G5 Entertainment - Solid beat in Q4’20 with good ’21e momentum
Q4’20 EBIT SEK 52m, +3. 8% vs. ABGSC, +11% vs. cons Strong momentum into ‘21e but FX will Raise DCF fair value to SEK 350-670 (261-505) Strong Q4’20 performance with ‘21e momentum G5 reported reported its Q4’20 earnings today, with profitability exceeding expectations at EBIT of SEK 52m, +4.
0% vs. ABGSCe and +11. 2% vs.
consensus, corresponding to an EBIT margin of 15. 6%. The profitability was driven by an improving revenue mix, where G5’s own games comprised 61% of revenues in Q4 (up from 40% in Q4’19) due to successful new releases, as well as by lower-than-estimated User Acquisition (22% of revenues vs.
ABGSCe 24%). Reported net sales were SEK 335m, -11. 2% vs.
ABGSCe and -12. 1% vs. consensus, which offered y-o-y growth of 2.
1%. However, revenues were actually up ~16% y-o-y in USD terms, as G5 derives approximately 58% of its revenues from North America. In terms of 2021, management reports that January started well, with 24% y-o-y growth in USD terms and an EBIT margin of ~20%.
The strong performance in January was driven by an improving revenue mix (greater revenues from own games) and continued efficient UA, according to management. G5 aims to release six new games in ‘21, and mgmt. sees an opportunity for continued strong top-line growth.
FX drives topline revisions; UA compensates on EBIT level In terms of estimate changes, we lower our net sales estimates for ‘21e-‘22e by 8. 7-7. 1%, mainly due to our factoring in a negative FX effect of ~9% in ‘21e due to the weak USD.
However, an improving revenue mix and much-improved UA cause us to increase EBIT by 9. 3-12. 5%.
DCF scenarios SEK 350-670, equals 14-23x ’21e EV/EBIT Following our estimate changes, we have also revised our DCF scenarios in terms of long-term growth potential and margin assumptions given G5’s portfolio approach and the success of its internally developed titles. We raise our DCF fair value range to SEK 350-670 (261-505), which corresponds to a ‘21e EV/EBIT of 14-23x. This yields.
