The report from Mr Green was considerable stronger than expected, both regarding revenue growth and profitability. Primarily we saw a larger uptake in Western Europe than we had expected, probably due to the increased efficiency and marketing focus we have already discussed in earlier research reports. We believe today’s report show that the negative growth trend Mr Green previously experienced has shifted.
A high uptake in both deposits and active clients confirms the growth trend shift. This fact shows that the sales increase are not a temporary effect and should at least continue in the coming quarters. We will look into our growth forecast further, but as the positive deviance was so large, we might have to adjust them upwards.
In the reported numbers there are some non-recurring effects that an investor has to adjust for to understand the underlying profitability of the company better. A cost for a fraud has negatively impacted the COS (which depresses the gross profit) by SEK -8.4m. The fraud is related to a particular payment solution from a third party supplier; an issue that is now fixed. Mr Green also had extraordinary costs related to the listing on Nasdaq Stockholm of –SEK 11.7m, which was higher than we had anticipated. The EBITDA adjusted for non-recurring items came in at SEK 40m, compared to our projected level of SEK 21m.
The story of Mr Green 2.0 continues, and we believe the positive fundamental development will continue. During 2016 the company expanded their product offering, launched their new technical platform, got listed on the main markets and made some significant recruitment for the Malta office. Mr Green now enters the Danish market through the recent acquisition and during 2017 they are looking into a re-launch of the Garbo brand. We feel confident that the company is moving in the right direction and see an increasingly positive outlook for 2017, yet we fell that the market focuses on the wrong things when it comes to Mr Green. The current sentiment regarding the stock creates a clear opportunity for the savvy investor. Our Base-case valuation, prior any forecast adjustments from the acquisition and after the report, stand at 63 SEK per share.
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