We lower our estimates for ’19

Top games trending well on iPad

Valuation below historical average

Q1’19 expectations
We have lowered our estimates for ’19, which also affects our estimates for the subsequent years. The largest revisions relate to Q1/Q2’19e. This is due to the fact that Hidden City was still ranking around 100 on iPhone in the US in Q1/Q2’18, and has been at around 200 in Q1’19. Thus, we do not think it realistic that G5 will deliver comparable figures in ’19. For Q1’19, due on 3 May, we expect sales of SEK 339m, which corresponds to negative y-o-y growth of 9%. We expect UA costs as a share of sales to be 25%, slightly lower than in Q1’18. However, this does not compensate fully for the lower sales, and we thus estimate EBIT of SEK 27m, implying an EBIT margin of 8.1%. For FY 2019, we expect sales of SEK 1,396m, corresponding to a y-o-y growth decline of 3.7%, and EBIT of SEK 115m, resulting in an EBIT margin of 8.3%.

Gross rankings
Hidden City, G5’s main revenue contributor, has continued to slide in the iPhone rankings in the US, averaging 211th place for ’19 so far. However, it continues to rank around 50 on iPad. In fact, it has been trending well on iPad in several of the largest gaming markets. In Japan, for instance, which accounts for about 25% of G5’s annual net sales, Hidden City has ranked above 50 for a large part of 2019. Looking at G5’s other top games, Homicide Squad continues to trend well on iPad, climbing from rank 637 in Q1’18 to an average of 363 so far in ’19. We think this points to the quality of Homicide Squad, although it needs to rank around 100 to generate a substantial amount of sales.

Valuation below historical average
At the current share price, G5 is trading at an EV/EBIT of 6.7x for ‘19e, based on our updated estimates. This is approximately 38% below the historical average NTM EV/EBIT of 10.7x.

info@introduce.se (Introduce.se)

ABG Sundal Collier - Introduce.se