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1 E 217E 218E COMPANY ANALYSIS 5 April 216 Summary 23 Web Group (23.ST) 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 23 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 23 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 23. 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. List: First North Market Cap: 214 MSEK Industry: Information Technology CEO: Jonas Söderqvist Chairman: Henrik Kvick OMXS 3 23 Web Group Apr 6-Jul 4-Oct 2-Jan Redeye Rating ( 1 points) Management Ownership Profit outlook Profitability Financial strength 7. points 9. points 6.5 points. points 4. points Key Financials E 217E 218E Revenue, MSEK Growth % 1% 4% 28% 31% EBITDA EBITDA margin -16% 3% 12% 27% 4% EBIT EBIT margin -26% -14% % 17% 32% Pre-tax earnings Net earnings Net margin -24% -17% % 17% 32% Dividend/Share..... EPS adj P/E adj EV/S EV/EBITDA Share information Share price (SEK) 12.9 Number of shares (m) 16.6 Market Cap (MSEK) 214 Net debt (MSEK) 13 Free float (%) 3 % Daily turnover ( ) 2 Analysts: Johan Ekström johan.ekstrom@redeye.se Kristoffer Lindström kristoffer.lindstrom@redeye.se Important information: All information regarding limitation of liability and potential conflicts of interest can be found at the end of the report. Redeye, Mäster Samuelsgatan 42, 1tr, Box 7141, Stockholm. Tel E-post: info@redeye.se

2 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 to +1 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 Our Financial Strength rating represents an assessment of a company s ability to pay in the short and long term. The core of a company s financial strength is its balance sheet and cash flow. Even the greatest potential is of no benefit unless the balance sheet can cope with funding growth. The assessment of a company s financial strength is based on a number of key ratios and criteria: 1 Times-interest-coverage ratio, 2 Debt-to-equity ratio, 3 Quick ratio, 4 Current ratio, 5 Sales turnover, 6 Capital needs, 7 Cyclicality, and 8 Forthcoming binary events. 2

3 Focus on mytaste will drive value 23 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 23 Web Group is valued at around 1.2x USD per active users. Most recent M&A acquisitions have been conducted at around 7.x 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.x USD per user, mytaste market value would reach above SEK 1 billion, not unlikely for the world s third largest recipe site. Valuation development of mytaste. From 1.2x to 5.x users 6.x 5.x 4.x 3.x 2.x 1.x.x Valuation enhancement: Increased investor awareness, financial development and app user growth 1.2x Valuation enhancement: App user monetization. Valuation inline with social networks and other recipe sites, EV could reach above SEK 1 billion.8x 3.8x Today 1 year 2-5 years EV/Monthly unique visitors (dollar) Valuation enhancement Source: Redeye Research 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. 3

4 Focus on mytaste for value The name change from the rather anonymous, 23 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 2 million monthly unique visitors, over 4 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 23 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 1% 9% 8% 7% 6% 5% 4% 3% 2% 1% % 74% 79% 74% 9% 86% 1% 97% 36% 21% 26% % 3% 1% 14% Sep-15 Oct-15 Nov-15 Dec-15 Jan-16 Feb-16 Mar-16 Source: Redeye Research, 23 Web Group App time usage of total, % Web time usage of total, % 4

5 The published memorandum in conjunction with the aforementioned rights issue 23 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. As expected the re-launch on ios have enhanced the download rate significantly. Total app downloads mytaste 14 2 Total downloads re-launch IOS Downloads per day S-15 N-15 J-16 M-16 M-16 J-16 S-16 N-16 J-17 M-17 M-17 J-17 S-17 N-17 Total downloads Downloads per day Source: 23 Web Group, Redeye Research 5

6 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. Lifestyle (Applications) ranks, Google play app mytaste Yummly Cookpad Allrecipes nr countries - rank 1 nr countries - rank 5 3 nr countries - rank 1 9 nr countries - rank nr countries - rank nr countries - rank Source: appannie.com ( ) The app was re-launched on ios in February but already holds one of the highest ranking stats compared to the other recipe apps. Food and Drink, IOS app mytaste Yummly Cookpad Allrecipes iphone ipad iphone ipad iphone ipad iphone ipad nr countries - rank nr countries - rank nr countries - rank nr countries - rank nr countries - rank nr countries - rank Source: appannie.com ( ) Globally mytaste is the third largest recipe network with roughly 2 million monthly visitors. Monthly visitors of recipe networks Cookpad AllRecipes mytaste Yummly Source: Company websites & 23 Web Group Cookpad AllRecipes mytaste Yummly 6

7 But are mytaste (23) 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. Monthly visitors and valuation levels Company mytaste Yummly Cookpad Allrecipes Valuation (market or transaction) $ Monthly visitors EV/MUV 1.2x 6.7x 24.6x 7.x Source: Redeye Research *Allrecipes at the transaction in 213 Compared to the valuation levels of Yummly, Allrecipes and Cookpad the difference is significant. An investor should not forget that 23 also consist of Shopello (SEK 18.3 million in net sales and EBITDA of 2 million during 215), 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, 23 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 215) 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 217) 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. 7

8 The offer will consist of a maximum of 1,, shares. The application period starts on the 4 th and closes on the 17 th of April, 216. The offer price will be set at an amount equal to 92% of the volume-weighted average share price during the period 4 th -15 th of April with a minimum of SEK 1. per share and a maximum of SEK 15. per share. If the offer is fully subscribed, 23 Web Group will be added to more than 1-15 million, before issue costs. Relocating internal resources 23 also announced that they will close down the segment 23 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 23 Web Group. The retention rate is assumed to be around 2%, and the number of active users will reach 1.8 million by the end of 216 and 2.8 million by December 217. 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. 23 Web Group: Base-case Assumptions 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 4 Terminal growth FCF 4.% Net debt -13 Terminal EBIT margin 34% Minorities -2 Exit EV/EBIT multiple 12x Dividend correction DCF-value 386 Estimated Fair Value 23 Todays share price 12. Potential/Risk 93% Source: Redeye Research 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 8

9 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 to 2 points. The maximum score for a valuation key is 1 points. Rating changes in the report No changes Management 7.p Ownership 9.p Profit outlook 6.5p 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. The shareholder structure is one of the key strengths of 23 Web Group. The CEO Jonas Soderqvist and the CEO of mytaste Andereas Friis are the founders and own about 5% 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. 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.p Financial strength 4.p 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 23 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. 23 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 4% (1% 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. 9

10 Income statement E 217E 218E Net sales Total operating costs EBITDA Depreciation Amortization Impairment charges EBIT Share in profits Net financial items 1-2 Exchange rate dif. Pre-tax profit Tax Net earnings Balance E 217E 218E Assets Current assets Cash in banks Receivables Inventories Other current assets Current assets Fixed assets Tangible assets Associated comp. Investments Goodwill Cap. exp. for dev. O intangible rights O non-current assets Total fixed assets Deferred tax assets Total (assets) Liabilities Current liabilities Short-term debt Accounts payable O current liabilities Current liabilities Long-term debt O long-term liabilities Convertibles Total Liabilities Deferred tax liab Provisions Shareholders' equity Minority interest (BS) Minority & equity Total liab & SE Free cash flow E 217E 218E Net sales Total operating costs Depreciations total EBIT Taxes on EBIT NOPLAT Depreciation Gross cash flow Change in WC Gross CAPEX Free cash flow Capital structure E 217E 218E Equity ratio 52% 41% 4% 51% 72% Debt/equity ratio 26% 81% 84% 41% % Net debt Capital employed Capital turnover rate Growth E 217E 218E Sales growth % 1% 4% 28% 31% EPS growth (adj) % -3% -12% 6,3% 146% DCF valuation Cash flow, MSEK WACC (%) 12.8 % NPV FCF ( ) 167 NPV FCF (226-) 23 Non-operating assets -2 Net debt -13 Fair value estimate MSEK 382 Assumptions (%) Average sales growth 18.6 % Fair value e. per share, SEK 23 EBIT margin 28.5 % Profitability E 217E 218E ROE % -34% 1% 41% 59% ROCE -73% -18% % 26% 51% ROIC % -22% 1% 32% 75% EBITDA margin -16% 3% 12% 27% 4% EBIT margin -26% -14% % 17% 32% Net margin -24% -17% % 17% 32% Data per share E 217E 218E EPS EPS adj Dividend..... Net debt Total shares Valuation E 217E 218E EV P/E , P/E diluted , P/Sales EV/Sales EV/EBITDA EV/EBIT , P/BV Share performance Growth/year 14/16e 1 month 29. % 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 % Shareholder structure % Capital Votes Jonas Söderqvist 25.8 % 25.4 % Henrik Kvick 24.3 % 24.1 % Andereas Friis 23. % 22.7 % Netfonds ASA 4.6 % 4.5 % SEB Life 2.9 % 3.4 % Avanza Pension 2. % 1.9 % Hegel AB 1.4 % 1.3 % Share information Reuters code 23.ST List First North Share price 12.9 Total shares, million 16.6 Market Cap, MSEK Management & board CEO CFO IR Chairman Jonas Söderqvist Robert Zettervall Henrik Kvick Financial information Q1 report April 27, 216 Q2 report August 18, 216 Analysts Johan Ekström johan.ekstrom@redeye.se Kristoffer Lindström kristoffer.lindstrom@redeye.se Redeye AB Mäster Samuelsgatan 42, 1tr Stockholm 1

11 Revenue & Growth (%) EBIT (adjusted) & Margin (%) E 217E 218E 35.% 3.% 25.% 2.% 15.% 1.% 5.%.% -5.% E 217E 218E 4.% 3.% 2.% 1.%.% -1.% -2.% -3.% Net sales Net sales growth EBIT adj EBIT margin Earnings per share Equity & debt-equity ratio (%) E 217E 218E E 217E 218E 1.% 9.% 8.% 7.% 6.% 5.% 4.% 3.% 2.% 1.%.% EPS, unadjusted EPS, adjusted Equity ratio Debt-equity ratio Sales division Geographical areas Conflict of interests Johan. Ekström. owns shares in the company 23 Web Group: No Kristoffer. Lindström. owns shares in the company 23 Web Group: Yes Redeye performs/have performed services for the Company and receives/have received compensation from the Company in connection with this. Company description 23 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. 11

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