FIRST ERLIN Equity Research RATING Germany / Advertising Primary exchange: Frankfurt, Xetra 9M/15 Results PRICE TARGET 3.00 loomberg: YOC GR Return Potential 53.3% ISIN: DE0005932735 Risk Rating High Q3 REVENUES STEADY Y/Y; EXPECT STRONG FINISH TO THE YEAR Ellis Acklin, Tel. +49 (0)30-80 93 96 83 22 Y O UY 9M revenues remained steady Y/Y at 2.2m backed by improving contributions from premium programmatic products. The gross margin improved Y/Y for the nine month period, while EITDA adjusted for one-off effects in both years also showed incremental improvement. YOC continues to enhance its product offerings and we expect a significant pick-up in sales in Q4 driven by the rollout of the new YOC Understitial products. We have also increased our gross margins assumptions to account for the positive Programmatic developments. With a strong Q4 YOC should deliver its first annual revenue growth in three years. Our rating remains uy with a 3.00 price target (previously: 2.80). Q3/15 revenues steady Y/Y and in line with our target Q3 sales matched the prior year figure at 2.2m (Q3/14: 2.2m; Fe: 2.2m). This is an encouraging sign after the 31% Y/Y slide in Q2 sales owing mainly to negative developments at the Spanish and UK operations. On a nine month basis, revenue also equalled last year s result of 6.6m (9M/14: 6.6m). Despite the revenue shortfall, the gross margin (as % of revenues) improved during the nine month period to 33% (9M/14: 30%), thanks to higher programmatic activities and the rollout of new products. Personnel expenses were in line with last year at 3.1m (9M/14: 3.1m), whereas other operating expenses were 35% lower Y/Y at 1.7m in 9M/15 vs 2.6m in 9M/14 having benefited from cost cutting measures. Nine month EITDA totalled -1.1m compared to -0.9m in the prior year timeframe. YOC received an out of court settlement of 0.8m in Q3. Adjusted for this one-off effect vs the restructuring effects of 1.2m realised last year, EITDA in 9M/15 improved 0.2m to - 1.9m (9M/14: -2.1m). Expect a strong finish to the year spurred by new products We look for sales to pick up in Q4 driven by new YOC Understitial mobile advertising products and target revenue of 3.2m corresponding to 45% Q/Q and over 15% Y/Y growth. In September, YOC announced the introduction of its latest innovation for mobile ads. The YOC Understitial (p.t.o) COMPANY PROFILE YOC is a leading independent Mobile Advertising platform, which helps mobile app developers and digital publishers boost advertising revenues while also providing advertisers with attractive inventory and technology to maximize the effectiveness of their mobile media spend. MARKET DATA As of 21 Dec 2015 Closing Price 1.96 Shares outstanding 3.11m Market Capitalisation 6.09m 52-week Range 1.69 / 3.50 Avg. Volume (12 Months) 7,158 Multiples 2014 2015E 2016E P/E n.a. n.a. n.a. EV/Sales 0.6 0.6 0.4 EV/EIT n.a. n.a. n.a. Div. Yield 0.0% 0.0% 0.0% STOCK OVERVIEW 3.2 2.8 2.4 2 1.6 Dec 14 Feb 15 Apr 15 Jun 15 Aug 15 Oct 15 Dec 15 General All Share 2475 2375 2275 2175 2075 1975 1875 FINANCIAL HISTORY & PROJECTIONS 2012 2013 2014 2015E 2016E 2017E Revenue ( m) 21.72 11.92 9.37 9.78 13.36 17.10 Y-o-y growth n.a. -45.1% -21.4% 4.4% 36.6% 28.0% EIT ( m) -10.10-7.21-1.58-1.45-1.07 0.03 EIT margin n.a. n.a. n.a. n.a. n.a. n.a. Net income ( m) -11.06-7.98-1.74-1.51-1.08 0.03 EPS (diluted) ( ) -5.54-2.92-0.61-0.45-0.32 0.01 DPS ( ) 0.00 0.00 0.00 0.00 0.00 0.00 FCF ( m) -4.67-0.40 0.74-1.70-0.60 0.48 Net gearing n.a. n.a. n.a. n.a. n.a. n.a. Liquid assets ( m) 0.25 0.53 1.20 0.60 0.63 0.80 RISKS Risk include but are not limited to: weak balance sheet, small size, and low barriers to entry in core activities. COMPANY DATA As of 30 Sep 2015 Liquid Assets 0.50m Current Assets 3.10m Intangible Assets 0.60m Total Assets 3.80m Current Liabilities 5.90m Shareholders Equity -2.50m SHAREHOLDERS Dirk Kraus 19.5% Deutsche Industrie Holding 9.9% Institutional holdings 12.5% Other 10.9% Free Float 47.2% Analyst: Ellis Acklin, Tel. +49 (0)30-80 93 96 83
... format enables ads to be filled with graphics, HTML5 or videos and is already one of the top five most popular formats according to the YOC s recent trend report on mobile advertising formats. In the UK, advanced advertising spenders, specifically the telecommunications, entertainment and automotive industries are investing heavily in these latest mobile advertising technologies. The video version of YOC Understitial is a nonintrusive moving image format which merges the article content with the ad. This format has been used in the mobile advertising campaigns of major European brands such as O2, Microsoft, the Sparkasse Savings ank and Telekom Austria. The format features high visibility and already demonstrates positive click-though KPIs. We believe these products are beginning to pay off in terms of new revenue streams for YOC and should provide a boost in Q4. Negative operating cash flows still draining cash position Cash and cash equivalents totalled 0.5m at the end of 9M/15 compared to 0.7m at the six month stage and 1.2m at year end 2014. We note the company received an 0.8m cash injection stemming from an out-of-court settlement in Q3. Cash flow from operations in the first nine months totalled -1.6m vs -1.5m in H1/14. Cash flow from investing amounted to -0.2m, while cash flow from financing was 1.1m, stemming from the capital increase and draw down of debt in Q2. The net cash outflow of 0.2m in Q3/15 (9M/15: 0.7m) continued to stretch the balance sheet and confirms our view that the company will need to raise additional cash to fund growth until operating cash flows turn positive with the expected pick up in sales and profitability in 2017. The company is in discussions with its lenders and could secure a new credit, raise new equity, or a blend thereof similar to the last cash injection earlier this year. For now we retain the small equity raise we modelled after H1/15. Figure 1: Q3/15 results vs our forecasts in '000 Q3/15 Q3/15E Delta Q3/14 Delta 9M/15 9M/14 Delta Revenues 2,189 2,221-1.4% 2,177 0.6% 6,571 6,625-0.8% EITDA¹ -125 15 - -250 - -1,117-2,059 - Margin -5.7% 0.7% - -11.5% - -17.0% -31.1% - Net income -343-29 - 4,435 - -1,513 3,770 - Margin -15.7% -1.3% - 203.7% - -23.0% 56.9% - EPS (in ) -0.11-0.01-0.07 - -0.49 1.32 - *figures are adjusted to reflect continuing operations ¹ 2014 adjusted for for one effects Source: First erlin Equity Research; Page 2/8
Figure 2: Adjustments to our forecasts 2015E 2016E in '000 old new Delta old new Delta Revenues 9,782 9,782 0.0% 14,201 13,359-5.9% EITDA -1,187-1,186 - -990-821 - Margin -12.1% -12.1% - -7.0% -6.1% - Net income -1,486-1,514 - -1,210-1,084 - Margin -15.2% -15.5% - -8.5% -8.1% - EPS (in ) -0.44-0.45 - -0.36-0.32 - Source: First erlin Equity Research Adjusting 2015 earnings forecasts to account for Q3 performance Revenues were in line with our estimate for the third quarter at 2.2m, and we believe Q4 will deliver a much stronger sales performance thanks to the high contribution from Understitial solutions. We target 3.2m in sales for the final quarter and continue to look for 9.8m in sales for FY 2015. However, Q3 earnings came in slightly lower chiefly due to higher OpEx than we had modelled. Adjusted for these variances, we now project FY 2015 EITDA of -1.4m (previously: -1.2m) and NI of -1.8m (previously: -1.5m). After speaking with management, we have shifted a portion of the growth for 2016 into the following year to allow more time for the new products to gain traction. We also believe Programmatic activities are developing more quickly than expected and now expect them to account for 48% of group sales by 2018 (previously: 30%). This improved mix will drive the GM improvement much faster than we previously forecast. We now target a 38% GM in 2018 (previously: 34%). Going forward we also expect G&A to benefit from the recent relocation of operations going forward. Figure 3: Revenue and gross margin development (excluding belboon) 20.0 18.0 16.0 14.0 12.0 10.0 8.0 6.0 4.0 2.0 0.0 17.1 36% 34% 35% 32% 28% 29% 13.7 13.4 11.9 9.4 9.8 2012 2013 2014 2015E 2016E 2017E 40% 35% 30% 25% 20% 15% 10% 5% 0% Revenue (EUR m) Gross margin Source: First erlin Equity Research; Underlying positives set to translate into growth; reiterate uy rating Despite the regional obstacles encountered in Spain and the UK in the first nine months, we believe the company is well positioned to deliver its first revenue growth in three years buoyed by its new Mobile Advertising Products and increasing Programmatic activities. The gross margin (as % of revenues) has improved with the addition of Programmatic, while operating costs are significantly more tenable after the restructuring. We expect the GM to edge north of 38% over the mid term and believe the bottom line will benefit from the lean cost structure and economies of scale as sales increase. Management target mid single digit top-line growth for the year. Our adjusted forecasts result in a DCF fair value and price target of 3.00 (previously: 2.80) corresponding to a uy rating. Page 3/8
DCF VALUATION All figures in EUR '000 2014A 2015E 2016E 2017E 2018E 2019E 2020E 2021E 2022E Net sales 0 9,782 13,359 17,096 22,179 25,582 29,047 32,682 35,983 NOPLAT 0-1,447-1,066 24 1,083 1,307 1,752 2,061 2,159 + depreciation & amortisation 0 259 244 237 241 272 284 296 307 Net operating cash flow 0-1,188-821 262 1,324 1,579 2,037 2,357 2,466 - total investments (CAPEX and WC) 0-56 183 79 104 349 27 90 101 Capital expenditures 0-245 -257-270 -284-298 -307-316 -325 Working capital 0 189 440 349 387 647 334 406 426 Free cash flows (FCF) 0-1,244-638 340 1,428 1,928 2,064 2,446 2,566 PV of FCF's 0-1,239-548 252 911 1,061 979 1,000 904 All figures in thousands PV of FCFs in explicit period 6,416 PV of FCFs in terminal period 2,790 Enterprise value (EV) 9,206 + Net cash / - net debt (H1/15) 888 + Investments / minority interests 0 Shareholder value 10,094 Shares outstanding (diluted) 3,363 Fair value per share in EUR 3.00 Terminal growth rate WACC 16.0% 0.5% 1.0% 1.5% 2.0% 2.5% 3.0% 3.5% Cost of equity 16.9% 10.0% 5.52 5.66 5.81 5.99 6.19 6.41 6.67 Pre-tax cost of debt 11.0% 12.0% 4.34 4.42 4.50 4.60 4.70 4.81 4.94 Tax rate 30.0% 14.0% 3.52 3.56 3.61 3.67 3.72 3.79 3.86 After-tax cost of debt 7.7% 16.0% 2.91 2.94 2.97 3.00 3.04 3.07 3.11 Share of equity capital 90.0% 18.0% 2.45 2.46 2.48 2.50 2.53 2.55 2.58 Share of debt capital 10.0% 20.0% 2.08 2.09 2.11 2.12 2.14 2.15 2.17 16.0% 22.0% 1.79 1.80 1.81 1.82 1.83 1.84 1.85 * please note our model runs though 2028 and we have shown only the abbreviated version for formatting purposes WACC Page 4/8
INCOME STATEMENT All figures in EUR '000 2013A* 2014A 2015E 2016E 2017E 2018E Revenues 11,917 9,368 9,782 13,359 17,096 22,179 Own work capitalised 63 268 240 350 350 350 Other operating income 1,325 2,683 1,379 160 160 160 Total Ouput 13,305 12,319 11,401 13,869 17,606 22,689 Cost of goods sold -8,468-6,391-6,481-8,692-10,940-13,803 Gross profit 4,837 5,928 4,920 5,177 6,666 8,886 G&A -4,406-3,235-2,098-1,977-2,171-2,440 Personnel costs -6,657-3,963-4,008-4,021-4,223-4,658 Depreciation and amortisation -980-311 -261-244 -237-241 Operating income (EIT) -7,206-1,581-1,447-1,066 35 1,548 Net financial result -81-45 -12-18 -8 0 Pre-tax income (ET) -7,287-1,626-1,459-1,084 27 1,548 Income taxes -694-119 -55 0 0 0 Minority interests 0 0 0 0 0 0 Net income / loss (continued operations) -7,981-1,745-1,514-1,084 27 1,548 Net income / loss (discontinued operations) -2,502 5,037 0 0 0 0 Net income/ loss -10,483 3,293-1,514-1,084 27 1,548 Diluted EPS (in ) -2.92-0.61-0.45-0.32 0.01 0.46 EITDA¹ -6,226-1,270-1,186-821 272 1,789 Ratios Gross margin 33.7% 31.8% 33.7% 34.9% 36.0% 37.8% EIT margin on revenues n.a. n.a. n.a. n.a. 0.2% 6.8% EITDA margin on revenues n.a. n.a. n.a. n.a. 1.5% 7.9% Net margin on revenues n.a. n.a. n.a. n.a. 0.2% 6.8% Tax rate 30.0% 30.0% 30.0% 30.0% 30.0% 30.0% Expenses as % of revenues G&A 34.5% 34.5% 21.5% 14.8% 12.7% 11.0% Personnel costs 42.3% 42.3% 41.0% 30.1% 24.7% 21.0% Depreciation and amortisation 2.5% 2.5% 2.3% 1.8% 1.3% 1.1% Y-Y Growth Revenues -45.1% -21.4% 4.4% 36.6% 28.0% 29.7% Operating income n.m. n.m. n.m. n.m. n.m. 4382.8% Net income/ loss n.m. n.m. n.m. n.m. n.m. 5734.7% * adjusted to reflect continuing operations ¹ 2014 EITDA is - 2.3m excluding the 1.0m one-off restructuring effects Page 5/8
ALANCE SHEET All figures in EUR '000 2013A 2014A 2015E 2016E 2017E 2018E Assets Current assets, total 5,500 3,485 2,722 3,360 4,205 6,943 Cash and cash equivalents 531 1,204 601 626 804 2,638 Receivables 3,960 1,611 1,742 2,342 2,998 3,889 Other current assets 972 641 350 361 371 382 Tax assets 37 29 29 30 32 34 Assets for sale 0 0 0 0 0 0 Non-current assets, total 2,228 650 609 622 655 698 Property, plant & equipment 498 145 116 148 177 216 Goodwill & other intangibles 1,729 502 490 470 475 478 Other assets 1 4 4 4 4 4 Total assets 7,728 4,135 3,332 3,982 4,860 7,640 Shareholders' equity & debt Current liabilities, total 11,723 5,720 5,330 6,439 7,591 8,923 Short-term debt 525 0 0 0 0 0 Accounts payable 3,008 2,521 2,841 3,882 4,886 6,164 Current provisions 40 0 578 578 665 665 Other current liabilities 8,150 3,199 1,911 1,979 2,040 2,094 Long-term liabilities, total 684 65 365 465 165 65 Long-term debt 602 0 300 400 100 0 LT provisions 64 65 65 65 65 65 Other liabilities 18 0 0 0 0 0 Minority interests 0 0 0 0 0 0 Shareholders' equity -4,679-1,650-2,364-2,922-2,896-1,348 Total consolidated equity and debt 7,728 4,135 3,332 3,982 4,860 7,640 Ratios Current ratio 0.5x 0.6x 0.5x 0.5x 0.6x 0.8x Quick ratio 0.4x 0.5x 0.4x 0.5x 0.5x 0.7x Net working capital 952-910 -1,099-1,539-1,888-2,275 Net debt 596-1,204-301 -226-704 -2,638 Return on equity (ROE) n.m. n.m. n.m. n.m. n.m. n.m. Page 6/8
CASH FLOW STATMENT All figures in EUR '000 2013A 2014A 2015E 2016E 2017E 2018E Net income from continued operations -7,981-1,745-1,514-1,084 27 1,548 Net income from discontinued operations -2,502 5,037 0 0 0 0 Depreciation and amortisation 4,138 356 261 244 237 241 Changes in working capital 454-39 -230 496 484 428 Others 1,075-1,342-51 0 0 0 Result from disposals 1-4,187 0 0 0 0 Operating cash flow -4,815-1,920-1,533-343 748 2,217 Investments in PP&E -178-44 -200-210 -221-232 Investments in intangibles -110 0-45 -47-50 -52 Disposal of business units 5,000 2,794 0 0 0 0 Disposal of assets 0 318 78 0 0 0 Others -295-410 -2 0 0 0 Cash flow from investing activities 4,417 2,658-169 -257-270 -284 Free cash flow -398 739-1,702-600 478 1,933 Debt financing, net -2,389-66 300 100-300 -100 Equity financing, net 3,059 0 800 525 0 0 Other changes in cash 0 0 0 0 0 0 Cash flow from financing activities 670-66 1,100 625-300 -100 Net cash flows 272 673-602 25 178 1,833 Cash, start of the year 259 531 1,204 601 626 804 Cash, end of the year 531 1,204 601 626 804 2,638 EITDA/share (in ) -2.18-0.44-0.38-0.24 0.08 0.53 Y-Y Growth Operating cash flow n.m. n.m. n.m. n.m. n.m. 196.2% Free cash flow n.m. n.m. n.m. n.m. n.m. 304.3% EITDA/share n.a. n.a. n.m. n.m. n.m. 557.8% Page 7/8
FIRST ERLIN Equity Research FIRST ERLIN RECOMMENDATION & PRICE TARGET HISTORY Report No.: Initial Report Date of publication Previous day closing price Recommendation Price target 2 February 2015 2.05 uy 3.20 2...1 2 11 May 2015 3.06 uy 4.00 3 3 June 2015 2.79 uy 4.00 4 Today 1.96 uy 3.00 Ellis Acklin First erlin Equity Research GmbH Mohrenstraße 34 10117 erlin Tel. +49 (0)30-80 93 96 83 Fax +49 (0)30-80 93 96 87 info@firstberlin.com www.firstberlin.com FIRST ERLIN POLICY In an effort to assure the independence of First erlin research neither analysts nor the company itself trade or own securities in subject companies. In addition, analysts compensation is not directly linked to specific financial transactions, trading revenue or asset management fees. Analysts are compensated on a broad range of benchmarks. First erlin has received compensation from a third party where the subject company is a client. First erlin s opinion is based on its own findings. ANALYST CERTIFICATION I, Ellis Acklin, certify that the views expressed in this report accurately reflect my personal and professional views about the subject company; and I certify that my compensation is not directly linked to any specific financial transaction including trading revenue or asset management fees; neither is it directly or indirectly related to the specific recommendation or views contained in this research. In addition, I possess no shares in the subject company. INVESTMENT RATING SYSTEM First erlin s investment rating system is five tiered and includes an investment recommendation and a risk rating. Our recommendations, which are a function of our expectation of total return (forecast price appreciation and dividend yield) in the year specified, are as follows: STRONG UY: Expected return greater than 50% and a high level of confidence in management s financial guidance UY: Expected return greater than 25% ADD: Expected return between 0% and 25% REDUCE: Expected negative return between 0% and -15% SELL: Expected negative return greater than -15% Our risk ratings are Low, Medium, High and Speculative and are determined by ten factors: corporate governance, quality of earnings, management strength, balance sheet and financing risk, competitive position, standard of financial disclosure, regulatory and political uncertainty, company size, free float and other company specific risks. These risk factors are incorporated into our valuation models and are therefore reflected in our price targets. Our models are available upon request to First erlin clients. Up until 16 May 2008, First erlin s investment rating system was three tiered and was a function of our expectation of return (forecast price appreciation and dividend yield) over the specified year. Our investment ratings were as follows: UY: expected return greater than 15%; HOLD: expected return between 0% and 15%; and SELL: expected negative return. ADDITIONAL DISCLOSURES First erlin s research reports are for qualified institutional investors only. This report is not constructed as an offer to sell or the solicitation of an offer to buy any security in any jurisdiction where such an offer would be illegal. We are not soliciting any action based upon this material. This material is for the general information of clients of First erlin. It does not take into account the particular investment objectives, financial situation or needs of individual clients. efore acting on any advice or recommendation in this material, a client should consider whether it is suitable for their particular circumstances and, if necessary, seek professional advice. The material is based upon information that we consider reliable, but we do not represent that it is accurate or complete, and it should be relied upon as such. Opinions expressed are our current opinions as of the date appearing on this material only; such opinions are subject to change without notice. Copyright 2015 First erlin Equity Research GmbH. All rights reserved. No part of this material may be copied, photocopied or duplicated in any form by any means or redistributed without First erlin s prior written consent. The research is not for distribution in the USA or Canada. When quoting please cite First erlin as the source. Additional information is available upon request. Page 8/8