Verve: Strategic acquisition at an attractive valuation

We increase our target price for Verve to SEK 28 (was SEK 24) and raise our recommendation to Buy (was Accumulate) following the acquisition of Jun Group. We find the acquisition to be a good strategic fit for Verve and we view the acquisition price as highly compelling. Despite the diminishing effects following the acquisition, Verve’s risk profile remains on the high side, but we believe that the company’s valuation is low at current share price levels and presents an attractive risk/reward ratio.

Jun Group acquired to strengthen the demand side capabilities and unlock synergies

On Tuesday, June 18, Verve announced the acquisition of Jun Group, a demand-side technology platform, from the U.S. listed company Advantage Solutions Inc. in a deal worth 170 MEUR on a cash and debt-free basis. To support the financing of the deal, Verve successfully completed a directed share issue, raising 450 MSEK from the issuance of 27.1 million shares at a modest 5% share price discount, resulting in a 14.5% dilution effect. The speed, terms and volume at which the share issue was completed, is, in our view, a sign of strength given the current high interest rate environment and the company’s debt position. The acquisition was completed at a multiple of 3.8x EV/adjusted EBITDA, based on the projected 2024 pro forma adj. EBITDA, which includes anticipated annualized synergies. In comparison, using Jun Group's 2023 adjusted EBITDA, the multiple stands at 4.7x. This valuation remains well below the multiples at which Verve is currently trading. The company's rationale for the transaction is to strengthen its demand-side capabilities, thereby enhancing relationships with advertisers and agencies - a core priority for the Group. Moreover, the acquisition unlocks clear opportunities for cross-selling and upselling, elevates earnings quality, and enriches the data resources to enable better targeting.

The company outlook improves notably and Verve raised its financial targets

Following the acquisition, Verve raised its 2024 guidance to 380-400 MEUR in revenues and 115-125 MEUR in adjusted EBITDA. The company also updated its mid-term financial targets and while the target revenue CAGR remained unchanged, Verve increased its profitability targets to 30-35% adj. EBITDA margin and 20-25% adj. EBIT margin, while also lowering the targeted net leverage ratio to 1.5-2.5x. We added Jun Group to our 2024 estimates for Verve, where our revenue forecast (392 MEUR) is close to the midpoint of the company’s revised guidance range for 2024, while our estimated adj. EBITDA (114.7 MEUR) is at the low end of the target range. Further, we increased our 2025-2026 revenue estimates by 21%, and raised our adjusted EBIT by 51-53%  in 2025 and 2026, underscoring the increased operational leverage and profitability that the combined Group achieves.

Attractive risk/reward at current levels

We believe Verve’s valuation profile has become increasingly compelling following the acquisition of Jun Group. Based on our 2025 estimates, Verve trades at EV/adj. EBIT and EV/FCF multiples of 5.5x and 9.1x, respectively. These multiples are very low in absolute figures, and we argue that there is room for a multiple expansion given the company’s growth outlook, enhanced margin and cash flow profile, as well as improved deleveraging capacity. Our DCF also supports a strong upside potential, indicating a fair value per share of SEK 31.4. At our target price, Verve trades at a 2025 EV/adj. EBIT multiple of 6.8x and a 2025 EV/FCF multiple of 11.2x. We believe these multiples are fairer, especially when looking at the FCF-based multiple and compared to the peer group.