EQUITY RESEARCH III th July 27 , 2015 95 Investment summary … · States, Canada, Japan or...

EQUITY RESEARCH – Initiation of Coverage

July 27th, 2015 III

OUTPERFORM Current Share Price (€): 2.18

Target Price (€): 3.40

DigiTouch – Performance

90

95

100

105

110

DigiTouch Share price FTSE AIM Italia Index Note: 16/03/2015=100

Company data

Bloomberg code DGT IM

Reuters code DGT.MI

Share Price (€) 2.18

Date of Price

Shares Outstanding (m) 13.9

Market Cap (€m) 30.3

Market Float (%) 31.6%

Daily Volume 7,500

Avg Daily Volume YTD 25,563

Target Price (€) 3.40

Upside (%)

Recommendation OUTPERFORM

27/07/2015

56%

Share price performance

1m 3m 1Y

DigiTouch - Absolute (%) -7% -14% n.a.

FTSE AIM Italia (%) -2% -7% n.a.

1Y Range H/L (€) 2.55 2.17

YTD Change/% n.a. n.a.

Luigi Tardella – Co-Head of Research

[email protected]

Viviana Sepe – Research Analyst

[email protected]

EnVent Capital Markets Limited

25, Savile Row - London W1SR 2ER

United Kingdom

Phone +44 (0) 20 35198451

This document may not be distributed in the United

States, Canada, Japan or Australia or to U.S. persons.

Investment summary

Geared for leadership in the recently-born Italian Ad Tech industry

We initiate coverage of DigiTouch with an OUTPERFORM rating, based on a

target price of €3.40 per share. We believe DigiTouch is a clear frontrunner in

its industry, providing a multi-suite offering in the fast growing digital

advertising market, delivering integrated mobile and performance advertising

services, coupled with big data and social media marketing tools.

With pro-forma 2015 revenues estimated in the region of €25m and a healthy

20% sustainable pro-forma EBITDA margin, in the midst of strategic

acquisition-led growth which concurrently allows for service integration and

market positioning, DigiTouch is delivering on its IPO promises and trending to

be the largest independent domestic player. Payback will follow for investors

looking to an attractive growth story.

Key financials and estimates

€m 2014PF 2015PF 2016E 2017E 2018E

Revenues 15.2 24.2 28.8 33.7 39.5

YoY % - 59.2% 18.8% 17.1% 17.2%

EBITDA 3.0 4.9 6.1 7.2 8.4Margin 19.5% 20.4% 21.2% 21.2% 21.3%

EBIT 2.3 3.1 4.7 5.7 6.8Margin 15.3% 12.8% 16.3% 16.9% 17.3%

Net Income 1.5 1.8 2.9 3.6 4.4

Trade Working Capital 1.5 3.4 4.0 4.7 5.4TWC/Revenues 9.9% 13.9% 14.0% 13.9% 13.7%

Net (Debt) / Cash (4.1) (0.1) 3.3 7.3 12.1

Equity 3.0 13.9 16.8 20.4 24.8 Source: EnVent Research

Programmatic advertising is capturing the lion’s share of the market

Programmatic advertising – the automated placing of advertisements in

electronically targeted media content – is rapidly substituting the traditional

advertisement approach in the global market, with the US leading the change.

Italian industry growth in the short/mid-term is estimated consistently at

yearly compounded double digits. As a whole, in Europe, this disruptive change

is gaining momentum, with the leading group of global traditional Ad agencies

being challenged by a new ecosystem of multiple cluster, multi-suite digital Ad

operators, ready to rise-up through rapid consolidation, breaking the ranks and

generating new leaders, like DigiTouch.

Focus on large accounts, continuous achievements

The Company’s offering has been addressed to service large accounts, an

ambitious strategy that has so-far been achieved and will pay off in the near

future. Over 270 clients are now being served and the newly-acquired Facebook

specialist, E3, will bring a wealth of top-tier clients. Top clients are the first KPIs

for a Top Firm.

M&A is the secret word for the years to come

DigiTouch has a proven track record of identifying, executing and integrating

acquisitions. Performedia in 2014, MutuiperlaCasa, The Blog TV and E3 so far in

2015, aside from adding a new client base, represent a combination of product

suites and formats that qualifies the offering. The integrated businesses

combination is a value building tool, and given the highly fragmented, new-born

digital Ad ecosystem, there is further scope to build scale and capabilities via

acquisitions. We believe this strategy to be crucial, not limited to gaining market

share, but necessary to pursue competitive advantages like accelerating the

incorporation of new competencies into its technology stack, speedily reaching

the status of “an established player”, and clearly opening a visible gap with its

previous and future competitors.

1

Overperforming during

market downturn

Company

DigiTouch SpA (DigiTouch) is an Italian independent digital advertising and

marketing firm, specialized in Ad Tech market segments and working on three

main business units:

mobile advertising

performance advertising

data profiling

Revenues grew organically and by acquisitions, from the million euro of 2008

up to the €15m 2014 proforma consolidated, delivering EBITDA of €3.0m

(19.5% margin), a €2.4m EBITA (16% margin) and a €2.3m EBIT (15%

margin). DigiTouch has always been profitable, showing also steady organic

growth in revenues and sound margins.

DigiTouch Group – Historical revenues (€m)

0.11.0

1.5

4.2

7.0 7.0 7.0

2007 2008 2009 2010 2011 2012 2013 2014PF

DigiTouch Performedia

15.2

Source: Company data

DigiTouch has performed well despite weak Italian advertising markets. The Group’s competitive advantage comes from delivering improved ROI for advertisers based on intelligent data manipulation. Growth is predicted on market shifts to more integrated campaigns and internationalization.

Industry drivers

Digital advertising is disrupting the advertising market. A radical industry

transformation is in place, with online advertising replacing traditional media

advertising. The market potential is still largely unexploited and the level of

penetration in the markets where the web usage is more intense represents a

reliable indicator of the market growth potential. Italy has an exceptional

diffusion of mobile smart devices and a relatively low spending in digital ads.

1. INVESTMENT CASE

2

Fast growing global market,

Italy expected for more, to fill

the gap

3.8

2.5

2.1 2.01.8

1.6

1.4

1.10.9 0.9

Digital ad spending on GDP per country ($ per thousand)

Source: World Bank for GDP; eMarketer for Digital ad spending

The gap to be filled pictures a wide further growth potential, fueled both from

web continuing diffusion and advertising on new media revolution.

2007 2008 2009 2010 2011 2012 2013 2014

The Italian advertising market (€bn)

Newspapers Magazines TV Internet Radio Outdoor/Cinema

9.4 9.3

8.08.4

8.1

6.9

6.1 5.9

Source: Gruppo Editoriale L'Espresso Company presentation FY2014 - Based on Nielsen and FCP data

Regular internet use up and spread of fast broadband technologies. The

number of people using internet at least once per week increased to over 70%

in 2014 in the EU. 4G mobile broadband availability in the EU increased sharply

to almost 60% in 2014, up from 26% on previous year. (European Commission,

The EU 2014 Digital Scoreboard: how did you fare?, 2014)

Mobile devices usage. Desktop display growth has been surpassed by

smartphones and tablets. Currently, Western Europe still lags North America in

smartphone usage. However, according to eMarketer, smartphone usage in

Western Europe is set to surpass that in the USA by 2017.

While smartphone ownership surges, tablets are playing an even larger role in

consumer habits. eMarketer has estimated that the rising penetration of mobile

devices has boosted advertisers’ expenditure on the mobile web by 118.4%.

3

Big shifts transforming

the industry driven by

innovation, new devices and

technologies

Programmatic advertising is

going to be dominant

Mobile share of digital ad spending in Western Europe is expected to climb from

24% in 2014 to 63.4% in 2018.

Increasing e-commerce sales. Consumers will spend more and more online.

eMarketer estimates that online sales in Western Europe will increase at a

10.5% 2013-2018 CAGR from €319bn in 2013 to €525bn in 2018.

New technologies. Technology has prompted huge change in the advertising

industry. People are accessing, consuming, and sharing content in more varied

ways than ever, and marketers have new opportunities to understand, reach,

and engage with consumers. The next evolution in digital advertising will be

driven by innovative platforms that help marketers move their businesses

forward. Although mobile devices are getting smoother, wearable technologies

as watches, glasses and wristbands still present an unexploited potential.

Biometrics, fingerprints, vein patterns, iris scans, voice prints and facial maps

are being tested as solutions by a range of companies in the industry.

Programmatic. Programmatic, the automatic, customized delivery of ads and

marketing campaigns, is changing the industry. As automated advertising

technologies replace manual media planning and buying processes, saving time

and consumer data, more resources can be directed toward the creative side of

the sales house and toward native advertising, sponsorships, take-overs and

other strategic initiatives. Programmatic share of US digital advertising reached

45% in 2014 and eMarketer’s projections for 2016 put about 63% of US digital

display ad spending being automated (source: eMarketer, US Programmatic Ad

Spend Tops $10 Billion This Year, to Double by 2016, October 2014).

Programmatic continues to move higher as technology improves to enable all

formats and inventory types including native, video, and guaranteed. Further,

investments are being made to bring automated technology to traditional media

channels like TV and emerging ones like OTT (over-the-top) video.

Further M&A expected at premium multiples. The consolidation trend seen

in most markets is likely to continue or increase, as the various ecosystems will

see their champions to become predators and later possibly preys. The

acceleration expected from high-tech multinationals broadening their offering

and international media and advertising networks will push upward multiples

paid for brilliant local Ad Tech specialists.

Company drivers

Acquisitions of companies and businesses. DigiTouch has a proven track

record of identifying, executing and integrating acquisitions.

Technology. Proprietary technologies such as profiling, data enrichment and

planning algorithms build competitive advantages.

Innovation. Among key first movers and reputation of continuing innovation as

4

in the mobile advertising market, profiling tools, other new formats.

Client service. Multi-suite offering, based on a balanced business model and

vertical integration. Solid client retention by multiservice strategic approach.

Team. Hyper-focused multi-angle strategy leading to meticulous M&A activity

and rationale-led decisions on make or buy opportunities.

Key managers are also shareholders of the Company and are directly involved

in the execution of the Group’s growth strategy, leveraging on their industry

expertise, entrepreneurial experience and track record in M&A.

Challenges

Technological change. Constantly being at the forefront of continued

technological change and development.

Acquisition payback. Achieving scale through consolidation of smaller

competitors in a short time scale, therefore allowing to access international

markets. Pursue acquisition strategy with reasonable multiples and preserve

profitability by critically selective acquisitions and managing the transitions

and the timing of spend versus expected revenues.

Delivery of targets. Deliver organic growth targets in line with market

potential. Delivering on the IPO equity story. Assuring client satisfaction and

service expansion through constant innovation quality and demonstrated

impact on client performance, increasing skills maintaining a healthy

profitability.

Competition and digital multinationals entering Pan-European markets.

Facing intense rivalry where data and scale are increasingly widening the gap

among players, with growing importance of speed for well established players

to incorporate additional technologies into their stack.

Low barriers to entry and pricing trends. Online marketing solutions have a

relatively low barrier to entry. As a result, new competitors can enter the

marketplace without significant obstacles. Large industry players could either

build their competences or acquire or establish relationships with Ad tech

specialists. Since purchase decisions are normally taken on service quality and

cost, new large competitors might offer underpriced or free services in order to

capture market share or as a strategic decision, affecting the entire industry

margins.

Retention. Manage organization complexity in a fast growing environment and

retain key management. Adapt risk management measures with reference to

media buying.

5

Discount trading multiples

Current price of €2.18 implies a 48% discount on the average of 2015 AIM Italia compco multiples and a 56% discount on the average of 2015 International peers multiples, as analyzed in Chapter 11. We believe that in view of DigiTouch’s EBITDA performance and the expectation that it will accelerate growth over the next few years, this discount is unwarranted. Our DCF model indicates a 57% premium to the current market capitalization, that we consider justified by DigiTouch’s diversification and excellent growth performance.

6

From pure marketing

services…

… to a digital advertising

multi-suite offering

Growth through acquisitions,

leveraging on a long-term

M&A track record

DigiTouch goes public in 2015

Fast growing in digital advertising

DigiTouch’s mission is to provide advertisers and media agencies with a

comprehensive multi-suite offering of digital advertising services, with

specializations such as performance advertising, mobile marketing and mobile

big data profiling, where it is a first mover.

With over 7 years’ experience in the pure digital advertising and client assets

relationships, 90 employees and a portfolio of over 270 clients as of June 2015,

DigiTouch reported €15m FY2014 proforma consolidated revenues, delivering

EBITDA of €3m (19.5% margin) with €1.5m net profit.

Key developments

Founded in 2007, DigiTouch was born from the experience of a team of

entrepreneurs and managers with more than a decade of expertise in the digital

market, who contributed their competencies and skills, developed previously in

Buongiorno.it, Accenture, NeoNetwork, Vodafone etc.

In the first years, DigiTouch grew organically. The business consisted of two

main activities:

- creation and distribution of mobile content through mobile phone

operators

- lead generation for small and medium-sized enterprises based on a Cost

Per Lead pricing model

Since 2012, the business model was refocused towards pure digital advertising

services switching to larger clients, in view of the increasing investment of

corporations in digital advertising and marketing campaigns, leveraging on the

mobile segment specialization and lower credit default risk.

In 2014, DigiTouch acquired Performedia, one of the leading Italian players in

performance advertising, in order to enlarge its offer and consolidate its

position in the highly fragmented Italian online advertising market.

With the set-up of Audiens (fully-owned subsidiary) in the beginning of 2015,

DigiTouch entered into the mobile profiling business through a big data

platform offering. In the same period, acquired the business activities of

TheBlogTV Communities for the creation and management of vertical

communities and content and media marketing, in order to enhance its mobile

and performance offering through social media channels.

DigiTouch’s shares started trading on the AIM Italia market in March 2015.

In May 2015, DigiTouch acquired 80.96% of Back Office Srl, an Italian company

specialized in online brokerage services through its proprietary branded

2. PROFILE

7

M&A activity goes on fast in

2015

Combination of organic

growth and acquisitions

“Mutuiperlacasa” website for loan and mortgage comparison and the

“TassoAlert” mobile app, allowing to easily access and locate information on

financial products based on a given interest rate. DigiTouch has an option to

acquire a further 18.14% of Back Office within June 2016.

In July 2015, DigiTouch announced the acquisition of 100% of E3 Srl, an Italian

digital advertising agency specialized in performance communication services

through social networks (also Facebook Preferred Marketing Developer and

Google Partner), whose 2014 revenues were in the region of €4.5m. E3 clients

perfectly fit with the Group’s large accounts portfolio strategy, consolidating its

primacy in the financial sector also opening new opportunities in the retail, food

and pharma.

DigiTouch – History and key acquisitions

Year Main Events/Acquisitions

2007 Incorporation of DigiTouch

2008- First web performance campaign

- Opening of a mobile account with Admob, first agency in Italy

2009

- First mobile campaign

- Member of IAB Italia (Interactive Advertising Bureau)

- Partnership with Milan Polytechnic for Mobile marketing observatory

2012 - Partnership with Milan Polytechnic for New media and new internet observatory

2013 Establishment of DigiMob, first sales house focusing on mobile

2014 Acquisition of Performedia

2015

- Incorporation of Audiens

- Acquisition of The Blog TV activities

- Listing on AIM Italia market

- Acquisition of Back Office "Mutuiperlacasa" (80.96%)

- Acquisition of E3 (100%) Source: Company data

DigiTouch’s stock market performance on AIM Italia

In its IPO on AIM Italia (16/03/2015), DigiTouch placed 4,288,000 shares at

€2.3 per share (of which 3,896,695 newly issued and 391,305 sold via green

shoe option) and 1,000 convertible bonds for a total offer of €12m, distributed

among around 380 investors. Free float at the IPO was 31.57%. The market cap

at the IPO was €31.9m. The official closing price of the first trading day was

€2.38 per share, +3.5% on the list price.

8

DigiTouch on AIM Italia

Stock market AIM Italia - MAC

Bloomberg code DGT IM

Reuters code DGT.MI

IPO date 16/03/2015

First Share Price (€) 2.3

Ordinary shares - ISIN code IT0005089476

Shares outstanding 13,896,695

Current Share Price (€) 2.18

Market Cap (€m) 30.3

Convertible bonds - ISIN code IT0005089864

Size €3m - Max. 1,000 bonds convertible in new ordinary shares without par value

Par value €3000 per bond

Subscription price Par value

Interest rate Fixed annual coupon 6% - postponed quarterly payment

Duration 5 years since Issuing date (IPO date)

Conversion period 16/03/2015-05/03/2020

Conversion price €3 per share (1,000 shares for 1 bond) Source: Company data and Bloomberg, update: 27/07/2015

DigiTouch – Share price performance 16/03/15 – 27/07/15

2.0

2.1

2.2

2.3

2.4

2.5

2.6

16

/3

23

/3

30

/3

6/

4

13

/4

20

/4

27

/4

4/

5

11

/5

18

/5

25

/5

1/

6

8/

6

15

/6

22

/6

29

/6

6/

7

13

/7

20

/7

27

/7

Share price performance 16/3/15 - 27/7/15

€

Source: Bloomberg, update: 27/07/2015

9

The founding shareholders of DigiTouch - Simone Ranucci Brandimarte, Paolo

Mardegan, Daniele Meini, Marko Maras - own together the majority of the share

capital. Free float is 32%.

3. GROUP

DigiTouch – Group structure

Content and media marketing

Mobile

advertising

Performance

advertisingData profiling

Verticals


DigiTouch – Shareholders

Sodapao S.r.l.

(Paolo Mardegan)

20%

Digivalue Media S.à.r.l.

18%

Daniele Meini12%Simone Ranucci

Brandimarte11%

Marko Maras7%

Market32%

Source: Company data, website accessed on May 28th, 2015

10

4. MANAGEMENT

Name Role Background

Simone Ranucci BrandimarteChairman -

Shareholder

- Mobile and digital business - 18 years of experience

- Co-founder, business angel and advisor of startup initiatives in Europe and Asia

- Currently CEO, Goswiff Ltd. (mobile payments)

- 2010 Founder of Glamoo (mobile Social & Location and couponing)

- Until 2010 Co-founder and Managing director, Buongiorno (mobile marketing and

digital entertainment)

- CEO and COO, Buongiorno Hong Kong (JV Buongiorno-Mitsui)

- Started career in Accenture (Strategic Services Division)

Paolo MardeganCEO -

Shareholder

- Joined DigiTouch in 2009

- 2006-2009 Premium services director, NeoNetwork Srl (Magnolia Group)

- 2002-2006 Director for new product development, Buongiorno Vitaminic SpA

- 2001-2002 Marketing and business development director, IN3 Srl

- 1999-2001 Product content and Business development manager, Think SpA

- 1998-1999 Producer, TV Net Sas (Project Mediasetonline.com)

- 1997-1998 Editor, Bancalavoro Srl (first website for job search)

- 1995-1996 Line producer, Mediaset SpA

Michela Rizzo CFO- Controller, Vodafone

- Auditor, PwC

Marko MarasCTO -

Shareholder

- Founder and CEO, OneBip (sold to Neomobile)

- Founder, Simple Ventures

- IT manager, IN3 Internet Ventures

Daniela RobbaHead of Business

Development

- Head of Milan office, TheBlogTV

- COO, DMC

- Manager, DMC-Fullsix

- Marketing manager, Bibop Research

Matteo Antonelli CEO Performedia

- 2003-2006 Trade marketing manager, Indesit

- 2001- 2003 Marketing asset manager, Coca Cola Italia

- 1999-2001 Product manager, Yomo

- 1996-1998 Advisor, Gesto Group Source: Company data

11

Revolutionary communication tools for great brands

Vision

DigiTouch is committed to become one of the leading independent digital

advertising players in Italy, the clear leader in mobile and performance

advertising, a first mover in the European mobile profiling market.

Selling proposition

Integrated offer of advanced online communication strategies made up of data

management and advertising products, pricing on measured impacts and

leveraging on innovation, proprietary technology and reputation coming from

continuing client relationships.

A ground-breaking value chain

In addition to the initial sales house services for advertising on mobile media

through DigiMob, with the acquisition of Performedia, DigiTouch entered the

media center and agency businesses. The newly established greenfield data

profiling business Audiens completes the value chain.

Digital advertising industry value chain and DigiTouch’s positioning


Within the value chain, the Group encompasses the intermediation services

between publishers and advertisers/brands, spearheading the radical

transition that is revolutionizing the industry and acting as one stop shop that

speeds up the advertising campaign cycle.

Products and services

DigiTouch’s offering business units:

DigiMob: mobile advertising and special projects

Performedia: performance advertising

Audiens: data profiling

5. BUSINESS MODEL AND STRATEGY

12

Mobile advertising

DigiTouch – Business units


DigiTouch – Consolidated proforma revenues by business unit, 2014

DigiMob52%

Performedia48%

Titolo


DigiMob

Independent sales house specialized in mobile and new devices (such as

connected TVs and wearable devices), also digital agency developing

advertising campaigns and digital communication projects, focused on the

brand and performance-based mobile segment.

DigiMob – Products

Mobile rich mediaInnovative online advertising formats with audio, video and animations, such as flash

banners, videos, AJAX and DHTML technologies

Mobile displayMobile display campaigns planned on mobile sites (Msites) or mobile applications.

Promotions can be displayed on the advertiser's site or through a mobile responsive page

Video mobile ad campaigns Web / mobile video solutions

App-up campaigns

Advertising formats containing links to application stores (AppStore, Google Play, etc) and

to the respective application. In some cases, this product is realized on a performance

basis (remuneration based on the number of downloads)

Web / mobile special projects

Web / mobile advertising campaigns created based on customer requirements. Special

projects aren't limited to a promotional campaign, but often refer to long-term targets

such as the creation of a community of users interested in a product

Social projects Suite of applications on Facebook with viral logic for promotion on social channels

Mobile couponingCoupons are often used in the retail industry. Customers receive them on their

smartphone or by e-mail

Advertising on connected TVs

Being modern televisions connected to the Internet, it is possible to send highly profiled

advertising campaigns, maximizing the potential of high-definition video and sophisticated

audio

Proximity marketing

Marketing actions carried out in a specific geographical area using visual and mobile

communication technologies. Main applications: cinemas, malls, games shops, exhibitions,

concerts, tourist information Source: Company data

Performedia

Advertising agency operating with top Italian and international clients. It is a

13

Retargeting specialist

First mover in the mobile big

data market

pioneer in new offerings: retargeting, re-audience, TV reach upgrade and

marginal cost per action.

Performedia – Products

Search Engine OptimizationActions to improve the positioning of a website on search engines based on keywords

considered strategic

Search Engine Marketing

Web marketing activities to increase visibility and traceability of a website through search

engines. This activity also includes the analysis of the return of the single actions through

web analysis tools

Data Management PlatformDMP allows to profile the ideal user, searching for users with similar behavior, and helps

identifying new targets for advertising campaigns

Direct Email Marketing Advertising sent through e-mail, using proprietary technologies such as massive mail

RetargetingInnovative online advertising planning system allowing to get back in touch with users

who have left the website on which the campaign was published, following a

demonstration of interest without completion of the action (i.e. purchase of a product)

Real-time Bidding

Real-time Bidding allows to intercept and show real-time ads to a target group selected

according to the needs, behaviors and habits that it shows on the internet. Real-Time

Bidding allows to purchase single impressions in huge marketplaces (Ad Exchanges)

paying according to the actual value that these have on the basis of behavior, interest and

intent of the users

Facebook Graph SearchSemantic search engine designed to provide answers to users' questions using natural

language. Graph search combines data collected from Facebook users and external data

in a unique search engine that provides users' search results Source: Company data

Through Performedia, DigiTouch acts as a media center, buying advertising

spaces on behalf of its clients and realizing online performance-based ad

campaigns. It offers both performance and branding services. In addition,

provides strategic consulting as to online and offline media plans.

Audiens

The newly-established start-up investment Audiens, a data management and

enrichment platform connected to mobile network operators, provides mobile

data profiling services, consisting in the collection, processing and analysis of

anonymized socio-demographic and behavioral data of customers (age, gender,

city, contract type, marital status, spending power, job and mobile browsing

habits), in order to profile potential users/targets for advertisers.

The platform provides a cluster match for over 30m mobile phone users in Italy

(in less than 100 ms).

DigiTouch has recently signed a non-disclosure agreement with some leading

international publishers. Thanks to the Audiens platform, publishers will offer

advertisers a new mobile audience targeting solution using the profiling data

collected from Mobile Network Operators (MNO).

Audiens can be used by:

- AdServers, demand/supply-side platforms to enrich users’ data and

increase CPM (cost per thousand ad impressions)

- mobile sites and app developers to analyze users’ demographics and

interests (Google, Facebook, etc.)

This business unit is still under development and related services haven’t been

marketed yet.

DigiTouch aims at a rapid international growth through Audiens, supporting

large MNOs in monetizing their data and enriching mobile ad communication.

14

Vertical offers

The acquisition of Mutuiperlacasa and TheBlogTV is part of the Group’s vertical

strategy of adding the management of web communities to the offer.

TheBlogTV Communities

TheBlogTV is specialized in digital and social communication strategies based

on users’ engagement for the creation and management of vertical communities

and has a multi-year experience in video production for web and TV. It covers

the entire value chain: customization platform, community management,

content drafting and social media strategy:

- community building: creation of communities of consumers, clients and

influencers in order to create new value for brands

- social media marketing: design of communication strategies and social

media content; creation and management of channels, pages, apps and

profiles on social networks, involving users with customized initiatives

- branded content: development and production of video branded

entertainment and branded content

Main features:

- experience in social networks and in projects based on innovative

technological solutions

- proprietary technology “Mangusta”, platform for the customization of

branded communities

Synergies among business units

1. New clients acquisition and multi-suite offering.

- Improve number and quality of tenders on significant advertising budgets

- Wider portfolio, based on new devices and new formats (native ad)

- Cross selling and up selling sales activities

- Leverage investments in key marketing, data, analytics and intelligence

platforms

2. Providers and media costs optimization.

- Audiens is a provider of Performedia and DigiMob; DigiMob is a provider

of Performedia

- Increase the overall amount of media buying permits to improve the

bargain power and kick back commissions

3. Corporate functions optimization.

- Economies of scale through centralized functions and synergies

- Improve working capital management

- Easier access to banking facilities

4. Know how.

- Centralized R&D

- Centralized market analysis, M&A scouting and relationships with

institutions

- Know-how sharing process in place

15

Balance of major businesses lifecycle

DigiTouch – Lifecycles

Start-up Launch Cash collection Decline

ProductExtension

Sa

les

Mobile

advertising

Performance

advertising

Data profiling

Source: EnVent Research

Growth and financial performance are harmonized thanks to the balance of

lifecycles of the three businesses.

Clients

DigiTouch’s portfolio includes over 270 clients at the end of the 1H2015.

DigiTouch – Abstract of clients’ portfolio


Recent acquisitions in the 1H2015 include over 20 large accounts (e.g. Qatar

Airways, Adecco, Aeroporti di Roma, Nestlè Purina and Arena).

E3 serves brands like Alpitour, Bacardi, Bayer, BMW/Mini, Martini, Magneti

Marelli, Peugeot, Philips, Rai, Samsung, Sony Music, Unieuro, Unipolsai.

16

Proprietary technology

DigiTouch has developed a proprietary multichannel platform called

“DigiPlatform” for mobile data management. Developed in Java programming

language, DigiPlatform optimizes the development and management of

advertising campaigns (either web or mobile, branding or performance):

- Ad-serving: selection and submission of ads to support advertising and

communication campaigns

- Publishing services: management of communication channels

- Media planning: distribution between targets and use of communication

channels

- Analysis and reporting of data related to the channels

DigiPlatform’s tools

Internal planningDigiPerform DB: programming for campaigns management, integrated with finance and

administration

Reporting DigiTrack: analytics and click reporting

DigiDashboard: analysis and reporting of the return on investments

CRM and efficiency DigiPage: production and management of landing pages

DigiContact: leads management and performance campaigns - tools for customers

DigiTouch DSPPurchase of a single impression - on a single site or multiple sites (SSP) - occurs in real

time on the basis of the significance for the buyer.

Ad-serving Adform: programmatic advertising

Profiling and EnrichmentDigiConnect:integration and management of data from Google, Facebook and main web

data providers

Audiens: data mobile profiling Source: Company data

Corporate strategy

Key strategic guidelines:

- Performance marketing: technological solutions to increase the

effectiveness of campaigns

- Mobile data profiling: technological solutions to aggregate and process

mobile traffic info offering

- Expand vertical offer as owner of assets where advertising spending is

significant and comparators sell leads. Focus on sectors which are critical

for advertisers. Samples are: automotive, finance, food, retail etc.

17

A broad dynamic marketplace

Italy lags behind the UK,

Germany and France…

The digital advertising market

DigiTouch operates in the broad digital advertising market and is specialized in

the mobile and performance segments. Geographically, its focus is in Italy, with

plans to expand in Europe.

Digital ad spending projections

According to eMarketer, a market research firm specialized in digital marketing,

media and commerce, in 2013 total media ad spending in Western Europe

(including digital, directories, magazines, newspapers, outdoor, radio and TV)

was $112bn and is projected to grow at a 2.3% CAGR until 2018 to reach

$125bn (source: eMarketer, Ad spending in Western Europe continues rebound,

September 2014).

Digital advertising, which comprises desktop/laptop and mobile, accounts for

about 30% of total media ad spending and is the fastest growing segment.

Digital ad spending in Western Europe is expected to increase from $29bn in

2013 to $41bn in 2018, at a 2013-2018 CAGR of 7.4%, according to eMarketer.

Exhibit 6.1

28.931.9

34.536.9

39.241.3

2013A 2014E 2015E 2016E 2017E 2018E

Digital ad spending in Western Europe ($bn)

Source: eMarketer, Online Ad Spending in Europe Topped €27 Billion in 2013, May 2014

Digital advertising is evolving at different speeds in the Western European

nations. The UK and Germany are the largest digital advertising markets in

Western Europe, accounting for over half of total. In 2013, Italy placed fourth

after the UK, Germany and France in terms of revenues and is projected to have

the same ranking in the future. Across Europe as a whole, the most impressive

growth was in Russia (+26.8%) and Turkey (+24.3%), where online platforms

were just beginning to realize their potential for advertisers and brands.

6. MARKET AND TRENDS

18

…but is expected to recover

and grow quicker than other

countries

Exhibit 6.2

34% 35% 35% 36% 36% 36%

20% 20% 19% 19% 19% 19%

10% 10% 10% 10% 10% 10%

6% 6% 6% 6% 6% 6%

6% 6% 6% 5% 5% 5%4% 4% 4% 4% 4% 4%4% 4% 4% 4% 4% 4%

17% 17% 16% 16% 16% 16%

2013A 2014E 2015E 2016E 2017E 2018E

Digital ad spending in Western Europe by country

UK Germany France Italy Netherlands Spain Sweden Other Source: eMarketer, Online Ad Spending in Europe Topped €27 Billion in 2013, May 2014

According to eMarketer, Italy is expected to grow from $1.7bn in 2013 to $2.6bn

in 2018, at a 8.7% CAGR, at a more rapid pace compared to other Western

European countries (average 2013-2018 CAGR of 7.4%).

Exhibit 6.3

1.731.89

2.08

2.26

2.44

2.62

6%

9%

10%

9%

8%7%

0%

2%

4%

6%

8%

10%

12%

0.0

0.5

1.0

1.5

2.0

2.5

3.0

2013A 2014E 2015E 2016E 2017E 2018E

Digital ad spending in Italy

Digital ad spending ($bn) YoY growth rate % Source: eMarketer, Online Ad Spending in Europe Topped €27 Billion in 2013, May 2014

Among main digital advertising formats in Western Europe, online display

advertising (ad campaigns through websites, banners, videos) is gaining

momentum and is expected to continue growing at a double digit rate (12%

2013-2018 CAGR), from 33% of total market in 2013 to 40% in 2018, taking a

larger share of online ad spend. Spending on search (search marketing as the

process of gaining visibility from search engines) is likely to remain higher

overall, accounting for 45% of total digital ad market in 2018, despite its share

is expected lowering in the analyzed period. Classifieds and directories

(advertising which is stored and themed in directories) represent 20-15%

between 2013-2018.

19

Digital market getting more

mobile

Exhibit 6.4

48% 48% 47% 47% 45% 45%

33% 34% 38% 38% 39% 40%

19% 17% 16% 15% 16% 15%

2013A 2014E 2015E 2016E 2017E 2018E

Digital ad spending in Western Europe by format

Search Display Classifieds and directories Source: EnVent Research on eMarketer, Western Europe Digital Ad Spending, March 2015

The mobile advertising market

Key drivers:

- the expansion of rich media (i.e. digital advertising containing images,

sounds or videos, involving interaction with users, more elaborate than

usual banner ads)

- the increase of ad personalization, both in traditional and digital

advertising, also through proximity marketing (i.e. localized wireless

distribution of advertising content associated with a particular place)

- the collection of detailed information on the use of communications media

- the integration between mobile advertising and traditional ad campaigns,

thanks to the potentialities offered by new technologies such as QR codes,

second screens, mobile couponing

In 2014 Western European advertisers spent 6.8% of ad spending on the mobile

internet, according to eMarketer. This share is in line with the global average

(6.7%), but is lower than North America (10%).

The amount spent to target mobile internet users in Western Europe was

estimated in $38.48 per person in 2014, more than double the global average of

$16.21 and almost one third of the $104.51 per-user spending estimated for

North America.

In the UK, more than 13% of ad spending will be devoted to mobile advertising.

In France, Germany, Italy and Spain mobile’s share will be less than 5%.

eMarketer has estimated that in 2014 mobile advertising spending grew at least

80% in main Western European countries, as advertisers are trying to capture

the attention of consumers on mobile phones and tablets.

In the UK, Spain, France and Italy, where mobile advertising is already mature,

growth has been lower than the regional average equal to 118.4%.

20

Exhibit 6.5

Mobile internet ad spending growth in Western Europe by country

YoY growth % 2013A 2014E 2015E 2016E 2017E 2018E

Norway 320% 200% 50% 35% 28% 22%

Germany 110% 190% 60% 46% 40% 30%

Netherlands 100% 180% 50% 40% 30% 25%

Finland 250% 150% 50% 30% 25% 20%

Denmark 120% 150% 45% 30% 25% 20%

Sweden 150% 110% 50% 35% 30% 20%

UK 96% 96% 60% 38% 29% 20%

Spain 48% 90% 75% 65% 55% 50%

France 85% 80% 60% 45% 36% 34%

Italy 90% 80% 50% 29% 25% 25%

Western Europe 113% 118% 57% 40% 32% 25% Source: eMarketer, Mobile gives boost to Western Europe ad market, November 2015

Currently, Western Europe still lags North America in smartphone usage;

however, smartphone penetration in several European countries such as

Norway, Germany, the Netherlands, Finland, Denmark and Sweden already

exceeds the level in the USA. According to eMarketer, smartphone usage in

Western Europe is set to surpass that in the USA in 2017.

Tablets are playing an even larger role in consumer habits.

eMarketer has estimated that the rising penetration of mobile devices has

boosted advertisers’ expenditure on the mobile web by 118.4%. Mobile share of

digital ad spending in Western Europe is expected to climb from 24% in 2014 to

63.4% in 2018.

The turnover of mobile advertising market in Italy reached €302m in 2014

(+48% over prior year). The weight of mobile advertising over internet media

advertising in 2014 was 15%, compared to 10% in 2013, while its weight over

total media advertising grew from 3% in 2013 to 4.5% in 2014.

Exhibit 6.6

3233 38

57

89

204

302

17%

3%12%

53% 55%

129%

48%

0%

20%

40%

60%

80%

100%

120%

140%

0

50

100

150

200

250

300

350

2008 2009 2010 2011 2012 2013 2014

Mobile advertising market in Italy

Mobile advertising market (€m) YoY growth rate % Source: Politecnico di Milano, Osservatorio Mobile Marketing & Service: la partita si fa seria, January 2015

21

Fees linked to successful

transactions

Real Time Bidding

The performance advertising market

Over the past years, digital advertising has developed mainly as branding

advertising. Currently, direct response advertising, also called performance

marketing, is increasingly becoming popular.

Performance marketing refers to online marketing programs in which

advertisers and marketing companies are paid when a specific action is

completed, such as a sale, lead or click. Unlike traditional online display

advertising, where fees are paid up-front, advertisers in performance marketing

only pay for successful transactions. Performance marketing has reversed the

traditional value proposition of advertising.

According to a survey conducted by Nielsen and fielded by CMO (Chief

Marketing Officer) Council, in 2013, 18% of interviewed marketers planned to

realize traditional brand advertising campaigns, 18% planned performance

advertising campaigns and the remaining 64% to employ a mix of both.

According to an industry study conducted by PwC and IAB (Interactive

Advertising Bureau) about internet advertising in the USA, 66% of 2014 online

advertising revenues were priced on a performance basis (up from the 65% in

2013), 33% on a Cost Per Medium (CPM) or impression basis and the residual

1% on a hybrid basis.

Performance-based pricing, the leading pricing model since 2006, was stable in

the region of 65% of total revenues between 2011 and 2014.

CPM/impression-based pricing was stable in the range 30%-33$ over the last

five years, down from 37%-47% between 2005 and 2009. CPM is at its highest

point since 2010.

Hybrid pricing decreased to 1% of total revenues in 2014 from 2% in 2013.

Exhibit 6.7

46%48%

45%

39%37%

33%31% 32% 33% 33%

41% 47%

51%

57%59%

62%65% 66% 65% 66%

13%

5% 4% 4% 4% 5% 4%2% 2% 1%

2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Internet advertising revenues by pricing model in the USA

CPM Performance Hybrid Source: IAB and PwC, IAB internet advertising revenue report FY2014, April 2015

The growth of performance advertising is driven also by the development of

new models of advertising planning, such as Real Time Bidding, to buy leads in

22

real time maximizing ROI. Compared to the conversion rate of a banner, which

is very low, through cookies and RTB platform it is possible to follow the user in

his navigation recovering the audience lost.

The big data market

According to a recent McKinsey report, telecommunications companies are

investing huge amounts in the “big data” segment: acquisition, storage,

management and analysis of large quantities of data.

Big data are becoming a key factor for the development of the infrastructure to

manage data storage and for the implementation of solutions for a strategic

business use. According to the same study, big data creates value by:

- creating transparency

- enabling experimentation to discover needs, expose variability, and

improve performance

- segmenting populations to customize actions

- replacing/supporting human decision making with automated algorithms

- innovating new business models, products and services

The financial services sector, high-tech companies and professional services

firms are the most advanced in using data. Considering the degree to which a

company has established a well-defined data management strategy, these

sectors stand out as the most prepared for the data age: the financial services

sector (where 22% have this in place), the technology industry (30%); and the

professional services sector (40%). By contrast, data management strategies

are least often found amongst manufacturers (16%) or retailers (13%). (source:

McKinsey Global Institute, Big data: The next frontier for innovation, competition,

and productivity, June 2011)

According to a survey prepared by The Economist on big data and corporate

strategy, of Chief Marketing Officers interviewed, 50% reported having tested

and seen a positive difference in using data to improve their understanding and

segmentation of clients; 40% have seen similar benefits in helping to increase

sales; a further 37% have observed that big data helps assess potential demand

for new products and services. (source: The Economist Intelligence Unit, The

data directive - How data is driving corporate strategy - and what still lies ahead,

2013)

23

Before the revolution: the world of publishers,

intermediaries and agencies driving the dance

For decades the industry model has been:

Media companies publish content through their channels and sell

advertising space through sales houses. Revenues sharing agreements on

ad space sold rule contracts.

Sales houses offer publishers’ advertising space to media centers or to

clients (advertisers).

Clients buy ad campaigns to promote their products, services and brands

and allocate their budget to media centers managing the investment on

their behalf, or directly by buying products from media sales houses.

Advertising agencies develop communication campaigns, allocating large

clients’ investments among channels and providers.

Clash of the Titans: the new incumbents

An unexpected and market-disruptive revolution has up-turned and will keep

reshuffling the global on-line business environment. Differently from the recent

past, where economic operators in a free market economy were ideally

segmented between market leaders and followers, now the new titans such as

Apple, Microsoft, Google, Amazon and Facebook have reached such a market-

dominating status that in some instances they could be defined as oligopolists,

to say the least. The digital revolution initially tore down technological and

geographical barriers, opening doors to global competition, but later reverted,

after not many years, to the re-creation of monopolies and oligopolies.

The traditional advertising industry and its business model and value chain

have been made obsolete in few years by programmatic marketing and

advertising, the automated systems to place advertisements in electronically

targeted media inventory.

Disrupting the media industry and the advertising world

The likes of Google, Facebook, Amazon and others, have a thing in common:

they are publishers, intermediaries and advertisers at the same time. Their

power is massive, whilst the contending regulatory and legal framework is

evolving ever too slowly from the old-school anti-trust competition laws, which

had addressed the old-world companies delivering physical products or

straightforward services.

Now competition among digital advertising specialists operates in this chaotic

7. COMPETITION

https://en.wikipedia.org/wiki/Media_inventory

24

environment, having to deal with complexity, facing huge opportunities and

unpredictable risks.

The decline of audience and revenues of broadcast television and printed press

is shifting both big spenders’ budgets and the advertising offering, towards a

complex and diversified array of media channels. At the same time smaller

companies have the opportunity of accessing new tools and apps to reach their

customers.

On the supply side, the advertising ecosystem, dominated for decades by a small

number of networks of Ad agencies, media centers and in-house (or

independent) sales houses (ad space and media-time intermediaries), has been

overwhelmed by the new technology-driven communication concepts and tools,

such as emailing, retargeting, performance, behavioral, and others.

The New (dis)Order

The traditional Stars & Dogs matrix may be redesigned to accommodate the

new stars and measure the decline of traditional publishers.

Content providers

Gro

wth

Profitability

Digital display

Traditional


The decline of TV and press audience and revenues is shifting the advertising

world and big spenders budgets toward a proliferation of new media channels.

At the same time small mid-market companies and small businesses might find

new tools and apps focused on their targets.

In the arena dominated by digital content owners the competition among digital

advertising specialists lives and struggles in a chaotic environment, facing huge

opportunities and unpredictable risks.

25

Surprise is the today’s rule of

competition

The new media planetary system

Traditional(losers)

MultichannelHybrid

Digitaloligopolies

Sales house

Media center

Innovators


Competition environment: U-turns

The competition arena today, differently from the past, is:

- fragmented (as opposed to highly consolidated)

- specialized or multidisciplinary (versus generalist)

- technology-driven (compared to being mainly driven by creativity)

- demolishing entry barriers (as opposed to creating them)

- based on “variable business models” (versus straight-line rigid models of

the past)

- offering hybrid solutions (against mono-specialized ones)

- independent (versus part of large conglomerates, in the search for

synergies)

In this competitive environment, comparability of service offering is utopic and

“startling” creative innovation the rule forward.

Italian market independent pure digital competitors

We estimate that within the group of digital advertising services providers the

two clear leaders are DigiTouch and Triboo Media, with annual revenues

between €20m and €30m foreseeable for 2015.

26

Intense competition

Concentration of suppliers

Low entry barriers

21.2

14.0 13.211.2

9.9 9.0

6.5

30.3

24.2

21.0

12.4

Triboo Media DigiTouch Lumata Italia InteractiveThinking(Doing)

Alkemy Axelero MailUp

Ranking of Italian independent digital advertising competitors - based on 2013 and 2015E revenues - (€m)

2013 2015E

Source: EnVent on Companies’ Financial statements and Equity Research consensus

Competing in the Digital Ecosystem

DigiTouch competes in a highly sophisticated market where the breadth of

products and services provided is diverse and where suppliers and substitute

products/services do not have significant contractual power. Barriers to entry

are typically low, but, with reference to the performance advertising segment,

technological content is required, representing an entry barrier.

Competitive forces and strategic positioning

SuppliersRivalry among

existing firms

Substitutes

New entrants

Clients

• Continuous generation of new products in the industry

• Intense competition• Competition on product

quality• Dominant competition

from large global firms

• Low barriers to entry• Higher barriers in the

performance segment due to the required technology

• Average power • Low/average power• Low risk from clients

pricing power due to the fragmented client base


Industry players providing intermediation services between publishers and

27

advertisers can be segmented in certain categories, based on the solutions

offered:

- Data providers & solutions (Audiens)

- Selling solutions

- Buying solutions

- Trading solutions & exchanges

- Agency trading desks

- Agencies (Performedia)

- Trading desks

- Sales houses & ad networks (DigiMob)

- Delivery systems, tools, analytics, verification, privacy

In Europe, according to Improve Digital, an independent publisher and

monetization technology provider, Sales houses & ad networks and Delivery

systems, tools, analytics, verification, privacy are the most populated segments,

with around 40-50 players.

Data providers & solutions, Buying solutions, Trading solutions & exchanges

and Trading desks have a number of player in the region of 15-20.

The less populated segments are Selling solutions (4 players), Agencies (6) and

Agency trading desks (7).

Some players as Google and OpenX are present in more than one category. The

segment Trading solutions & exchanges is mainly populated by large

international companies as Google, Yahoo, Microsoft, OpenX and Orange.

Display advertising - European ecosystem

Source: Improve Digital

In Italy too, the digital advertising market is highly fragmented and scope of

practice differ widely. The competitive arena is populated by two main

categories of players:

- a few large global players with a wide range of products/services and

advanced proprietary technology, present in more categories (such as

28

Further dramatic changes

Google and Facebook, representing around 80% of mobile ad market and

60% of performance ad market)

- domestic operators, among which there are traditional advertising

companies and digital companies, mainly focused in the Sales house & Ad

networks segment

Display advertising - Italian ecosystem

Source: Improve Digital

Market and competition outlook

The market and competition picture makes us believe that other changes are

likely to happen.

The basis of the revolution in place is the fact that digital and technological

titans dominant positions come more from network effects, rather than

traditional competitive advantages for exclusive access to markets or resources.

The second factor of dramatic change is that for the new media providers

(Google, Facebook, Amazon, Instagram, LinkedIn, etc.) the user is no longer the

customer. The advertiser is the customer and the user is technically the product.

We believe that there are signs of gradual diffusion of this trend among other

sectors, like software, telecoms, diversified publishers, video, data etc. The

global market makers in these markets are dealing with the issues of becoming

increasingly seen as providers of commodities and are looking for new ways to

leverage on their massive customers’ audience to augment core businesses,

recover appeal and continue building value. To meet the needs of the multi-

national client base, or just to better exploit market opportunities, we expect

certain industry players deciding to broaden their international network.

Brilliant small Ad Tech companies would be ideal targets to enrich offer and

29

Waves of consolidation

profits.

We expect that these factors taken together would drive the next trends of

market evolution and consolidations in the Ad Tech new world population,

bringing risks and opportunities.

This process is already in course in the USA. The over 40 deals recorded in the

industry from 2011 to date (Source: Bloomberg, FactSet) look as the opening

test for a wave that would follow as soon as other markets go towards the

higher side of their lifecycles.

Key factors to bear in mind, on both sides of the game, would be:

The buy versus build decision in ad tech is likely to shift often in the buy

direction, as a vast number of companies continue enter the ecosystem,

and data and scale are increasingly widening the gap among players,

growing the importance of speed for more established players to

incorporate these technologies into their technology stack.

The emerging trends where we expect continued activity in Europe

encompass all sectors: publishers, old and new advertisers, social

networks, telecoms, data, video, cloud/software services, etc. This will

benefit the Pure Digital local champions, like DigiTouch.

For a new territory and for everybody in the Ecosystem, the account

management function, where credibility is required to establish

relationships with the demanding client and potential client bases, is the

key success factor that cannot be automated, nor build in few months. This

insurmountable dogma will also benefit the Pure Digital local champions.

The next wave focused on Data, Video, Cloud - the emerging trends where

we expect continued activity are in data, video and cloud / software

services.

To meet the needs of the multi-national client base, or just to better exploit

market opportunities, certain industry players are expected to invest in

broadening their international network, a process that we expect to

continue, bringing risks and opportunities

30

Balanced business mix

Growing through acquisitions, with sound margins and a

healthy financial position

DigiTouch’s revenues have increased steadily between 2007-2010 and were

stable in the region of €7m between 2011-2013.

With the acquisition of Performedia, as of August 1st 2014, the Group reported

FY14 consolidated revenues of €12m, which reflect Performedia’s contribution

to revenues for only the five months it was in the Group’s perimeter.

Proforma consolidated 2014 revenues, which assume the consolidation of

Performedia for the full year, were €15m, +9% on previous year proforma

revenues. FY13 proforma consolidated financial statements have been included

for comparative purposes.

Consolidated Proforma Profit and Loss

€m 2013PF 2014PF

Revenues 14.0 15.2

YoY % - 8.7%

Cost of sales (9.5) (10.6)

Gross Profit 4.5 4.6

Margin 32.2% 30.4%

Personnel (1.3) (1.3)

Other operating costs (0.7) (0.4)

EBITDA 2.4 3.0

Margin 17.4% 19.5%

D&A (0.5) (0.5)

EBITA 1.9 2.4

Margin 13.7% 16.1%

Goodwill amortisation 0.0 (0.1)

EBIT 1.9 2.3

Margin 13.7% 15.3%

Interest (0.0) 0.0

EBT 1.9 2.3

Margin 13.7% 15.1%

Income taxes (0.7) (0.8)

Net Income 1.2 1.5


Mobile advertising and digital ad projects accounted for 52% of FY14

consolidated proforma revenues, performance advertising accounted for the

remaining 48%.

In 2014, the mobile advertising business unit grew at a significantly higher rate

than performance advertising, respectively 15% yoy growth rate vs. 7% for

performance advertising.

Cost of sales mainly include cost of media (for over 80% of total). Personnel and

other operating costs are 11% of revenues.

In 2014 development expenses of €0.5m for the Audiens project and for the in-

8. FINANCIAL ANALYSIS

31

house platform dedicated to performance campaigns have been accounted for

intangible assets.

The Group delivered €3m proforma EBITDA in 2014 (19.5% margin), +22%

compared to 2013 (€2.4m and 17% margin). In 2014, the Group completed the

first integration activities between the mobile and the performance business

units.

Proforma EBIT stood at €2.3m (margin of 15%), +21% on prior year (€1.9m

and 14% margin).

Consolidated net profit in FY14 was €1.5m, with 10% margin on revenues,

+26% on previous year (€1.2m in 2013).

Consolidated Balance Sheet

€m 2013PF 2014PF

Trade receivables 6.0 6.7

Trade payables (3.5) (5.1)

Trade Working Capital 2.5 1.5

Other assets 0.0 0.4

Other liabilities (3.3) (2.3)

Net Working Capital (0.8) (0.4)

Goodwill / Intangibles 3.2 7.6

Fixed assets 0.1 0.1

Non-current assets 3.3 7.8

Provisions (0.2) (0.2)

Net Invested Capital 2.4 7.2

Net cash and equivalents (0.7) (2.2)

Long-term bank debt 0.9 0.8

Vendor loan 0.0 5.5

Net Debt / (Cash) 0.3 4.1

Equity 2.1 3.0

Sources 2.4 7.2

Source: Company data adjusted by EnVent Research to fully reflect the acquisition price of Performedia

Net invested capital of €7.2m at year-end 2014 reflects mainly Performedia’s

acquisition plus the increase in intangible assets related to the R&D activity and

to the development of an in-house database and technological platform.

Net debt at December 31st 2014 equal to €4.1m includes:

- Bank debt for €0.8m

- Full recognition of the vendor loan for €5.5m, the second tranche for the

acquisition of 51% of Performedia (equal to €1.5m) and the base for the

acquisition price of the remaining 49% (floor cap of €4m)

- Cash and cash equivalents (€1.9m), financial investments (€0.6m) and

short term bank debt (€0.2m)

Historical net debt amount and related ratios as per 2014 proforma statements

are a superseded info, being the debt offset by IPO proceeds within 1Q2015.

32

Consolidated Cash Flow

€m 2014PF

EBIT 2.3

Current taxes (0.8)

D&A 0.6

Operating cash flow 2.2

Trade Working Capital 1.0

(Capex)/Disposal 1.9

Acquisition investment (7.0)

Other receivables and payables (1.4)

Free cash flow (3.3)

Interest 0.0

Change in Equity (0.6)

Net cash flow (3.9)

Net (Debt) / Cash - Beginning (0.3)

Net (Debt) / Cash - End (0.3) (4.1)

Change in Net (Debt) / Cash 3.9

Source: Company data adjusted by EnVent Research to fully reflect the acquisition price of Performedia

Major free cash flow dynamics are:

- operating cash flow generation

- investment in acquisition of companies and businesses

Ratio analysis

KPIs 2013PF 2014PF

ROE 55.9% 48.9%

ROS (EBIT/Revenues) 13.7% 15.3%

ROIC (NOPAT/Invested Capital) 55.4% 22.3%

DSO 128 131

DPO 102 140

TWC/Revenues 18.0% 9.9%

Net Debt / EBITDA 0.1x 1.4x

Net Debt / Equity 0.1x 1.4x

Debt / (Debt + Equity) 0.1x 0.6x

FCF / EBITDA n.a. neg. Source: Company data adjusted by EnVent Research to fully reflect the acquisition price of Performedia

33

Surfing on the edge of crossing waves

Key growth drivers

Organic growth

2015 acquisitions

Market trends assumptions by business unit

Mobile advertising (DigiMob): the turnover of mobile advertising market

in Italy reached €302m in 2014. eMarketer has estimated growth rates

between 25%-50% for the 2015-2018 period

Performance advertising (Performedia): given the lack of forecasts on

the performance advertising market in Italy, we have considered the

growth rates relating to the whole digital advertising market in Italy, in

which the performance is a niche segment (about 20-30%). Digital

advertising in Italy is expected to grow from $1.7bn in 2013 to $2.6bn in

2018, at a 8.7% CAGR, a faster pace compared to Western European

countries

Growth estimates by business segment 2014A 2015E 2016E 2017E 2018E

Digital advertising spending - Italy ($bn) 1.89 2.08 2.26 2.44 2.62

Mobile advertising market - Italy (€m) 302 453 584 730 913

Performance advertising - YoY % growth rates - 10% 9% 8% 7%

Mobile advertising - YoY % growth rates - 50% 29% 25% 25% Source: EnVent Research on eMarketer industry data

We believe DigiTouch’s continuous acquisitions of clients and incorporation of

new businesses could underpin growth rates higher than the industry average.

9. OUR ESTIMATES

34

Consolidated projections

Assumptions

• EBITDA benefits from revenue growth, yielding greater cost absorption, and more efficientpersonnel cost management. Other operating costs are somewhat stable as a percentage of sales

• Operating leverage and efficiency gains will drive profitability to around a stable 20-21%

• 2013 and 2014 revenues are proforma to include recently-acquired Performedia results for theentire 12 months

• 2015 revenues are proforma to include newly-acquired E3 results for the entire 12 months• Yearly growth rates are estimated by business unit and derive from eMarketer estimates as

follows:– For Digimob: Mobile ad spending adjusted to account for company specific ability to follow

market– For Performedia: Digital ad spending market estimates– For E3: Digital ad spending market estimates

• Audiens: market doubling y-o-y

Revenues

EBITDA

• Trade working capital is estimated: DSO 120dd (a 10dd improvement to recent historical levels),and DPO at 110dd (a stabilization compared to peak levels of 140dd recently achieved)

• Other working capital is stable, as a percentage of sales, along the historical lines of the 3consolidated companies

Working Capital

• Intangible capex is estimated at 2.5% of sales, while tangible is negligible (0.5%)• Acquisition payments have been factored in according to disclosed schedules. E3 acquisition is

estimated to be paid in 2015 at closing.Capex

• First margins estimated according to historical average• COGS are estimated at 70% for Digimob and 65% for Performedia and Audiens. E3 is estimated

at around 45%

Gross Profit


Consolidated Profit and Loss

€m 2014PF 2015PF 2016E 2017E 2018E

Revenues 15.2 24.2 28.8 33.7 39.5

YoY % 8.7% 59.2% 18.8% 17.1% 17.2%

Cost of sales (10.6) (15.5) (18.4) (21.7) (25.6)

Gross Profit 4.6 8.8 10.4 12.0 13.9

Margin 30.4% 36.2% 36.0% 35.6% 35.1%

Personnel (1.3) (2.0) (2.2) (2.5) (2.7)

Other operating costs (0.4) (1.8) (2.0) (2.4) (2.8)

EBITDA 3.0 4.9 6.1 7.2 8.4

Margin 19.5% 20.4% 21.2% 21.2% 21.3%

D&A (0.5) (0.9) (0.4) (0.5) (0.6)

EBITA 2.4 4.1 5.7 6.7 7.8

Margin 16.1% 16.8% 19.7% 19.7% 19.8%

Goodwill amortisation (0.1) (1.0) (1.0) (1.0) (1.0)

EBIT 2.3 3.1 4.7 5.7 6.8

Margin 15.3% 12.8% 16.3% 16.9% 17.3%

Interest 0.0 0.0 0.0 0.0 0.0

EBT 2.3 3.1 4.7 5.7 6.8

Margin 15.1% 12.8% 16.3% 16.9% 17.3%

Income taxes (0.8) (1.3) (1.8) (2.1) (2.5)

Net Income 1.5 1.8 2.9 3.6 4.4


Revenues are forecasted to rise from €15.2m to €39.5m, with a ‘14-18 CAGR of

26.9% derived from reference market growth assumptions. Gross margin will

increase from around 30% of revenues to 35%. EBITDA is set to increase from

€3m to €8.4m (29.7% ‘14-18 CAGR) with an increase in margin to 21.3% from

35

19.5%. Net income should increase from €1.5m to €4.4m at the end of the 4-

year plan.

Consolidated Balance Sheet

€m 2014PF 2015PF 2016E 2017E 2018E

Trade receivables 6.7 9.7 11.5 13.5 15.8

Trade payables (5.1) (6.3) (7.5) (8.8) (10.4)

Trade Working Capital 1.5 3.4 4.0 4.7 5.4

Other assets 0.4 0.5 0.6 0.7 0.8

Other liabilities (2.3) (3.4) (4.0) (4.7) (5.5)

Net Working Capital (0.4) 0.5 0.6 0.6 0.7

Goodwill / Intangibles 7.6 13.6 13.0 12.4 11.9

Fixed assets 0.1 0.2 0.2 0.3 0.4

Non-current assets 7.8 13.8 13.3 12.8 12.4

Provisions (0.2) (0.3) (0.3) (0.4) (0.4)

Net Invested Capital 7.2 14.0 13.5 13.0 12.7

Net cash and equivalents (2.2) (9.5) (10.5) (12.3) (17.0)

Long-term bank debt 0.8 1.9 1.9 1.9 1.9

Convertible bonds 0.0 3.0 3.0 3.0 3.0

Vendor loan 5.5 4.7 2.3 0.0 0.0

Net Debt / (Cash) 4.1 0.1 (3.3) (7.3) (12.1)

Equity 3.0 13.9 16.8 20.4 24.8

Sources 7.2 14.0 13.5 13.0 12.7

Source: EnVent Research, 2014PF and 2015PF adjusted to fully reflect the acquisition price of Performedia

We estimate a net debt of around €1m as of June 30th 2015. Major items for the

period are €8m IPO proceeds, net of related expenses, the €3.1m consideration

for E3’s acquisition, the Performedia’s 2015 price portion, and the half year

cash generation.

Credit facilities for the acquisition of Performedia

DigiTouch has financed 51% Performedia stake acquisition through a mid-term

(5 years) debt line amounting to €2.2m. The corporate loan, provided by UCI, is

a standard acquisition financing line with a 475 bp spread on 3 months Euribor.

The remaining 49% Performedia stake transfer will be executed after 6 months

from AIM listing date: price formula is based on DigiTouch shares 6 last month

average price calculated as in the scheduling time frame below reported, and in

any case within the range €4-7m.

Current estimate on 49% stake payments is over three tranches as follows:


36

Consolidated Cash Flow

€m 2014PF 2015PF 2016E 2017E 2018E

EBIT 2.3 3.1 4.7 5.7 6.8

Current taxes (0.8) (1.3) (1.8) (2.1) (2.5)

D&A 0.6 1.8 1.4 1.5 1.6

Provisions 0.0 0.1 0.0 0.0 0.0

Operating cash flow 2.2 3.8 4.4 5.1 6.0

Trade Working Capital 1.0 (1.9) (0.7) (0.6) (0.7)

(Capex)/Disposal 1.9 (1.7) (0.9) (1.0) (1.2)

Acquisition investment (7.0) (6.1) 0.0 0.0 0.0

Other receivables and payables (1.4) 1.0 0.5 0.6 0.7

Free cash flow (3.3) (5.0) 3.4 4.0 4.8

Interest 0.0 0.0 0.0 0.0 0.0

Change in Equity (0.6) 9.0 0.0 0.0 0.0

Net cash flow (3.9) 4.0 3.4 4.0 4.8

Net (Debt) / Cash - Beginning (0.3) (4.1) (0.1) 3.3 7.3

Net (Debt) / Cash - End (4.1) (0.1) 3.3 7.3 12.1

Change in Net (Debt) / Cash 3.9 (4.0) (3.4) (4.0) (4.8)

Source: EnVent Research, 2014PF and 2015PF adjusted to fully reflect the acquisition price of Performedia

Cash flow is essentially driven by acquisitions, since cash flow from operations

in a low investment and essentially variable cost company like this is a regular

function of revenues dynamics.

Ratio analysis

KPIs 2014PF 2015PF 2016E 2017E 2018E

ROE 48.9% 13.2% 17.4% 17.6% 17.7%

ROS (EBIT/Revenues) 15.3% 12.8% 16.3% 16.9% 17.3%

ROIC (NOPAT/Invested Capital) 22.3% 15.3% 23.9% 29.9% 37.0%

DSO 131 120 120 120 120

DPO 140 110 110 110 110

TWC/Revenues 9.9% 13.9% 14.0% 13.9% 13.7%

Net Debt / EBITDA 1.4x 0.0x -0.5x -1.0x -1.4x

Net Debt / Equity 1.4x 0.0x -0.2x -0.4x -0.5x

Debt / (Debt + Equity) 0.6x 0.0x -0.2x -0.6x -1.0x

FCF / EBITDA neg. neg. 55.4% 56.5% 56.6% Source: EnVent Research, 2014PF and 2015PF adjusted to fully reflect the acquisition price of Performedia

37

Market value of peers

We have identified as determinants for the selection of peers or to a certain

extent competitors of DigiTouch:

- Pure digital approach vs hybrid

- Multi-suite business model or specialization in a key suite

- Proprietary technology tools

- Independence

As to their market values, we have segmented the selected peers in two groups:

- Italian companies listed on AIM, comparable as per size, end-market scope

and stock market liquidity

- European and US companies, more diversified by size and comparable as

per business model, innovation attitude, appeal for investors

A partially comparable company – MutuiOnline - listed on the Star segment of

the Italian stock exchange has not been included in the Group, being a vertical

broker and outsourcer. However, it is a pure digital company and its multiples

confirm the analysis of the peers market values.

We have frozen data of low profitability or loss making companies, to avoid

unreliable multiples and calculated average multiples through those decently

performing.

Key data comparison

The following charts show a span of key data and financial metrics of the

selected Italian and international peers and DigiTouch. Frozen data are shown

in grey.

10. PEER GROUP ANALYSIS

38

Source: EnVent Research on S&P Capital IQ data, July 2015 – For DigiTouch 2014 multiples: current market

cap and estimated net debt at 1H2015 on 2014PF consolidated revenues; 2015E and 2016E multiples

calculated on our estimates – DigiTouch’s net debt as our estimate for 1H2015 –

Note: Grey figures excluded from average

DigiTouch’s size in terms of revenues is consistent with the AIM Italia digital

peer group. On the international side, certain companies have reached a more

advanced stage of development, both in revenues and international presence.

As to the performance, DigiTouch has had better profitability than almost all the

analyzed companies, both at the EBITDA and EBIT level.

Compared to the AIM Italia peers, DigiTouch trades at a close EV/Revenues

multiple (2.1x versus 2.2x). When comparing EV/EBITDA, DigiTouch is

discounted significantly (31%), trading at a 10.5x multiple versus 15.2x.

Compared to the international peer group, DigiTouch trades at a multiple of

2.1x EV/Revenues versus 2.5x (17% discount). At the EBITDA level, DigiTouch

trades at a 44% discount to the comparable companies average EV/EBITDA

multiple.

The MutuiOnline figures, although related to a different business mix – vertical

AIM Italia

Peers comparison (2014)Triboo

Media

MP7

ItaliaMobyt

Primi sui

Motori

Expert

Systemaxélero Softec MailUp Avg.

DigiTouch

(2014)

Discount

(2014)

DigiTouch

(2015)

EV/Revenues 1.7x 0.3x 1.4x 2.4x 3.0x 5.8x 0.8x 2.4x 2.2x 2.1x -6.5% 1.3x

EV/EBITDA 10.8x neg. 19.6x n.m. n.m. 16.2x neg. n.m. 15.2x 10.5x -30.9% 6.3x

EV/EBIT 13.9x neg. 22.1x n.m. n.m. 17.5x neg. n.m. 18.0x 13.4x -25.4% 8.7x

P/E 30.3x neg. 49.0x n.m. n.m. 39.2x neg. n.m. 39.6x 20.4x -48.6% 15.3x

Market Cap (€m) 60.4 11.4 26.6 30.1 41.4 74.8 6.4 22.7 30 30

Net (Debt) / Cash + Min. (€m) 12.6 5.2 3.0 -7.9 5.4 17.7 -1.1 3.3 -1.0 -1.0

Enterprise Value (€m) 47.9 6.2 23.6 38.1 36.0 57.1 7.5 19.4 31 31

Adj. Revenues (€m) 28.3 20.1 16.6 15.5 12.0 9.9 9.8 8.0 15.2 24.2

EBITDA (€m) 4.4 -0.4 1.2 -2.0 0.3 3.5 -0.2 0.8 3.0 4.9

EBITDA Margin 16% neg. 0.1x neg. 2% 0.4x neg. 10% 9% 20% 20%

EBIT Margin 12% neg. 0.1x neg. 1% 0.3x neg. 3% 5% 15% 15%

Net Income Margin 7% neg. 0.0x neg. 1% 0.2x neg. 1% 3% 10% 8%

International

Peers comparison (2014) CriteoConstant

Contact

Trade

DoublerHi-Media Syzygy

1000

mercis

Brain

JuicerAntevenio Avg.

DigiTouch

(2014)

Discount

(2014)

DigiTouch

(2015)

EV/Revenues 2.3x 3.0x 0.2x 0.3x 1.0x 2.8x 1.8x 0.4x 2.5x 2.1x -16.6% 1.3x

EV/EBITDA 28.2x 26.8x neg. neg 10.3x 10.5x 9.8x neg 18.8x 10.5x -44.1% 6.3x

EV/EBIT 42.4x 50.5x neg. neg 14.1x 14.3x 10.1x neg 29.3x 13.4x -54.2% 8.7x

P/E 58.3x 81.2x neg. 21.6x 18.5x 21.1x 16.8x neg 44.4x 20.4x -54.1% 15.3x

Market Cap (€m) 2,004.2 960.4 45.8 112.4 81.4 130.4 62.5 10.9 30 30

Net (Debt) / Cash + Min. (€m) 276.2 134.4 13.3 68.8 35.1 4.8 6.9 3.0 -1.0 -1.0

Enterprise Value (€m) 1,728.1 826.1 32.5 43.6 46.4 125.5 55.7 7.9 31 31

Adj. Revenues (€m) 745.1 274.0 182.9 165.8 47.1 45.2 31.7 21.2 15.2 24.2

EBITDA (€m) 61.2 30.8 -0.1 -6.6 4.5 12.0 5.7 -0.1 -0.4 3.8

EBITDA Margin 8% 11% 0% neg 10% 26% 18% neg 16% 20% 20%

EBIT Margin 5% 6% neg. neg 7% 19% 17% neg 12% 15% 15%

Net Income Margin 5% 4% neg. 3% 9% 14% 12% neg 9% 10% 8%

39

content provider and outsourcer – confirm the industry appealing performance

and multiples calculated to value DigiTouch. Key figures are: 2014 revenues

over €68m with an EBITDA margin over 20%. 2015 1Q revenues are up by

nearly 50% and market capitalization is €288m. Multiples on Revenues and

EBITDA are in the region of 3x and 10x. Values consistent with those of the

following regression analysis.

Regression analysis

Based on the assumption that in a high tech, innovating and growing industry,

know-how and fast growth may be significant value determinants regardless of

financial underperformance, we have analyzed the entire sample by a

regression chart on EV/Revenues multiple and EBITDA/Revenues ratio.

2.1x

0.8x

1.7x

0.8x

5.8x

2.4x

0.3x

2.4x

3.0x

1.8x

1.0x

0.3x

2.8x2.3x

3.0x

y = 10.034x + 0.8528R² = 0.5472

0.0x

1.0x

2.0x

3.0x

4.0x

5.0x

6.0x

7.0x

0% 5% 10% 15% 20% 25% 30% 35% 40%

EV

/ R

ev

en

ue

s 2

01

4

EBITDA Margin 2014

Peer group - regression


The resulting graph confirms that in the sample which includes highly

profitable companies as well as break-even or loss-making companies, the

values are enterprise rewarding and multiples on the high side, regardless of

profitability.

We believe that the correlation found helps to detect the proper value building

steps, expressed as combination of market position, knowledge base and

profitability.

40

Private deals boost champions’ multiples

Value drivers and use of market data

Key value drivers are:

Position in the competitive landscape

Proprietary technology

Rich product suits

Payback of acquisitions

We foresee that the pace of client accounts addition and of the businesses

acquisitions could bring DigiTouch well over our organic growth projections in

the next two/three years. When reaching the size of a clear Italian/European

champion, the appeal for public or private investors would call for highly

rewarding multiples.

Discounted Cash Flows valuation

The DCF model has been applied to our projections with the following

assumptions:

- Risk free rate: 1.7% (Italian 10-year government bonds interest rate.

Source: Bloomberg, July 2015)

- Market return: 12.7% (Source: Bloomberg, July 2015)

- Market risk premium: 11%

- Beta: 0.7 (Beta of DigiTouch and average of selected comps. Source:

Bloomberg, July 2015)

- Small size equity premium adjustment: 2% (in order to consider a small

company risk profile)

- Cost of equity: 11%

- Cost of debt: 6% (Source: EnVent Research)

- Tax rate: 27.5% (IRES)

- 20% debt/(debt + equity) as target capital structure

- WACC estimated at 10%

- Perpetual growth rate after explicit projections: 2.5%

- Terminal Value assumes a normalized sustainable EBIT margin of 15%

- Net Debt as of 31/12/2014 adjusted to consider net IPO proceeds

11. VALUATION

41

DCF Valuation

€m 2014PF 2015PF 2016E 2017E 2018E Perpetuity

Revenues 15.2 24.2 28.8 33.7 39.5 39.5

YoY % 8.7% 59.2% 18.8% 17.1% 17.2%

EBITDA 3.0 4.9 6.1 7.2 8.4

Margin 19.5% 20.4% 21.2% 21.2% 21.3%

EBIT 2.3 3.1 4.7 5.7 6.8 5.9

Margin 15.3% 12.8% 16.3% 16.9% 17.3% 15.0%

Taxes (0.7) (1.0) (1.5) (1.8) (2.1) (1.9)

NOPAT 1.6 2.1 3.2 3.9 4.7 4.1

D&A 1.8 1.4 1.5 1.6 1.2

Provisions 0.1 0.0 0.0 0.0 0.0

Operating cash flow 4.1 4.7 5.4 6.3 5.3

Trade Working Capital (1.9) (0.7) (0.6) (0.7) (0.7)

(Capex)/Disposal (1.7) (0.9) (1.0) (1.2) (1.2)

Acquisition investment (6.1) 0.0 0.0 0.0 0.0

Other receivables and payables 1.0 0.5 0.6 0.7 0.7

Unlevered free cash flow (4.7) 3.7 4.4 5.1 4.1

WACC 10.00%

Long-term growth (G) 2.50%

Discounted Cash Flows (4.2) 3.0 3.3 3.5

Sum of Discounted Cash Flows 5.5

Terminal Value 55.4

Discounted TV 37.9

Enterprise Value 43.4

Net Debt as of 31/12/2014 (4.1)

Post-money adjustment 8.0

Market value of Vendor Loan adj. 0.3

Equity Value 47.6

DCF - Implied multiples 2014PF 2015PF 2016E 2017E 2018E

EV/Revenues 2.9x 1.8x 1.5x 1.3x 1.1x

EV/EBITDA 14.6x 8.8x 7.1x 6.1x 5.2x

EV/EBITA 18.6x 14.0x 9.2x 7.6x 6.4x

P/E 32.0x 26.1x 16.3x 13.2x 10.9x Source: EnVent Research

Notes: 2014PF implied multiple on Revenues is not meaningful given that it does not consider acquisitions

Valuation based on peer multiples

AIM ItaliaEV/REVENUES EV/EBITDA EV/EBIT P/E

2014 2015E 2016E 2014 2015E 2016E 2014 2015E 2016E 2014 2015E 2016E

DigiTouch 2.1x 1.3x 1.1x 10.5x 6.3x 5.1x 13.4x 8.7x 6.7x 20.4x 15.3x 11.1x

Triboo Media 1.7x 1.5x 1.4x 10.8x 7.7x 6.7x 13.9x 11.0x 8.2x 30.3x 19.5x 15.4x

Mobyt 1.4x 0.8x 0.7x 19.6x 5.5x 3.6x 22.1x 7.4x 4.3x 49.0x 15.3x 8.3x

Primi sui Motori 2.4x 1.7x 1.6x neg 8.1x 6.5x neg 23.6x 13.6x neg n.m. 25.7x

Expert System 3.0x 1.9x 1.5x n.m. 10.0x 6.9x n.m. 21.1x 36.6x n.m. 45.9x 56.7x

MailUp 2.4x 1.7x 1.1x n.m. 9.6x 5.4x n.m. 29.8x 12.1x n.m. 49.3x 20.0x

Mean 2.2x 1.5x 1.3x 15.2x 8.2x 5.8x 18.0x 18.6x 15.0x 39.6x 32.5x 25.2x

Median 2.4x 1.7x 1.4x 15.2x 8.1x 6.5x 18.0x 21.1x 12.1x 39.6x 32.7x 20.0x

InternationalEV/REVENUES EV/EBITDA EV/EBIT P/E

2014 2015E 2016E 2014 2015E 2016E 2014 2015E 2016E 2014 2015E 2016E

Criteo 2.3x 6.0x 4.6x 28.2x 22.9x 15.5x 42.4x 42.4x 26.3x 58.3x 41.6x 29.1x

Constant Contact 3.0x 1.8x 1.6x 26.8x 9.0x 7.2x 50.5x 13.5x 11.8x 81.2x 19.2x 14.9x

1000 mercis 2.8x 2.6x 2.3x 10.5x 9.8x 7.9x 14.3x 12.0x 9.2x 21.1x 16.8x 12.1x

Brain Juicer 1.8x 1.8x 1.6x 9.8x 8.9x 8.0x 10.1x 10.0x 8.9x 16.8x 16.0x 25.7x

Mean 2.5x 3.0x 2.5x 18.8x 12.6x 9.7x 29.3x 19.5x 14.1x 44.4x 23.4x 20.4x

Median 2.5x 2.2x 2.0x 18.7x 9.4x 7.9x 28.4x 12.8x 10.5x 39.7x 18.0x 20.3x

Comparables

Comparables

42

Source: EnVent Research on S&P Capital IQ data, July 2015 – For DigiTouch 2014 multiple: current market cap

and estimated net debt at 1H2015 on 2014PF consolidated revenues; 2015E and 2016E multiples calculated

on our estimates

We believe that the market valuation of DigiTouch should be mainly driven by

looking at the EV/Revenues ratios, which reflect strategic appeal of market

position and technological know-how, regardless of temporary profitability, and

EV/EBITDA, that adds appreciation of high profitability.

We have applied to our 2015 and 2016 estimates:

- 2015E multiples from the peer group of the digital AIM Italia companies

- 2015E multiples from the peer group of the international

- EV/Revenues multiple equal to 3.0x resulting from the regression analysis

AIM Italia

DigiTouch Valuation - 2015 Multiples Mult. EV Net Debt Equity Value

2015E Revenues 24.2 1.5 36.3 (1.0) 35.3

2016E Revenues 28.8 1.5 43.2 (1.0) 42.2

Mean 38.7

2015E EBITDA 4.9 8.2x 40.5 (1.0) 39.5

2016E EBITDA 6.1 8.2x 50.1 (1.0) 49.1

Mean 44.3

2015E EBIT 3.1 18.6x 57.8 (1.0) 56.8

2016E EBIT 4.7 18.6x 87.5 (1.0) 86.5

Mean 71.6

Mult. Equity Value

2015E Earnings 1.8 32.5x 59.4

2016E Earnings 2.9 32.5x 94.9

Mean 77.1

International

DigiTouch Valuation - 2015 Multiples Mult. EV Net Debt Equity Value

2015E Revenues 24.2 3.0x 72.6 (1.0) 71.6

2016E Revenues 28.8 3.0x 86.3 (1.0) 85.3

Mean 78.5

2015E EBITDA 4.9 12.7x 62.7 (1.0) 61.7

2016E EBITDA 6.1 12.7x 77.5 (1.0) 76.5

Mean 69.1

2015E EBIT 3.1 19.5x 60.6 (1.0) 59.6

2016E EBIT 4.7 19.5x 91.7 (1.0) 90.7

Mean 75.1

Mult. Equity Value

2015E Earnings 1.8 23.4x 42.7

2016E Earnings 2.9 23.4x 68.4

Mean 55.5

Regression analysis

DigiTouch Valuation - 2015 Regression Mult. EV Net Debt Equity Value

2015E Revenues 24.2 3.0x 72.6 (1.0) 71.6

2016E Revenues 28.8 3.0x 86.3 (1.0) 85.3

Mean 78.5


43

Target price

Our DCF model and 2-year forward peers multiples provide the following

Equity Value range:

47.6

57.9

69.6

78.5

DCF AIM Italia avg. Internationalavg.

Regressionmultiple

Equity Value range (€m)

50

60


We believe that a narrow range of €50-60m of equity value could be a well-

balanced indicator to evaluate DigiTouch’s investment case and that the DCF

valuation on our projections is a fair reference for a mid-term outlook.

Based on our DCF model and given the current number of shares outstanding

equal to 13,896,695, we initiate our coverage of DigiTouch with a target price

per share of €3.40, with a 56% upside on current share price.

DigiTouch Price per Share €

Target Price 3.40

Current Share Price (27/07/2015) 2.18

Premium / (Discount) 56% Source: EnVent Research

Strategic value upside

We view companies like digital publishers, software companies, telcos, media

conglomerates and agency networks as likely potential acquirers, among other

publishers. We believe that these companies, some of which already entering

the advertising ecosystem, might boost multiples when acquiring the new

industry multi-suite specialists.

Others, such as data companies, developing a marketing cloud or trading desks

can differentiate through acquiring diversified data assets.

Thus, we believe that Audiens, despite its negligible revenues as a startup, could

reach rapidly a high value contribution to the Group.

We estimate that Audiens, on the assumption of reaching a million Euro

44

Please refer to important

disclosures at the end of this

report.

revenues at the end of the forecast period, could rapidly reach a market value

of €3-5m, as a well backed and financed hi-tech startup.

In view of an acceleration of the consolidation trend in the industry, we

consider as a serious upside scenario a target enterprise value of €80-90m in

the mid-term, based on the 2016 revenue level close to €30m, the regression

fundamental multiple of 3x sales, a conservative value of Audiens and possibly

further new acquisitions.

45

Profile of selected companies

AIM Italia peers

Triboo Media. Italian digital advertising company, listed on AIM Italia. Core

business is brand awareness services and performance advertising. Also

publishing products.

2014 revenues: €28m

MP7 Italia. Operates in the advertising bartering.


Mobyt. Delivers solutions for sending SMS messaging services and emails to

support marketing and advertising campaigns.


Primi sui Motori. Web-marketing specialist with focus on visibility and Search

Engine Optimization.


Expert System. Developer of multilingual semantic analysis platforms

dedicated to big data intelligence and information management.


Axélero. Italian internet company, listed on AIM Italia. Develops digital

marketing and communication solutions and publishing products to improve

the online visibility of small and medium-sized enterprises (SMEs) and small-

office and home-office operations (SoHos).


Softec. Provides digital marketing solutions in the segments: Agency,

Performance, Social and Platform.


MailUp. Specialized in digital direct marketing, has developed a platform of

cloud computing (Software as a Service - SAAS) used by small, medium and

large companies for the assisted creation, fast sending and monitoring of email

and SMS.


MutuiOnline. Online credit and insurance broker listed on the Italian Stock

Exchange, Star segment. Despite being a vertical content provider and not an

advertiser, from a business model point of view it is a pure digital company that

has changed the traditional way banks and insurance companies contact

customers and promote mortgage and consumer loans or insurance products.

ANNEX 1: PEER GROUP ANALYSIS

46

MOL portal is a comparator, while most company’s revenues come from the

outsourcing services.


International peers

Criteo. France-based, listed on Nasdaq. Personalized retargeting company

working with Internet retailers to serve online display advertisements to

consumers that have previously visited the advertiser's website.


Constant Contact. US provider of online marketing solutions designed for small

and medium-sized businesses. The suite of services includes Email Marketing,

EventSpot, Social Campaigns, SaveLocal, SinglePlatform and Survey, enabling

customers to launch and monitor marketing campaigns across multiple

channels, including email, social media, events, local deals, online listings and

surveys.


TradeDoubler. Sweden-based digital marketing company listed on Stockholm

Stock Exchange. Core business in performance marketing.


Hi-Media. French company listed on Alternext. European leader in monetizing

the Internet audience, offering a full range of services and technology solutions

in digital advertising and online payments.


Syzygy. German digital marketing group offering skills in web brand design,

content management, e-commerce and eCRM.


1000mercis. French company listed on Alternext. Main businesses: website

publishing, audience monetization through online advertising, content

monetization through a micro-payment platform.


Brainjuicer. UK-based, listed on AIM UK. BrainJuicer is a challenger in the

market research industry, using approaches based on behavioural economics to

predict consumer actions and reactions.


Antevenio. Spain-based, listed on the French alternative stock market

Alternext. Specialist in performance and brand marketing, especially in leads

generation and email marketing.


47

DISCLAIMER (for more details go to www.envent.eu under “Disclaimer”) This publication has been prepared by Luigi Tardella, Co-Head of Research Division, and Viviana Sepe, Research Analyst, on behalf of the Research & Analysis Division of EnVent Capital Markets Limited (“EnVentCM”). EnVent Capital Markets Limited is authorised and regulated by the Financial Conduct Authority (Reference no. 651385). This publication does not represent to be, nor can it be construed as being, an offer or solicitation to buy, subscribe or sell financial products or instruments, or to execute any operation whatsoever concerning such products or instruments. EnVentCM does not guarantee any specific result as regards the information contained in the present publication, and accepts no responsibility or liability for the outcome of the transactions recommended therein or for the results produced by such transactions. Each and every investment/divestiture decision is the sole responsibility of the party receiving the advice and recommendations, who is free to decide whether or not to implement them. Therefore, EnVentCM and/or the author(s) of the present publication cannot in any way be held liable for any losses, damage or lower earnings that the party using the publication might suffer following execution of transactions on the basis of the information and/or recommendations contained therein. The purpose of this publication is merely to provide information that is up to date and as accurate as possible. The information and each possible estimate and/or opinion and/or recommendation contained in this publication is based on sources believed to be reliable. Although EnVentCM makes every reasonable endeavour to obtain information from sources that it deems to be reliable, it accepts no responsibility or liability as to the completeness, accuracy or exactitude of such information and sources. Most important sources of information used for the preparation of this publication are the documentation published by the Company (annual and interim financial statements, press releases, company presentations, IPO prospectus), the information provided by business and credit information providers (as Bloomberg, S&P Capital IQ, AIDA) and industry reports. The estimates, opinions, and recommendations expressed in this publication may be subject to change without notice, on the basis of new and/or further available information. EnVentCM intends to provide continuous coverage of the Company and financial instrument forming the subject of the present publication, with a semi-annual frequency and, in any case, with a frequency consistent with the timing of the Company’s periodical financial reporting and of any exceptional event occurring in its sphere of activity. A draft copy of this publication may be sent to the subject Company for its information and review (without target price and/or recommendation), for the purpose of correcting any inadvertent material inaccuracies. This publication, nor any copy of it, can not be brought, transmitted or distributed in the United States of America, Canada, Japan or Australia. Any failure to comply with these restrictions may constitute a violation of the securities laws provided by the United States of America, Canada, Japan or Australia. EnVentCM is distributing this publication as from the date indicated on the front page of this publication. ANALYST REPRESENTATION For each company mentioned in this publication, all of the views expressed in this publication accurately reflect the financial analysts’ personal views about any or all of the subject company (companies) or securities. Analysts' remuneration was not, is not or will be not related, either directly or indirectly, to specific proprietary investment transactions or to market operations in which EnVent S.p.A. has played a role (as Nomad, for example) or to the specific recommendation or view in this publication. EnVentCM has adopted internal procedures and an internal code of conduct aimed to ensure the independence of its financial analysts. EnVentCM, within the Research & Analysis Division, may collaborate with external professionals. It may, directly or indirectly, have a potential conflict of interest with the Company and, for that reason, EnVentCM adopts organizational and procedural measures for the prevention and management of conflicts of interest (for more details go to www.envent.eu under “Disclaimer” and “Procedures for prevention of conflicts of interest”). CONFLICTS OF INTEREST In order to disclose its possible conflicts of interest, EnVentCM states that EnVent S.p.A. acts or has acted in the past 12 months as Nominated Adviser (“Nomad”) to the subject Company on the AIM Italia-Mercato Alternativo del Capitale, a Multilateral Trading Facility regulated by Borsa Italiana (for more details go to www.envent.eu under “Disclaimer” and “Potential conflicts of interest”). CONFIDENTIALITY Neither this publication nor any portions thereof (including, without limitation, any conclusion as to values or any individual associated with this publication or the professional associations or organizations with which they are affiliated) shall be reproduced to third parties by any means without the prior written consent and approval from EnVentCM.

48

VALUATION METHODOLOGIES EnVentCM Research & Analysis Division calculates range of values and fair values for the companies under coverage using professional valuation methodologies, such as the discounted cash flows method (DCF), dividend discount model (DDM) and multiple-based models (e.g. EV/Revenues, EV/EBITDA, EV/EBIT, P/E, P/BV). Alternative valuation methodologies may be used, according to circumstances or judgement of non-adequacy of most used methods. The target price could be also influenced by market conditions or events and corporate or share peculiarities. STOCK RATINGS The “OUTPERFORM”, “NEUTRAL”, AND “UNDERPERFORM” recommendations are based on the expectations within 12-month period of date of initial rating (shown in the chart on the front page of this publication). Rating rationale: OUTPERFORM: stocks are expected to have a total return of at least 20% in the mid-term; NEUTRAL: stocks are expected to have a performance consistent with market or industry trend and appear less attractive than Outperform rated stocks; UNDERPERFORM: stocks are among the least attractive in a peer group; NOT RATED: No rating or target price assigned. The stock price indicated is the reference price on the day indicated as “Date of Price” in the table on the front page of this publication. DETAILS ON STOCK RECOMMENDATION Stock name DigiTouch

Current recommendation OUTPERFORM Previous recommendation n.a.

Current Target Price (€) 3.40 Previous Target Price (€) n.a.

Current Share Price (€) 2.18 Previous Share Price (€) n.a.

Date of Publication 27/07/2015 Date of Previous Publication n.a. This disclaimer is constantly updated on the website at www.envent.eu under “Disclaimer”. © Copyright 2015 by EnVent Capital Markets Limited - All rights reserved.

EQUITY RESEARCH III th July 27 , 2015 95 Investment summary … · States, Canada, Japan or...

Documents

Transcript of EQUITY RESEARCH III th July 27 , 2015 95 Investment summary … · States, Canada, Japan or...