EG7: Palia adds growth to live portfolio
Research Update
2024-08-16
07:28
Analyst Q&A
Closed
Hjalmar Ahlberg answered 4 questions.
Redeye updates on EG7 following its Q2-results which were in line with preliminary results. The company reiterates its guidance, suggesting potential for a strong H2 2024, while the acquisition of S6 and Palia improves growth in the live service portfolio.
Hjalmar Ahlberg
Tomas Otterbeck
EG7 reported topline of SEK353m and adjusted EBITDA of SEK33.4m, which was in line with the preliminary results released on July 26. Looking at the performance per segment the main deviation from our forecast was in Daybreak, which was partly due to deferred revenue but also soft performance from some of the live service titles.
While Q2-results ended up weaker than we initially expected, the company’s reiterated guidance suggests potential for strong performance in H2 2024. This outlook is supported by several releases coming in late Q3 and Q4, coupled with cost savings that were announced in connection the preliminary results.
Redeye has increased estimates following the Q2-results which is largely driven by inclusion of the S6 acquisition. We raise our topline forecasts by 3-4% while EBITDA is increased by 1-3% for 2024-26E. Our valuation range remains unchanged with a base case of SEK41 which implies an EV/EBITDA of 7x 2025E while the share currently trades at c2x EV/EBITDA 2025E.
| SEKm | 2022 | 2023 | 2024e | 2025e | 2026e |
| Revenues | 2,045.5 | 2,173.2 | 1,877.6 | 2,143.1 | 2,666.2 |
| Revenue Growth | -5.5% | 6.2% | -13.6% | 14.1% | 24.4% |
| EBITDA | 482.7 | 542.0 | 341.5 | 466.4 | 660.5 |
| EBIT | 395.4 | 427.5 | 248.9 | 329.8 | 470.0 |
| EBIT Margin | 19.3% | 19.7% | 13.3% | 15.4% | 17.6% |
| Net Income | -281.2 | 156.0 | 71.9 | 151.3 | 256.5 |
| EV/Sales | 1.2 | 0.5 | 0.5 | 0.4 | 0.3 |
| EV/EBITDA | 4.8 | 2.1 | 2.3 | 1.7 | 1.0 |
| EV/EBIT | 5.8 | 2.6 | 3.2 | 2.3 | 1.4 |
EG7 reported topline of SEK353m and adjusted EBITDA of SEK33.4m, which was in line with the preliminary results released on July 26 (Redeye’s forecast before the release of the preliminary results was for revenue of SEK375.6m and EBITDA of SEK71.7m). Looking at the performance per segment, which was not disclosed in connection with the preliminary results, we conclude that the main deviation from our forecast was in Daybreak. The segment reported revenue of SEK167.1m and EBITDA of SEK12.3m while our forecast was for SEK175m and SEK35m. The soft performance was partly due to revenue being generated late in the quarter which resulted in deferred revenue of SEK13m. Still, the company adds that the segment underperformed expectations, although performance from EverQuest was solid. Other segments were closer to expectations while Big Blue Bubble actually performed stronger than expected. The table below shows Q2 outcome compared to our forecast.
Disclosures and disclaimers