MindArk: Weak quarter but outlook remains solid
Research Update
2024-11-29
07:20
Analyst Q&A
Closed
Anton Hoof answered 6 questions.
Redeye updates its estimates following MindArk’s weaker-than-expected Q3 report. The company continues to demonstrate strong cost control, and we anticipate solid margins as sales rebound, which we expect to occur already in Q4. Redeye has revised its estimates and valuation based on the report.
Anton Hoof
Hjalmar Ahlberg
MindArk’s Q3 figures were weaker than we expected, with sales coming in at SEK19.4m compared to our estimate of SEK33.4m. This represents a y/y decline of 15% (13% in constant currency), driven by lower activity in Entropia Universe as MindArk had limited content releases during the quarter. The lower sales also resulted in lower profitability than expected, with EBITDA at SEK4.7m compared to our estimate of SEK16m.
With the upcoming Q4 being the strongest seasonal period of the year, combined with the Halloween and Christmas events in Entropia Universe, we expect sales to rebound from Q3 levels. Furthermore, supported by strong cost control, we anticipate MindArk will deliver solid margins in the coming quarter.
Following the Q3 report, we have made downward revisions to our estimates, reducing sales by 13% for 2024e and 10% for 2025e-2026e. However, due to lower-than-expected costs in the quarter, we have also adjusted our cost estimates downwards, resulting in unchanged margins for 2025e-2026e. Our new base case stands at SEK3 (3.5), with a fair value range of SEK1.2-7 (1.5-8). Our base case implies an EV/EBITDA (2025e) multiple of 3x.
| SEKm | 2022 | 2023 | 2024e | 2025e | 2026e |
| Net Sales | 92.8 | 121.9 | 96.0 | 99.8 | 101.8 |
| Sales Growth | 14.3% | 31.4% | -21.3% | 4.0% | 2.0% |
| EBITDA | 32.0 | 35.2 | 32.6 | 34.9 | 33.1 |
| EBIT | 21.4 | 20.4 | 14.3 | 20.0 | 19.9 |
| EBIT Margin | 23.0% | 16.8% | 14.9% | 20.0% | 19.5% |
| Net Income | 9.1 | 15.0 | 10.5 | 15.8 | 18.9 |
| EV/Sales | - | 0.8 | 0.8 | 0.7 | 0.5 |
| EV/EBIT | - | 4.6 | 5.5 | 3.3 | 2.5 |
Net sales amounted to SEK19.4m, a decrease of 15% y/y (13% in constant currency) and c28% q/q, lower than our expectations of SEK33.4m. Looking at profitability, MindArk reported an EBITDA of SEK4.7m and EBIT of SEK-0.1m, below our estimates of SEK16.1m and SEK11.4m, respectively. The lower profitability is due to the lower sales, while Opex was somewhat lower than our expectations.
Disclosures and disclaimers