G5 Entertainment - We forecast continued strong results in Q4
Q4’20 report due on 11 February We forecast EBIT of SEK 50m vs. SEK -4m in Q4’19 Valuation still below peer group levels Forecast a strong report in a seasonally favourable quarter We estimate that we will see a continued strong performance from G5 in Q4’20, driven by favourable seasonal effects and G5’s new games showing a strong performance since being released. We forecast a topline of SEK 373m, +15% y-o-y, which is in line with FactSet consensus. Looking at specific games as drivers, we find that Hidden City is claiming lower gross rankings in key markets and platforms than Q4’19, which is in line with G5’s new strategy of optimizing the game for profitability.
On the other hand, G5 has several new revenue drivers compared to last year, for instance, Jewels of the Wild West, Sherlock: Hidden Match-3 Cases and Emperor of Mahjong: see page 4 for a full breakdown. This results in a more favourable revenue mix for G5, improving the gross margin. We forecast a slight uptick in UA/sales, at 24% of revenues, up from ~22% in Q1-Q3’20, which is normal for Q4.
This results in an EBIT of SEK 50m, a large increase over the SEK -4m in Q4’19, for a margin of 13. 3%. This is ~13% above the latest FactSet consensus from November ’20.
We raise EBIT by 3. 3-0. 7% for ‘20e-‘22e We raise our EBIT estimates for ‘20e-‘22e by 3.
3-0. 7%. This is driven by several factors.
1) G5 is now optimizing Hidden City for profitability, 2) G5’s new performance marketing team appears to have found its stride and we expect less volatility in User Acquisition spending, and 3) Several of G5’s latest releases appear to be performing well, including Sheriff of Mahjong and Sherlock: Hidden Match-3 Cases. Fair value range SEK 261-505, EV/EBIT 18-13x for ‘20e-‘22e Following our estimate changes, we make slight adjustments to our DCF fair value range, now indicating SEK 261-505 per share (261-503). We also note that at the current share price, and based on our updated estimates, G5 is trading at an.
