ABGSC Q2e EBIT of SEK 29m, +10.1% vs. cons

‘20e EBIT up 9.1% on lower G&A costs

Fair value DCF range SEK 81-260 (72-195)

Q2’20e: Sales of SEK 326m & EBIT of SEK 29m
We forecast that G5 will deliver a solid Q2 report with revenues of SEK 326m offering y-o-y growth of 9.5%, as G5 faces easy comps from 2019. However, we also see continued solid performance by Jewels of Rome as driving growth, in combination with new games such as Jewels of the Wild West, which saw a strong launch in terms of climbing the gross ranking lists. Overall, we see a continued diversification of the revenue base, and we believe that G5’s own games will come to constitute an even larger part of total revenues in Q2, with the firm thus effectively moving further away from its reliance on Hidden City. In terms of profitability, we think that COVID-19 will generate lower G&A costs, as described in the following paragraph, and ultimately we estimate a Q2e EBIT of SEK 29m for a margin of 8.8%.

COVID-19 to lower General and Admin costs in Q2e/Q3e
We raise our ‘20e EBIT by 9.1% by lowering our General and Administrative cost assumptions for Q2e and Q3e. We believe that COVID-19 will have lowered costs in terms of causing fewer business travel, digital instead of physical meetings, fewer corporate events and increasing remote work adoption. We deem these effects to be of a temporary nature as of now, and we think G&A costs will normalise towards Q4e, but it is plausible that we could also see lower costs in the long-term depending on employee preferences.

New estimates and diversified revenues increase DCF range
We raise our fair value DCF range to SEK 81-260 (72-195) per share based on our raised estimates and a lower company-specific risk premium in our WACC calculation, as G5 is successfully diversifying its revenue base through the launch and success of its newly released games. Furthermore, we find that at the current share price, G5 is trading at an f12m EV/EBIT of ~16x based on our new estimates. This i
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