G5 Entertainment: Guides for higher UAC - ABG

Adj. EBIT +7% vs ABGSC, +11% vs cons
UA/sales to increase to 35% in Q2…
…lowering profit short term, but is accretive to growth

Q1 details
Sales SEK 333m (+1% vs ABGSC, +0% vs cons). Adj. EBIT SEK 68m (+7% vs ABGSC, +11% vs cons). EBIT is adjusted for SEK 15m in extraordinary costs related to the Ukraine war. Reported EBIT was SEK 54m (60m). Organic growth of -8% was in line with market growth of -7%. New generation games up 19% y-o-y and now account for 56% of sales (43%). Sherlock now makes up 17% of total revenues (grew 25% q-o-q). Looking ahead, G5 expect to temporarily increase UA spend to further boost growth in new generation games (like what G5 did in 2016 to boost sales for Hidden City). UA/sales could go as high as 35% in Q2 vs. previous guidance of 17-22%. As a result, EPS will be down significantly in Q2/Q3 but fully recoup the following 12m according to the company.
Estimates We expect consensus to cut 2022e adj. EBIT by ~30% on the back of higher UA spending in coming quarters. That said, we expect G5 to recoup this investment in the following twelve months. Therefore, we could see consensus revise up 2023e and 2024e EBIT.
Final thoughts Although EPS will be temporarily hurt by higher growth investments, we find it encouraging that new generation games (especially Sherlock) continues to post high growth. Excluding the temporarily lower profitability we expect the EBIT margin to continue increase in coming years due to a higher share of own games. We also look forward to the possibility of G5 returning to organic growth in H2’22e. Läs mer på ABG Sundal Collier

Länk till analysen i sin helhet: https://cr.abgsc.com/foretag/g5-entertainment/Equity-research/2022/5/g5-entertainment---guides-for-higher-uac/