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Original-Research: The NAGA Group AG - von GBC AG

Einstufung von GBC AG zu The NAGA Group AG

Unternehmen: The NAGA Group AG

ISIN: DE000A161NR7

Anlass der Studie: Research FactSheet

Empfehlung: BUY

Kursziel: 3.60 EUR

Kursziel auf Sicht von: 31.12.2023

Letzte Ratingänderung:

Analyst: Cosmin Filker

First positive effects from initiated restructuring visible; Break-even

expected in the current financial year; Target price: EUR 3.60; Rating: BUY

Communication with the financial market of NAGA Group AG (NAGA for short)

in the past 2022 financial year was characterised by the postponement of

the 2021 annual report.

Part of the delay was related to the clarification

of valuation issues. In the opinion of the auditors, the cryptocurrency

holdings now had to be accounted for at acquisition cost and part of the

customer acquisition costs could no longer be capitalised. Although the

company was in a position to continue on its previous growth path with an

increase in total revenues of 117.1% to EUR 52.88 million (previous year: EUR

24.35 million), the changes in the balance sheet led to a significant

decline in EBIT to EUR -9.55 million (previous year: EUR 0.94 million).

Due to the delayed publication of the annual report, the 2022 half-year

report was also published late on 30 December 2022. In this report, the

NAGA management paints a picture of a turbulent first half of 2022,

characterised in particular by the collapse of the crypto markets, a

decline in turnover resulting from their withdrawal from the UK and the

overall decline in transaction activity on the capital markets in the wake

of the war in Ukraine. However, due to the still high level of customer

acquisition activities, turnover continued to grow dynamically by 50.1% to

EUR 35.02 million (previous year: EUR 23.22 million), but EBIT was

significantly below the previous year's level at EUR -18.63 million (previous

year: EUR -1.95 million). Among other things, the necessary valuation

adjustments of the crypto assets held in the amount of around EUR -12.00

million were a significant factor in the sharp decline in earnings. 

The NAGA Board of Directors has taken the development of the first half of

2022 as an opportunity to initiate a complete change in strategy and a

restructuring since July 2022. On the basis of the product areas that have

now been expanded and introduced to the market (NAGA Trader; NAGAX; NAGA

Pay), the focus has been shifted away from strong customer and revenue

growth towards reaching the break-even point. This is to be exceeded

sustainably from the second quarter of 2023.

Their focus on their trading business and on reducing their operating cost

base and acquisition costs is already bearing fruit, according to the

company. With the improvement in marketing costs, staff reductions and

their cut in R&D expenses, the cost base was reduced to EUR14 million in the

second quarter of 2022 and further to EUR12 million in the fourth quarter of

2022. In the first quarter of 2022, this was still at EUR20 million. This

reduction is partly driven by an improvement in customer acquisition costs.

In Q3, these were EUR 816, a significant reduction compared to the first two

quarters (Q1: EUR 1,343; Q2: EUR 1,609). In Q4 2022, these fell further to EUR

613. At the same time, an increase in revenue per customer is to be

achieved through geographical diversification.

These measures should only become clearly visible in the current financial

year 2023, but will only have a full impact in 2024. The past financial

year 2022 should still be characterised by a clearly negative result.

The expected high negative operating cash flow should be partly offset by a

positive investment cash flow. This is primarily related to the sale of

money market funds in which NAGA had temporarily parked the liquid funds

raised from the capital increases. A free cash flow of EUR -3.22 million was

reported at the end of the first half of 2022.

A key aspect of the company's further development is likely to be their

planned strategic transaction with a multinational brokerage company. As

reported by NAGA on 19 January 2023, discussions are currently taking place

with an unnamed brokerage company with the aim of merging the two

companies. The transaction should be completed by the fourth quarter of

2023, subject to a positive due diligence review and other approvals. In

our view, NAGA would be taken over in this case, but their independent

stock exchange listing would be maintained. Obviously, the current

valuation of NAGA is considered low and, on the other hand, the now fully

developed NAGA product range is considered attractive. In the event of an

acquisition, NAGA could benefit from the existing licences of the brokerage

company, which would allow it to enter new markets without having to first

obtain a time-consuming licence.

The current financial year 2023 will be characterised by a focus on

improving the key earnings figures, as described above. In addition, the

company plans to re-enter the UK, where the largest traded volume was in

2021, by Q2 2023. The reactivation of the former customer base (180,000

leads) is to be carried out at lower profit costs, which would have an

immediate effect on earnings. In addition, the company plans to grow more

strongly outside Europe. In this respect, the recently granted licence in

the Seychelles is of great importance. Finally, the introduction of the

NAGA Institutional Desk, planned for the beginning of 2023, is intended to

address volume traders more strongly.

After an expected negative EBIT of EUR -29.77 million for the past financial

year, with sales revenues of EUR 52.08 million, in particular due to the

losses in value of cryptocurrencies held, the break-even point should be

reached in the current financial year. With a 30% increase in turnover to EUR

67.42m, we expect EBIT to improve to EUR 0.79m. The effects of the UK

re-entry and the further regional expansion should be fully reflected

positively in the coming 2024 financial year. We expect revenue growth of

25% to EUR 84.27 million in 2024 and consider EBIT of EUR 10.46 million to be

realistic.

Within the framework of our DCF valuation model, we have determined a

target price of EUR 3.60 (previously: EUR 12.75). The significant lowering of

the target price is a consequence of the significantly reduced forecasts

for the concrete estimation period (2022e - 2024e), which provides a lower

basis for the continuity phase of our valuation model. On the other hand,

we take into account the market-related increase in the risk-free interest

rate and thus visibly raise the weighted average cost of capital (WACC) to

10.34% (previously: 9.33%). Based on the current share price of EUR 1.84, we

assign the rating BUY.

Die vollständige Analyse können Sie hier downloaden:

http://www.more-ir.de/d/26351.pdf

Kontakt für Rückfragen

GBC AG

Halderstrasse 27

86150 Augsburg

0821 / 241133 0

research@gbc-ag.de

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Offenlegung möglicher Interessenskonflikte nach § 85 WpHG und Art. 20 MAR. Beim oben analysierten Unternehmen ist folgender möglicher Interessenkonflikt gegeben: (5a,11); Einen Katalog möglicher Interessenkonflikte finden Sie unter:

http://www.gbc-ag.de/de/Offenlegung

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Date (time) Completion: 03/02/23 (08:24 pm)

Date (time) first transmission: 03/02/23 (11:30 am)

-------------------übermittelt durch die EQS Group AG.-------------------

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oder Aufforderung zum Abschluss bestimmter Börsengeschäfte.

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