Q3’19e sales of SEK 304m alongside EBIT margin of 8.3%
For Q3’19, we forecast sales of SEK 304m, for q-o-q growth of 2.3%, but
a y-o-y decline of 24.7%. We believe that revenues are set to stabilize on
a quarterly basis given Hidden City has begun stabilizing in terms of US
iPhone gross rankings, while Jewels of Rome has continued to climb. As
we have highlighted before, the rise of G5’s own games should result in
a higher gross margin, as it does not have to pay royalties on the titles,
and as such we forecast a gross margin of 54.7% in Q3, up from 54.5%
in Q2. We still believe that user acquisition (UA) spending will be high –
at 25.0% of net sales – seeing as G5 potentially identified new, more
efficient means in Q2’19, and is pushing its new games. We forecast that
this will yield an EBIT of SEK 25m, for an EBIT margin of 8.3%.
Obviously, quarterly EBIT is highly sensitive to UA spending.
Jewels of Rome still trending well in the US
Looking at US iPhone gross rankings, G5’s most important market
segment, we find that G5’s top 5 games have been performing well, with
the two top revenue contributors, Hidden City and Mahjong Journey,
have seen a slight increase since Q2. G5’s newest release, Jewels of
Rome, which has rapidly risen to become G5’s fourth largest game in
terms of revenues, has continued to climb in the rankings. The game
ranks consistently in the top 200 US iPad gross rankings, and 500-650 in
the Datamagic iPhone gross rankings.
F12m EV/EBIT of 7.9x, discount of 22.7% to 5-year avg.
We have updated our DCF valuation range, increasing the top-end of the
range from SEK 190 per share to SEK 201 per share, with the full range
now indicating a fair value range of SEK 70-201 per share. Furthermore,
we note that at the current share price, G5 is trading at a f12m EV/EBIT
of 7.9x, which is a discount of 22.7% to the 5-year average EV/EBIT of
10.3x. In terms of f12m P/E, G5 is trading at 10.0x, for a discount of
26.9% compared to the 5-year average of 13.7x.