Equity financing
Given the maturity of the concept at an early stage, financing by third-party resources (traditional bank debt) is not feasible. Recourse to hard capital or, failing that, high yield debt (convertible bonds) will therefore have to assume the entire financial need linked to the development. The valuation of MHM will therefore be closely linked to the way in which its development is financed.
Cost of capital and DCF
The cost of capital can be equated with the WACC if the company is financed exclusively with equity or similar funds (CB). On an early stage green field model of a start up with limited initial development resources (below €50m), we apply a discount rate (CoE) of 15%. This rate may be revised upwards or downwards depending on the evolution of the perceived risk during the ramp-up phase in 2022-24.
Reverse valuation
Based on our current valuation of €0.05 per share (€28m market capitalisation fully diluted at the price target), the discount rate used leads to a forward 5-year valuation of €56m. Taking into account future dilutions to finance the completion of the platform as well as the commercial roll-out would correspond to an ex-post valuation of around €80m over a 5-year period.
If the success of the MHM platform is confirmed around 2024 (visitor dynamics and volume, hotel referrals, revenues, cost control, etc.), we would have to gradually revise the associated risk. We may have to significantly reduce the discount rate in stages and thus increase the valuation.
Alternative valuation models
As the platform’s activity is nil or low in 2022-23, the application of a valuation model based on revenue, profit or per matcher multiples is not relevant.
At maturity, and depending on the pace of growth, MHM could be valued using comparables in the same segment (Airbnb, Tripadvisor), similar segments (air ticket or travel booking, such as booking.com), or technological reservation models by extension (Amadeus), or even software or IT services players.
We define a NAV which is by nature close to our DCF result. It also results from the sum of the investments to be made, which are deemed to have at least the same value in the event of the sale of the company.
We do not expect MHM to pay dividends in the foreseeable future. The investment and deployment phase should cover at least 2022-25.
- Exit value in majority price
In the event of success or viral development, the maximum value of MHM would be reached in the event of the sale of the company to a major player in the sector wishing to broaden its offer or distribution model (a typical acquirer: Airbnb or Tripadvisor) or to acquire it on a defensive basis. In this case, the valuation would be disconnected from the company’s economic performance. It is common for start-ups to be valued at €50-100m once the proof of concept is done. Compared to the size and solvency of potential buyers, these amounts are insignificant.
The reference shareholder of MHM has informed us of its intention to operate MHM in the long term without considering a transaction. We therefore do not include this valuation in our model. It is in fact a free option for the shareholder whose value will only be detectable once the proof of concept has been achieved, accompanied by strong growth to ensure that the operational break-even point is reached.
MHM will initially focus on the French market, which is sufficiently deep to allow the model to be tested. If successful, and in a second phase (beyond 2025), the duplication of the model internationally could prove to be a powerful driver of value by simply extending the platform. However, MHM will have to multiply the advertising costs (Google referencing, €6-10m per country per year) by as many locations. The referencing of hotels abroad, for French guests, allows for the most obvious target enlargement at the lowest cost. MHM will thus be able to prepare, from its French customer base, the expansion of its geographical coverage of matchers. In addition to the necessary local referencing, the adaptation of the platform will be necessary (multiplication of languages / translation in particular).
