ABGSC: Q1’21e EBIT SEK 60m, +6.6% vs. consensus

Continued strong performance by select new games

Raise DCF fair value range to SEK 355-675 per share

Forecast ~20% organic growth in Q1, FX headwinds weigh
We expect Q1’21 to be another strong quarter for G5, with robust underlying organic growth and improving EBIT margins, but with FX weighing on the reported figures. We estimate reported net sales of SEK 343m, for 10.0% y-o-y growth, but when adjusting for FX we reach organic growth of 20.2%, mainly due to the weak USD and EUR. Looking at the gross rankings of G5’s games on iOS and Google Play we find that the recently launched Sherlock: Hidden Match-3 Cases has continued to perform strongly in Q1, especially on iPad, while Hidden City has continued to decline slightly (in line with G5’s new UA strategy) and the remainder of the titles we’ve looked at have remained relatively flat vs. Q4’20. See page 4 for more details. This implies an improving mix, and we forecast a gross margin of 58.9%. We expect G5 to keep UA investments in line with ’20 levels in terms of % of sales – we forecast 21.0% in Q1’21, whereby we reach an EBIT of SEK 60m, +54.9% y-o-y, for a margin of 17.5%.

Minor estimate changes on Q1’21 UA assumptions
We make only minor changes to our estimates: lowering UA as a percentage of sales in Q1’21e by 1.0%, but also adjusting our estimate in terms of commission to distributors for ‘21e, from 29.1% to 28.9%, driven by an improving platform mix. All in all, this results in us increasing our EBIT estimate for ‘21 by 2.9%.

DCF scenarios SEK 355-675, equals 14-23x ’21e EV/EBIT
Following our estimate changes, we slightly adjust our DCF fair value range to SEK 355-675 (350-670) per share, which corresponds to a ‘21e EV/EBIT of 14.0-22.5x. This yields a range of 16% below to 35% above the median ‘21e EV/EBIT of our mobile game developer peer group based on FactSet consensus. Overall, for ‘21 we believe that G5 will continue improving its revenue mix by growing revenues
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