Flexion Mobile: Positive EBITDA for the first time - Introduce
Q2: EBITDA of GBP 0.02m vs. ABGSCe at -0.17m
Flexion reported Q1 sales of GBP 4.84m (1.91), in line with the pre-announced figure as of July 15. EBITDA was GBP 0.02m (-0.46), which was GBP ~0.2m ahead of our forecast. The deviation was driven by a higher gross margin (14.5% vs. ABGSCe at 12.5%). However, integration fees that carried a 100% margin boosted the gross margin; gross margin adj. for those revenues (GBP 0.17m) was 11.3%. In addition, Flexion targets positive EBITDA excl. integration fees, i.e. only IAP revenues, by the end of the year. This along with slightly lower personnel expenses is somewhat ahead of our previous forecast.
Targets 27 (23) games in the portfolio at year-end
COVID-19 has affected Flexion’s revenues positively on the relative upswing in mobile gaming. We argue that this boost also will have positive long-term effects, as developers have used this demand spike to try alternative ways of distribution. This is evident in the recent momentum in new game signings that Flexion has experienced. Many of those new games have also been from developers with whom Flexion has an existing partnership, strengthening the value-add proposition in its offer. Because of the momentum in new game signings, Flexion has raised its yearly target to 27 (23) live games by the end of the year. We raise our sales estimates by 2% for 2021e and move EBIT break-even forward, resulting in a long-term upgrade on EBIT of 11% for ‘22e.
More fragmentation for target market expected
The summer saw Epic Games file lawsuits against Apple and Google for anticompetitive behaviour with store fees. In addition, the US decided to ban TikTok and WeChat. What this will lead to in the end is unclear, but a likely outcome is that the market will be more fragmented than before, which will be positive for Flexion. We raise our DCF valuation range to SEK 12-20 (11-19) following the report.
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