Warsaw Stock Exchange: MCI Capital - the worst is already priced in?
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MCI Capital is doing very well in a difficult market environment. Good investments more than cover losses from less profitable projects. Low valuations at MCI.TV provide an opportunity to rebuild value after the market rebounds, and we feel investments such as eSky and netrisk will drive performance in the coming quarters and years. In addition, the company has cash reserves that it can use for further acquisitions. After updating our forecasts, we are adjusting our valuation of MCI Capital shares from PLN 29.6 to PLN 36.1.
Results for 2022 - MCI.EV profits more than covered MCI.TV losses
In total, throughout 2022, unrealized gains on the valuation of MCI.EV FIZ amounted to PLN 280m, and unrealized losses on the valuation of MCI.TV FIZ amounted to PLN 120m. Total investment income in 2022 amounted to PLN 141m, net income to PLN 143m, and book value per share to PLN 36.5. The results of MCI.EV FIZ were affected by the revaluation of investments in eSky (PLN +276m) and Netrisk (PLN +49m), offset by a negative result on the revaluation of IAI (PLN -51m) and Pigu (PLN -34m). The results of the entire MCI.TV FIZ were mainly affected by the revaluation of investments in Morele Group (PLN -155m), Gett (PLN -73m) and Travelata.ru (PLN -31m).
Assets at end of 1Q23 similar q/q
According to information published by the company, the gross assets of the MCI.PrivateVentures FIZ fund, in which most of the MCI Group's assets are accumulated, rose to PLN 2.54 billion at the end of March this year, compared to PLN 2.53 billion at the end of 2022. According to our estimates, this translates into several million zlotys of net profit in 1Q23. The current stock market is more favorable to acquisitions than exits and the MCI Group, with liquidity of PLN 732m, is very well positioned for further investments. We feel that the Group's performance in 2023 will be determined mainly by the results of MCI.EV FIZ, of which we expect value growth mainly in the case of eSky, generating high growth rates of earnings improvement.
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 (PLN38/share) and peers valuation to the other PE funds (PLN34.3/share) and indicates present fair price at PLN36.1/share.
The preparation of report was finalized on 20/04/2023 at 8:15 a.m.. The first publication took place on 20/04/2023 at 8:20 a.m.
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 2023 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 assets held by MCI Capital at book value, which should reflect fair value. 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. In our previous October 2022 report, the P/BV ratio for the peers was 0.79x and for MCI was 0.48x, and currently the peers are valued at P/BV of 0.94x and MCI at 0.53x (MCI's valuation discount to the peer group is about 43%). In our opinion, such a high discount to book value in the case of MCI is not justified. Based on the valuation ratios of European private equity companies, we value the company using the comparative method at PLN 34.3 per share (previously PLN 26).
Krzysztof Radojewski
Deputy Head of Research and Advisory Department krzysztof.radojewski@noblesecurities.pl
+48 22 213 22 35
