G5 Entertainment: Margin expansion to fuel EPS growth - ABG

Solid Q1 overall, New Gen games a bit soft
Margin expansion to drive 12% EPS CAGR '23e-'25e
Strong balance sheet, trading at 10% FCF yield


We expected a bit more from New Gen games

G5's Q1 results were in line with our sales and EBIT estimates. New Gen games (Sherlock and Jewel family) were somewhat weaker, but OK given weaker seasonality in Q1 and lower-than-expected user acquisition cost (17.7% of sales vs. ABGSCe 20.5%). G5 maintained good cost control in a relatively uneventful quarter and a declining market, , grew in line with the market (-7% FX adj.) and produced 100% conversion from EBIT to FCF (SEK 40m). Lower capitalised R&D hurt EBIT a bit more than expected but is neutral to FCF (capitalisations now significantly lower than D&A). While EBIT declined 26% y-o-y, FCF remained more stable and grew 11%. Looking ahead, we see stable sales and increasing margins q-o-q.

Länk till analysen i sin helhet: https://cr.abgsc.com/foretag/g5-entertainment/Equity-research/2023/5/g5-entertainment---margin-expansion-to-fuel-eps-growth/