CHER B

Cherry

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Cherry: Q4 preview; turn-around confirmation!(?)

Cherry will present their financials for the fourth quarter of 2017 on Friday the 16th of February. The focus for us in the report will be the following; comments regarding the “turn-around” of ComeOn, in what fashion the beginning of 2018 has unfolded and the continued development of the gems Yggdrasil and Game Lounge. We expect a sales growth of roughly 17% with an EBIT margin in the region of 15% for the Group as a whole.

For the Group as a whole, we expect to see net sales of roughly SEK 608m with an EBIT margin in the region of 15%. Cherry released a comment in January that the end of 2017 developed according to their expectations, which makes us confident with our projections. Within Online Gaming we expect to see higher income levels than during Q3 due to the seasonality pattern and intensified focus from the management team. We do not expect to see any substantial increase in profitability as it will take some time before the new cost structure and marketing programs initiated by the new management by the end of October takes effect. We project an EBIT margin in the region of 8% and believe that the marketing investments will continue at a high level. We are curious about the new brand snabbare.com and hope to see some comments regarding the development of the new site. We will also look into comments on the performance during the start of 2018, as this will be a good indicator if the new initiatives are taking effect.

Yggdrasil that is the prime asset within Game Development continues to impress. The company has since the last quarterly report presented a couple of new deals, games, innovations and won industry rewards. Due to an increased number of games and clients, the revenue should continue to rise. As we have discussed earlier; the organization continues to grow, and Yggdrasil is investing heavily to fuel their growth, this might create short-term margin fluctuations. Q4 is most often a “high-season” for casino gambling, which could boost the income rates somewhat. For the Q4 we expect a rise in income of 96%, and anticipate a net sales level of SEK 43m with an EBIT of SEK 17m.

Online Marketing, with Game Lounge, entered Denmark in Q3 and stated earlier that they possibly would launch sites in Italy and Spain during Q4. The cost of entering a new market is relatively limited, but it usually takes some time before the branded sites gain traction and traffic. We view the recent acquisition of the tech-tool Slottracker as highly interesting. New comments regarding the development of the loan site Lainat.fi, acquired in November, and the product segment as a whole is something we will look into. Our traffic indications have been stable and the SERP ranking strongly during Q4. We expect that Online Marketing will produce net sales of roughly SEK 45m with an EBIT in the region of SEK 36m.

We expect that Gaming Technology mostly will produce internal sales and that the income and profitability within Restaurant Casino will be relatively in line with last year’s levels.  

We remain confident about Cherry and see significant potential from today’s share price levels with limited downside risk. Our Base-case valuation amounts to 76 SEK per share. Our supportive Sum-Of-The-Parts valuation also indicates a significant potential from today’s levels.

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