1 billion, not unlikely for the
world’s third largest recipe site.
Near-term: The valuation will likely be in the spotlight when investor awareness increases due to the name change and rights issue. Apart from increased visibility, the improving financial development and continued app user growth will almost certainly have a positive impact on the share price.
Long-term: App user monetization will lead to significantly higher margins and growth rates, likely increasing the valuation levels of myTaste to be more in line with other recipe sites and social networks.
Valuation development of myTaste. From 1.2x to 5.0x users
Source: Redeye Research
1.2x 0.8x 3.8x 0.0x 1.0x 2.0x 3.0x 4.0x 5.0x 6.0x
Today 1 year 2-5 years
EV/Monthly unique visitors (dollar) Valuation enhancement Valuation enhancement:
App user monetization. Valuation inline with social networks and other recipe sites, EV could reach above SEK 1 billion
Valuation enhancement: Increased investor awareness, financial development and app user growth
Focus on myTaste for value
The name change from the rather anonymous, 203 Web Group, to the
company’s strong brand name, myTaste, is the right decision to make. The new name will send a clear signal to the market where the future focus will be and where the true value of the company lies.
myTaste is today one of the world’s largest recipe sites with over 20 million
monthly unique visitors, over 40 000 connected food blogs and with more than 8 million recipes from 48 countries. We believe that myTaste is an emerging social network for recipes. The company will now increase focus on adding more social functions in the app/website to further enhance the value of their network, both for visitors and shareholder’s alike.
The app is the key to success
One of the key elements in the investment case of 203 Web Group is the growing base of app users of myTaste. The app users are much more valuable than web visitors as they spend about ten times more time using myTaste and returns more than three times as often. In March about 36% of the total time spent on myTaste was through the app. Today about 4% of the total monthly unique visitors are app users.
Time spent by web visitors and App
Source: Redeye Research, 203 Web Group
0% 3% 10% 14% 21% 26% 36% 100% 97% 90% 86% 79% 74% 74% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16
The published memorandum in conjunction with the aforementioned rights issue 203 contained some new figures, like the total number of downloads of the app since launch. To date, the app has been downloaded about 1.8 million times. The download rate per day during March amounted to roughly 17 000. As expected the re-launch on iOS have enhanced the download rate significantly.
Total app downloads myTaste
Source: 203 Web Group, Redeye Research
0 2 000 4 000 6 000 8 000 10 000 12 000 14 000 16 000 18 000 20 000 0 2 000 000 4 000 000 6 000 000 8 000 000 10 000 000 12 000 000 14 000 000 S-15 N-1 5 J-16 M-16 M-16 J-16 S-16 N-1 6 J-17 M-17 M-17 J-17 S-17 N-1 7 D o wn lo ad s p e r d ay To tal d o wn lo ad s
Total downloads Downloads per day
Closing valuation gap creates opportunity
Compared to their closest peers the myTaste app holds a strong competitive ranking position both on Google Play (Android) and on iOS.
The app was re-launched on iOS in February but already holds one of the highest ranking stats compared to the other recipe apps.
Globally myTaste is the third largest recipe network with roughly 20 million monthly visitors.
Lifestyle (Applications) ranks, Google play
app myTaste Yummly Cookpad Allrecipes
nr countries - rank 1 0 0 0 0 nr countries - rank 5 3 0 0 0 nr countries - rank 10 9 0 0 0 nr countries - rank 100 26 16 18 1 nr countries - rank 500 42 55 61 13 nr countries - rank 1000 42 58 64 15 Source: appannie.com (2016-04-04)
Food and Drink, IOS app
iPhone iPad iPhone iPad iPhone iPad iPhone iPad
nr countries - rank 1 2 0 1 8 0 1 0 1 nr countries - rank 5 7 5 14 25 4 4 3 7 nr countries - rank 10 12 9 23 39 10 10 12 21 nr countries - rank 100 30 18 131 136 74 98 102 124 nr countries - rank 500 36 28 154 151 130 144 148 154 nr countries - rank 1000 39 31 155 152 142 144 152 154 Source: appannie.com (2016-04-04)
myTaste Yummly Cookpad Allrecipes
Monthly visitors of recipe networks
Source: Company websites & 203 Web Group
0 10 20 30 40 50 60
Cookpad AllRecipes myTaste Yummly
But are myTaste (203) valued as one of the prime social networks for recipes? We argue that they aren’t, and a quick look at the valuation levels of the four other largest recipe networks should convince most investors that we are right.
Compared to the valuation levels of Yummly, Allrecipes and Cookpad the difference is significant. An investor should not forget that 203 also consist of Shopello (SEK 18.3 million in net sales and EBITDA of 2 million during 2015), which further adds to the margin of safety when valuing the company.
We argue that at a low valuation, close to 1.2 dollar per monthly visitors, 203 are deeply neglected by the investment community, but we this will change due to the following reasons:
The enhanced focus on myTaste with the name change will increase
the inventor’s awareness of the company and better direct the
markets attention to where the true future value lies. Redeye believes that most investors are not aware of the fact that the third largest online food network is currently traded on First North Stockholm.
The rights issue, to diversify the shareholder base, will most likely increase the awareness of the company from the retail space. Improved financial performance (compared to H1 2015) due to the restructuring of the group after the Barcelona venture will lead to higher valuation levels based on current profitability levels. Significantly enhanced margins and growth rates when the
monetization of the app user’s start (we estimate at the end of 2017)
will most likely drive the valuation to new highs. Possibly around 5x USD per user or more.
An issue to broaden the shareholder ownership
The rights issue will provide the company with funds to further invest in their platform and speed up the development of the social functions of the site/app. This social function is of utmost importance as they will increase the value of myTaste through networking effects.
Monthly visitors and valuation levels
Company myTaste Yummly Cookpad Allrecipes
Valuation (market or transaction) $ 24 100 1400 175
Monthly visitors 20 15 57 25
EV/MUV 1.2x 6.7x 24.6x 7.0x
Source: Redeye Research *Allrecipes at the transaction in 2013
The offer will consist of a maximum of 1,000,000 shares. The application period starts on the 4th and closes on the 17th of April, 2016. The offer price
will be set at an amount equal to 92% of the volume-weighted average share price during the period 4th -15th of April with a minimum of SEK 10.00 per
share and a maximum of SEK 15.00 per share. If the offer is fully subscribed, 203 Web Group will be added to more than 10-15 million, before issue costs.
Relocating internal resources
203 also announced that they will close down the segment 203 Creative and focus their resources on myTaste instead. On paper, it will “hurt” the
reported growth, but we find this decision as the right thing to do and sound resource allocation for further value creation.
Valuation summary
We have not made any changes to our estimates since our last published analysis, and our Fair value estimate is unchanged at 23 SEK per share. In our valuation, we assume the average daily download rate to remain at 14k-16k due to network effects and marketing initiatives from 203 Web Group. The retention rate is assumed to be around 20%, and the number of active users will reach 1.8 million by the end of 2016 and 2.8 million by December 2017. We also assume the monetization of the user base to be gradual and to reach the same level of ARP (Average Revenue per Second) as the website. This is conservative as the app user is more valuable regarding income potential.
Our Fair value, in Base-case, estimate of 23 SEK per share signals a
substantial potential from today’s price levels. Still our valuation must be seen as conservative at an implied EV/Monthly visitor of around 2.4 dollars
203 Web Group: Base-case
Assumptions 2015-24 DCF-value
CAGR Sales 13% WACC 12.8%
EBIT margin (avg) 26% Net presenst value FCF 168
ROIC (avg) 24% Net present value of Terminal 232
Terminal EV 400
Terminal growth FCF 4.0% Net debt -13
Terminal EBIT margin 34% Minorities -2
Exit EV/EBIT multiple 12x Dividend correction 0
DCF-value 386
Estimated Fair Value 23
Todays share price 12.0
Potential/Risk 93%
Summary Redeye Rating
The rating consists of five valuation keys, each constituting an overall assessment of several factors that are rated on a scale of 0 to 2 points. The maximum score for a valuation key is 10 points.
Rating changes in the report
No changes
Management 7.0p The CEO and other senior executives have a long experience from the
digital media industry. The increased focus on myTaste and the
restricting of the group (close down of the Barcelona branch) is the right decision according to us as it demonstrates a strategic decision to
increase their long-term competitive position. A key input in our rating is the compensation packages to the CEO and the board. We find the compensation levels as moderate, and we see a clear focus on share ownership rather than high remuneration and bonuses. For the rating to increase, we would like to see greater transparency regarding financial and operational objectives.
Ownership 9.0p
The shareholder structure is one of the key strengths of 203 Web Group. The CEO Jonas Soderqvist and the CEO of myTaste Andereas Friis are the founders and own about 50% of the company. The Chairman Henrik Kvick owns almost 25% of the shares and has an excellent reputation as an investor and active owner of companies. The high ownership by insiders creates good conditions for a strong shareholder focus. The only thing missing for to get the highest rating is an institutional owner.
Profit outlook 6.5p
The digitization of the cookbook market will most likely continue for many years to come. myTaste is one of the largest online cookbook sites, and we see the brand awareness of the users and the possible networking effects (from the social functions) as the company's primary competitive advantages. myTastes business model is scalable and to launch into new geographical markets do not come at any higher incremental costs.
Profitability 0.0p The profitability of the company in recent years has been weak. Our
rating of the profitability is basd primarily on historically reported numbers such as average ROE, net margin, and cash flow. As 203 Web Group has had negative margins in the most recent years the rating of the company's profitability is low. After the restructuring of the company and the strong performance of the newly launched app the outlooks have improved. Increased profitability in the coming years will lead to a better rating, and most investor likely will find the company as less risky.
Financial strength 4.0p
203 Web Group have an outstanding convertible that amounts to about 14 MSEK, as the company have had a low historical profitably and some debt outstanding this increases the long-term financial risk somewhat. The short-term financial liquidity is very strong with a quick/current ratio above 400% (100% is our minimum requirement). With increased investments related to the development of myTaste, we cannot rule out that the company may be in need of a smaller capital raising.
Income statement 2014 2015 2016E 2017E 2018E
Net sales 50 51 53 67 88
Total operating costs -58 -49 -47 -49 -53
EBITDA -8 1 6 18 36 Depreciation 0 0 0 0 0 Amortization -5 -8 -6 -6 -7 Impairment charges 0 0 0 0 0 EBIT -13 -7 0 12 28 Share in profits 0 0 0 0 0
Net financial items 1 -2 0 0 0
Exchange rate dif. 0 0 0 0 0
Pre-tax profit -12 -9 0 12 28
Tax 0 0 0 0 0
Net earnings -12 -9 0 12 28
Balance 2014 2015 2016E 2017E 2018E
Assets
Current assets
Cash in banks 5 5 5 10 21
Receivables 0 0 0 0 0
Inventories 0 0 0 0 0
Other current assets 10 10 11 14 19
Current assets 15 15 16 24 40 Fixed assets Tangible assets 3 2 2 2 3 Associated comp. 0 0 0 0 0 Investments 0 0 0 0 0 Goodwill 13 13 13 13 13
Cap. exp. for dev. 0 0 0 0 0
O intangible rights 23 23 25 27 31
O non-current assets 1 1 1 1 1
Total fixed assets 40 39 41 43 48
Deferred tax assets 0 0 0 0 0
Total (assets) 55 54 57 67 87 Liabilities Current liabilities Short-term debt 5 2 1 0 0 Accounts payable 17 12 14 18 23 O current liabilities 0 0 0 0 0 Current liabilities 22 14 14 18 23 Long-term debt 2 16 18 14 0 O long-term liabilities 0 0 0 0 0 Convertibles 0 0 0 0 0 Total Liabilities 25 30 32 32 23
Deferred tax liab 2 2 2 2 2
Provisions 0 0 0 0 0
Shareholders' equity 28 22 22 34 62
Minority interest (BS) 0 0 0 0 0
Minority & equity 29 22 23 34 63
Total liab & SE 55 54 57 67 87
Free cash flow 2014 2015 2016E 2017E 2018E
Net sales 50 51 53 67 88
Total operating costs -58 -49 -47 -49 -53
Depreciations total -5 -8 -6 -7 -7
EBIT -13 -7 0 12 28
Taxes on EBIT 0 0 0 0 0
NOPLAT -13 -7 0 12 28
Depreciation 5 8 6 7 7
Gross cash flow -8 1 6 18 36
Change in WC 7 -5 1 0 1
Gross CAPEX -45 -7 -8 -9 -12
Free cash flow -45 -11 -1 9 25
Capital structure 2014 2015 2016E 2017E 2018E
Equity ratio 52% 41% 40% 51% 72%
Debt/equity ratio 26% 81% 84% 41% 0%
Net debt 2 13 13 4 -21
Capital employed 31 35 36 38 42
Profitability 2014 2015 2016E 2017E 2018E
ROE 0% -34% 1% 41% 59% ROCE -73% -18% 0% 26% 51% ROIC 0% -22% 1% 32% 75% EBITDA margin -16% 3% 12% 27% 40% EBIT margin -26% -14% 0% 17% 32% Net margin -24% -17% 0% 17% 32%
Data per share 2014 2015 2016E 2017E 2018E
EPS -0.74 -0.51 0.01 0.70 1.71
EPS adj -0.74 -0.51 0.01 0.70 1.71
Dividend 0.00 0.00 0.00 0.00 0.00
Net debt 0.12 0.76 0.81 0.25 -1.26
Total shares 16.61 16.61 16.61 16.61 16.61
Valuation 2014 2015 2016E 2017E 2018E
EV 169.0 146.8 229.9 219.8 194.1 P/E -13.6 -15.6 1,183.6 18.5 7.5 P/E diluted -13.6 -15.6 1,183.6 18.5 7.5 P/Sales 3.3 2.6 4.1 3.2 2.4 EV/Sales 3.4 2.9 4.4 3.3 2.2 EV/EBITDA -20.9 112.2 36.7 12.1 5.4 EV/EBIT -12.9 -21.1 1,269.7 19.0 6.8 P/BV 5.8 6.0 9.6 6.3 3.4 Share information Reuters code 203.ST
List First North
Share price 12.9
Total shares, million 16.6
Market Cap, MSEK 214.3
Management & board
CEO Jonas Söderqvist
CFO Robert Zettervall
IR
Chairman Henrik Kvick
Financial information
Q1 report April 27, 2016
Q2 report August 18, 2016
Analysts Redeye AB
DCF valuation Cash flow, MSEK
WACC (%) 12.8 %
NPV FCF (2016-2025) 167
NPV FCF (2026-) 230
Non-operating assets -2
Net debt -13
Fair value estimate MSEK 382 Assumptions 2016-2022 (%)
Average sales growth 18.6 % Fair value e. per share, SEK 23
EBIT margin 28.5 %
Share performance Growth/year 14/16e
1 month 29.0 % Net sales 2.6 %
3 month 52.7 % Operating profit adj �
12 month 66.5 % EPS, just �
Since start of the year 51.8 % Equity -11.3 %
Shareholder structure % Capital Votes
Jonas Söderqvist 25.8 % 25.4 % Henrik Kvick 24.3 % 24.1 % Andereas Friis 23.0 % 22.7 % Netfonds ASA 4.6 % 4.5 % SEB Life 2.9 % 3.4 % Avanza Pension 2.0 % 1.9 % Hegel AB 1.4 % 1.3 %
Revenue & Growth (%) EBIT (adjusted) & Margin (%)
Earnings per share Equity & debt-equity ratio (%)
Sales division Geographical areas
Conflict of interests Company description
Johan. Ekström. owns shares in the company 203 Web Group: No Kristoffer. Lindström. owns shares in the company 203 Web Group: Yes
Redeye performs/have performed services for the Company and receives/have received compensation from the Company in connection with this.
203 Web Group AB is a digital media house headquartered in Stockholm, Sweden, which excels in scalable and auto generated web products. The concepts behind the products are language independent, which means that they can be applied on a multinational level and are today represented on almost fifty markets spread out all over the world. Among the most notable of our Swedish brands are myTaste.nu, Shopello.se Matklubben.se, and Allaannonser.se - all among the biggest in their respective fields. The greatest venture onto the foreign market so far, has been the global launch of the recipe search engine myTaste. Today, it is represented on almost fifty markets spread all over the world.
-5.0% 0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 0 10 20 30 40 50 60 70 80 90 100
2013 2014 2015 2016E 2017E 2018E Net sales Net sales growth
-30.0% -20.0% -10.0% 0.0% 10.0% 20.0% 30.0% 40.0% -20 -15 -10 -5 0 5 10 15 20 25 30 35
2013 2014 2015 2016E 2017E 2018E
EBIT adj EBIT margin
-1 -0.5 0 0.5 1 1.5 2 -1 -0.5 0 0.5 1 1.5 2
2013 2014 2015 2016E 2017E 2018E
EPS, unadjusted EPS, adjusted
0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0% 90.0% 100.0% 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8
2013 2014 2015 2016E 2017E 2018E Equity ratio Debt-equity ratio
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Important information
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Redeye Rating (2016-04-05)
Rating Management Ownership Profit
outlook Profitability Financial Strength
7,5p - 10,0p 38 41 19 7 17
3,5p - 7,0p 66 56 86 33 38
0,0p - 3,0p 5 12 4 69 54
Company N 109 109 109 109 109
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