Flexion Mobile - Still top performance, but portfolio is maturing
Third straight quarter with positive EBITDA Negative revision from contract expiration DCF valuation range SEK 15-26 (15-27) Q3 20/21: Sales of GBP 6. 9m (+175% y-o-y, +10% q-o-q) Flexion reported another record-breaking quarter with Q3 sales reaching GBP 6. 9m (2. 5m), which was in line with ABGSCe.
The sales growth was attributable to a larger portfolio of games (20 live games vs. 12 one year ago) and a higher monetization per game as distribution power has increased with the addition of Huawei as a partner. EBITDA was GBP 0.
1m (-0. 5m) vs. ABGSCe at 0.
0m. The deviation was mainly driven by a higher gross margin than expected (13. 2% vs.
11. 5%). There was a slight adjustment to the short-term target of having 27 games live at the end of the fiscal year on 31 March.
Flexion now expects to have 27 games signed as it has encountered some unforeseen delays with some developers to launch already signed games. In addition, a loss-making multi-game contract expired on 31 December and is unlikely to be extended unless new and improved terms can be agreed. Almost two years since major titles were signed We make slightly negative sales revisions following the news of the contract expiration, decreasing our ‘21e-‘22e sales estimates by 4.
2-2. 7%. For ‘21e, our EBIT revision is - 7.
1%, which decreases to -1. 8% for ‘22e as we raise our assumption on gross margin. Our lowered EPS revisions for ‘21e and ‘22e are -21% and -16% and are affected by the direct shares issue, which yielded roughly GBP 9.
3m to Flexion’s cash balance. Liquidity from directed shares issue might fuel growth 2020 has been a truly impressive year for Flexion but it is now approaching two years since the three major game signings that occurred in the spring of 2019. We think those games have driven a large part of the growth journey and it might start to reach its peak.
However, the capital that was recently raised will be used to hire additional sales representatives, which will likely lead to new game.
