G5 Entertainment: Solid FCF while waiting for new releases - ABG

Sales in line, write-down of advances weighed on EBIT, FCF solid
We cut '23e-'25e adj. EBIT by 3-5% on slightly higher costs
Trading at 7.2x-5.1x EV/EBIT and 12-14% FCF yield on '23e-'25e


Lack of new releases holding back growth

Sales in Q3 were relatively in line with our forecast (SEK 327m, +1% vs. ABGSCe, -7% vs. FactSet cons.). Growth in USD terms was -10% y-o-y, similar to Q2 but below the mobile games market, which is flat y-o-y. Sherlock was the main reason for a sequential drop of 5% (23% of sales, down from 24% in Q2), while other segments were stable. As we have highlighted, the reason G5 is lagging the market is in part because its portfolio consists of relatively mature games: it needs new games to fill that gap and management said it will release one new game globally in Q4. Moreover, EBIT was lower than expected (SEK 22m vs. ABGSCe SEK 35m and cons. SEK 39m), mainly due to a write-down of advances (SEK 10.7m) related to the licensed game Hidden Epee, which has been discontinued. Adjusted for that, EBIT was SEK 33m (-4% vs. ABGSCe and -11% vs. cons.). Net profit of SEK 31m was supported by a SEK 7.7m revaluation of short-term investments. We keep our sales estimates relatively flat while cutting '23e-'25e EBITDA by 4-2% and adj. EBIT by 3-5% on slightly higher opex.

Länk till analysen i sin helhet: https://cr.abgsc.com/foretag/g5-entertainment/Equity-research/2023/11/g5-entertainment---solid-fcf-while-waiting-for-new-releases/