Flexion Mobile reported a solid quarter and delivered 20% y/y growth. Sales amounted to GBP17.8m (14.8), in the middle of its Q3 revenue guidance and 5% below our estimates. Adjusted EBITDA amounted to GBP1.4m, 5% above our estimate of GBP1.3m, primarily due to strong gross margins in the distribution business. Along with the report, Flexion provided revenue guidance for Q4 of USD26-30m (cGBP20.5-23.7m). This can be compared to revenues of GBP24.3m in Q4 last year.

With the 2023 accounts now filed, the incident related to the 2022 accounts can finally be considered closed, allowing investors to refocus on the company’s fundamentals. In that context, we see a growing business, with strong cash conversion driven by negative working capital, minimal reinvestment needs, and a solid net cash position of GBP12.4m. Coupled with positive momentum in title signings and ongoing market changes, we believe the company’s fundamentals have never been stronger.

Following the Q3 report and the company’s Q4 guidance, we have made downward estimate revisions, lowering sales by 9% for 2024e and 11% for 2025e-2026e. We expect the company to reach the upper end of its Q4 guidance. Market sentiment remains muted, and despite the expectation of delivering a record year, Flexion continues to trade at all-time-low multiples. However, if Flexion maintains its current pace, the sentiment should shift sooner or later. Due to our revised estimates, we lower our base case from SEK20 to SEK15, bear case from SEK8 to SEK5, and bull case from SEK32 to SEK25. As such, we continue to see a solid upside in our base case.