The MCI Capital Managed To Minimize Its Net Loss To Zero
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MCI Capital – occasions favor the prepared
After a difficult first quarter of 2022 for the company, the second quarter proved equally challenging, especially for the MCI.TV FIZ subfund. In the end, the company managed to minimize its net loss to zero in the first half of the year, thanks to the upward revaluation of the bargain eSky stake acquired. The company's performance in the coming quarters in part will depend on the stock market, as the quotations of comparable companies affect the valuations of portfolio positions. After updating our forecasts, we are adjusting our valuation of MCI Capital's shares from PLN 33.1 to PLN 29.6 mainly due to the peers devaluation. The discount in the stock's valuation to NAV is ca. 53% compared to ca. 21% for peers.
1H22 results influenced by market downturn and situation in the East
In terms of the entire first half of 2022, losses on investments decreased to PLN -13.5m, EBIT decreased to PLN -20.8m, and net income amounted to PLN -1.1m. The result for the first half of the year consisted of a positive result on MCI.EuroVentures FIZ (PLN +131.2m), including upward revaluation of the investment in eSky (PLN +163m) and a negative result on MCI.TechVentures FIZ (PLN -128.5m), including revaluation of Morele Group (PLN -47m), Gett (PLN -34m), Answear (PLN -24m) and Travelata (PLN -21m). Net debt, according to our estimates, at the end of 2Q22 was around PLN 162m (PLN 218m after adjusting for the dividend liability and MCI.TV's rate of return guarantee) vs. PLN 196m at the end of 1Q2
Liquidity at PLN 777 million creates opportunity for bargain buying
The Group's liquidity at the end of 1H2022 was about PLN 777m, of which about PLN 400 million is cash and cash equivalents placed in the MCI.EV FIZ Subfund (and indirectly in MCI.CV) and available credit lines of nearly PLN 300m. Management indicates that the current stock market downturn favors buyers, and expects even more attractive valuations in 2023. The eSky stake acquired in 2022 is one of this year's successful investments.
Risks for our forecasts and valuation
Main risk factors for our valuation are limited portfolio liquidity, high concentration of portfolio investments and the adopted valuation method for certain portfolio companies.
Our valuation is equally based on NAV (PLN33.1/share) and peers valuation to the other PE funds (PLN26.0/share) and indicates present fair price at PLN29.6/share.
VALUATION
We calculated the value of one share of MCI Capital using Net Asset Value (NAV) method on the basis of book value of investment portfolio at the end of 2022 and peers valuation to the other few European PE companies. We give both methods equal weights (methodology unchanged).
In table below we present valuation summary:
PEER VALUATION
We value the assets held by MCI Capital at book value, which should reflect fair value. It is worth noting that the discount in the company's market valuation relative to book value has narrowed in recent quarters relative to peers. In our previous report, the P/BV ratio for peers was 0.98x and for MCI 0.56x (MCI's valuation discount to the peer group at 43%), and now peers are valued at P/BV 0.79x and MCI 0.48x (MCI's valuation discount to the peer group has fallen to 38%). It seems that one of the contributing factors is the dividend policy introduced. The P/BV valuation ratios of selected European PE companies are shown below. The main difference between these companies and MCI Capital is their higher market capitalization. Based on the valuation ratios of European PE companies, we value the company using the comparative method at PLN 26.0 per share (previously PLN 32.8).
Analyst : Krzysztof Radojewski Deputy Head of Research and Advisory Department krzysztof.radojewski@noblesecurities.pl +48 22 213 22 35
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