G5 Entertainment: Under pressure, but we see signs of strength - ABG

ABGSCe Q1: adj. EBIT +6% y-o-y and flat sales
We cut ‘22e-‘24e EBIT by 6%-9%
5x 2022e EV/EBIT – a five-year low

Q1: We forecast flat sales but 6% growth in adj. EBIT y-o-y
We forecast Q1 sales of SEK 330m, +1% y-o-y (-4% organic, +5% FX), with the decline of old games and growth in new games continuing. We forecast adj. EBIT of SEK 63m (+6% y-o-y). Last quarter, Hidden City, which is G5’s largest game, underperformed significantly, but in Q1 we expect that the game has stabilized but continued to decline sequentially. Hidden City will have tough comps in Q2 as well, but easier in H2’22e. Because of this, and the continued growth of Sherlock, we forecast organic growth for G5 in H2’22e. We think Sherlock has continued to grow by 20-30% q-o-q, making up for most of the decline of Hidden City. The ‘Jewels of’ family seem to have performed better q-o-q driven by new content updates earlier in Q1. We expect that these games will grow in 2022 after underperforming slightly in 2021.

Estimate changes
We cut ‘22e-‘24e EBIT by 6%-9% because of 2pp lower organic growth and slightly higher opex. Furthermore, we expect the company to report extra ordinary costs in Q1 related to temporarily higher wages to support employees in Ukraine and new office structures. Some of these extraordinary costs will likely persist over Q2 as well but not over the longer term. We make no forecast on the EO items. Despite the EO costs we think the company will generate significant cash flows in 2022e.

New fair value range SEK 280-520 (SEK 330-600)
With slightly lower growth projections we reduce the fair value range to SEK 300-530 (SEK 330-600) per share. The company continues to be significantly impacted by the Ukraine crisis. But according to mgmt. it is still able to produce new content for the most important games, thus maintaining the revenues. Our assessment is that the wording from the company has improved gradually since the war broke out, which is encouraging. On top of that, the company will di ...
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