G5 Entertaiment: Growing game pipeline

Research Update

2023-08-11

07:36

Redeye updates on G5 following its Q2-results where topline was soft while results were close to our forecasts. Looking into H2, positive seasonality should support a slightly sequential topline improvement while a growing game pipeline with at least one game getting close to global launch supports prospects for better growth in 2024E.

Hjalmar Ahlberg

Tomas Otterbeck

Soft topline in Q2

G5 reported somewhat soft revenue in Q2 driven by weak seasonality which currently impacts more than historically owing to a large share of mature games in its portfolio. Revenue from own games was stable while the mix of revenue from G5 Store continued to increase supporting a stable gross margin. Opex and UA were close to our forecasts resulting in an EBITDA just below our estimates.

Growing game pipeline

While revenue was lower than forecasted in Q2, the company continued to build its game pipeline by adding more game ideas in evaluation and iteration phase. The company also confidently expected to launch one game globally before the end of 2023 which supports a positive growth outlook for 2024E.

Slightly trimmed estimates

On the back of the soft topline development in Q2 we have lowered our revenue forecasts with c2% for 2023-25E. We have done limited changes to opex assumptions and our EBITDA is lowered with c2-3% for 2023-25E. Our valuation range remains unchanged with a base case of SEK415 which implies an EV/EBITDA ox 9x 2024E while the share currently trades at c3x EV/EBITDA and the five-year average NTM EV/EBITDA is 7x.

Key financials

SEKm202120222023e2024e2025e
Revenues1,315.71,400.11,363.71,431.81,503.4
Revenue Growth-3.0%6.4%-2.6%5.0%5.0%
EBITDA349.4318.3311.6350.7377.4
EBIT216.1167.0153.7186.1210.5
EBIT Margin16.4%11.9%11.3%13.0%14.0%
Net Income198.266.9157.3167.5184.2
EV/EBITDA9.24.94.13.32.7
EV/EBIT14.99.48.36.24.9
Dividend Yield1.8%3.8%4.5%5.0%5.5%

Soft topline in Q2

G5 reported revenue of SEK331m which was somewhat below our forecast of SEK347m. The second quarter is a seasonally slower quarter and the company commented that its growth is currently more impacted by seasonality as most games in its portfolio now are fairly mature. Revenue from own games was down marginally from Q1 2023 while revenue derived from G5 store increased to 10% in the quarter, up from 8% in Q1 2023 and 4.3% in Q2 2022. This yielded a gross margin of 67.4% which was in line with Q1 2023 but slightly lower than our forecast of 68.0%.

Opex was close to our estimates while exchange rate effects positively impacted results on operational assets resulting in EBITDA and EBIT coming close to our forecast. UA costs came in at SEK62m, representing 18.6% of revenue which was in line with expectations. Capitalized development costs were SEK24.5m, down from SEK28m in Q1 2023 and lower than our forecast of SEK29m.

Disclosures and disclaimers

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