Fundamental Analysis: MailUp Group on Class CNBC

On Class CNBC, the daily column dedicated to the world of AIM Italia presents the fundamental analysis of a company in the basket of small and medium-sized enterprises, together with Cristian Frigerio of 4AIM Sicaf. In June 8 episode, the analysis focused on MailUp Group. Find below the video recording (in Italian) and English transcript.

“MailUp Group is one of the main players in the Marketing Technologies segment, offering companies (among other services) functions and tools for creating, sending, automating and tracking newsletters, emails and SMS.

MailUp was established in 2002 and today has over 150 employees. The company debuted on the market in Italy in July 2014, and raised around EUR 3 million share capital increase, at a price of EUR 2.5 per share. (Note: today restated in EUR 1,92 euro per share following a stock split in 2016).

As for income statement data, in 2019 the Group recorded a value of production of EUR 60.8 million, a 51% increase compared to 2018; an EBITDA of EUR 4.8 million, up from EUR 3.77 million in 2018, albeit with a slightly decreasing margin.

EBIT stood at EUR 1.85 million in 2019, roughly at similar levels to 2018, or EUR 1.9 million. The net result was EUR 1.15 million, slightly down from EUR 1.26 million in 2018.

This slight decrease recorded in 2019 was due to some specific events, primarily the adoption of the new accounting standard IFRS16, which positively impacted on the financial statements.

However, there was the negative impact (for about EUR 1 million) of one-off costs connected with a dispute with a strategic supplier (which has now been completely resolved from both a legal and a technical point of view).  Clearly those costs negatively impacted EBITDA, EBIT and net result. Net of this extraordinary charge, the margins would have increased, so it is important to report this aspect.

In the last three years, there has been a strong growth in the value of production, from EUR 27 million in 2017 to over EUR 60 million in 2019. Turnover has more than doubled in the space of a few years, confirming the strong growth in recent years.

Turning to the balance sheet data, net invested capital grew to over EUR 13 million in 2019 compared to EUR 9.6 million in 2018. Shareholders’ equity exceeded EUR 16 million.

The net cash position fell to EUR 2.35 million compared to EUR 6.37 million in 2018. This is net cash we’re talking about, since the company has no debt. The net cash flow in 2009 fell substantially due to the new accounting standard IFRS16, which impacted the NFP for approximately EUR 4.6 million. Subtracting the effect of IFRS16, the net cash flow in 2019 would have been approximately EUR 7 million, therefore up on the 2018 value.

On the cash flow side, in 2019 the operating cash flow was EUR 4.6 million. Investments amounted to approximately EUR 3 million and cash flow net of investment was positive for approximately EUR 1.5 million.

Operating cash flow over the past three years has been significant. The Company has an outstanding cash conversion capacity, i.e. the ability to convert EBITDA into cash flows at decidedly high levels. This is very positive.

Clearly investments are carried out, as is normal in a technological sector, but the Group is expanding, so investments are preparatory to development.

From the point of view of profitability indicators, the ROE in 2019 was around 7%, while the return on capital invested was around 13%. Definitely positive values.

From the point of view of the evaluation of multiples, based on current prices and on the estimates for the financial year 2020 relying on the latest research by UBI Banca, the stock price currently trades at 11.9 times on EV / EBITDA on 2020 and about 45 times price earning, always on the estimates for the year 2020.

These multiples can be compared with 7 times EV / EBITDA, as the median value of digital sector on AIM, and with 18.3 times, again as the median value of the digital sector on AIM. The considered sample of AIM- listed companies, even if belonging to the digital sector, does not have a business identical to MailUp Group’s. The comparison is therefore purely indicative and provides roughly similar figures for comparison.

The MailUp stock may seem expensive compared to these sector multiples, however its multiples are justified by the fact that the Company has grown a lot in recent years and is continuing to grow.

A few weeks ago the Group issued the quarterly results for Q1 2020 (one of the few companies on AIM to do so). Revenues are up 18.6%, while EBITDA grew by about 15%. The growth trend is therefore continuing. Business is doing well despite the global Covid situation.

Surely, therefore, the multiples may appear high, but they are justified by this very positive growth trend. Then cash flow generation has to be taken into account: the company, as already mentioned, generates recurring cash flow, therefore it is well suited to be evaluated with a DCF (discounted cash flow) model.

The current evaluation, from my point of view and based on these figures, is certainly correct and justified. To date, the Company has a market cap around EUR 72 million, with a free float of 36.4%.

The Company is also well positioned outside of Italy, since half of the turnover comes from abroad – which adds to the plus side.

On the research front, the previously mentioned research by UBI Banca dated 14 May 2020 sets a target price of EUR 5.4 per share, which corresponds to a theoretical upside of around 8% compared to current prices. UBI Banca estimates revenues of EUR 72 million for 2020, up 21% year on year; EBITDA of EUR 5.8 million; margin of 8.1%; net profit of EUR 1.6 million; net cash for EUR 3.5 million.

All in all, MailUp Group is an extremely sound organisation, so the evaluation can only be positive from many points of view”.