G5 Entertainment: We trim growth expectations ahead of Q2 - ABG

We expect the negative growth trend to continue in Q2
Good cost control is protecting profitability and cash flow
6-5x EBIT and 15-14% FCF yields on '24e-'26e


Q2 expectations

We expect Q2 to be reminiscent of Q1 in terms of growth and profitability. In a seasonally weaker quarter, we expect sales to decline 2% q-o-q and 12% y-o-y (-14% in Q1). The negative trend continues to be driven by lower sales for the older games in the portfolio, while growth for the new generation games such as Sherlock, has stalled. Moreover, looking at the app data, we can see that the new game Twilight Land still does not contribute in any meaningful way to group sales. Management has guided for one or two new game releases later in 2024, which could support an improvement in growth from H2. Without successful new releases, we expect organic growth to remain negative in coming quarters. In terms of profitability, we expect the company to continue holding back on marketing spending, resulting in an adj. EBIT margin of 9.3% (9.5%) in Q2 compared to 10.0% in Q1. The lower marketing spending compensates for lower sales, enabling G5 to maintain profitability and cash generation when it lacks growth opportunities.

Länk till analysen i sin helhet: https://cr.abgsc.com/foretag/g5-entertainment/Equity-research/2024/6/g5-entertainment---we-trim-growth-expectations-ahead-of-q2/