G5 Entertainment: A new king (detective) on the throne - ABG

EBIT +7% vs. ABGSCe; guides for increased UAC in Q2
We raise ‘23e-‘24e EBIT on higher growth for Sherlock
Trading at 5x EV/EBIT and a 12% FCF yield on 2023e

Strong numbers despite challenges posed by the war
G5 delivered a strong Q1 report with sales in line with ABGSCe and Infront consensus. EBIT in Q1 was SEK 54m (60m) but was negatively impacted by SEK 15m in one-time costs for supporting and relocating employees impacted by the war in Ukraine. Adjusted for these one-offs, EBIT was SEK 68m (+7% vs. ABGSCe and +11% vs. consensus), for a record-high margin of 20.4%. Net profit was SEK 50m in Q1 (-10% vs. ABGSCe). Free cash flow was SEK 36m vs. SEK 62m last year. That said, we are impressed with how well G5 has managed the Ukraine war. Despite ~50% of its employees being located in Ukraine, and another ~40% in Russia, the operations have seen very little impact. Hidden City continued to decline (-7% q-o-q) and now comprises 30% of sales. Meanwhile, Sherlock grew organically 25% q-o-q. New generation games comprised 55% of sales in Q1, compared to 52% in Q4. The company also guided for significantly higher UAC in Q2 (35% of sales) as it sees an opportunity to significantly boost growth for Sherlock.

Estimate revisions: ‘22e-‘24e adj. EBIT -17%, +5%, and +4% On the back of 35% UAC/sales in Q2 and slightly elevated levels in Q3 as well, we cut 2022e adj. EBIT by 17% but raise 2023e and 2024e adj. EBIT by 5% and 4% because of higher growth expectations for Sherlock. We estimate that q-o-q organic growth for Sherlock will slow down in Q2’22e and Q3’22e but accelerate through Q4’22e. Because of this, we think the game will generate ~SEK 100m in sales in Q4’22e, up from ~SEK 57m in Q1’22e. We expect Hidden City to stabilize in the latter part of 2022e. Because of the new guidance, we are more confident that organic growth will accelerate in ‘23e and pencil in +9%, vs. +1% in ‘22e.
Final thoughts We find it encouraging that mgmt. sees the opportunity to invest to drive higher gro ... Läs mer på ABG Sundal Collier

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