G5 Entertainment: Positive start to Q4, limited visibility for new game launches
Research Update
2024-11-08
08:01
Analyst Q&A
Closed
Hjalmar Ahlberg answered 3 questions.
Redeye updates on G5 Entertainment post Q3-results which were weaker than expected. While the start to Q4 looks promising, we continue to push back our growth forecast as the near-term visibility for new global game launches remains limited.
Hjalmar Ahlberg
Tomas Otterbeck
G5 reported slightly softer-than-expected Q3-results with topline of SEK270m (we expected SEK288m) and EBIT of SEK23m (we expected SEK25m). On the positive side, the company saw a strong gross margin of 68.8% (we expected 68.0%) driven by continued solid growth of revenue from G5 Store which increased 27% YoY.
While Q3 saw soft topline, the company highlighted that it saw a substantial increase in revenue on October compared to September, suggesting a positive start to Q4. Still, the visibility on new game launches remains low and we now expect a new global game launch to come in H1 2025 rather than Q4 2024.
Given the somewhat soft Q3-results, we have lowered our 2024E EBITDA by 6%, although we continue to see potential for sequential improvement in Q4 2024. With new game launches pushed into 2025, we have also lowered 2025-26E EBITDA by c8%. Our new base case stands at SEK280 (SEK300) and implies an EV/EBITDA of 8x 2024-25E, while the historical average NTM EV/EBITDA is c7x. The share currently trades at 2x 2024-25E EBITDA and the FCF yield is c17-18%.
| SEKm | 2022 | 2023 | 2024e | 2025e | 2026e |
| Revenues | 1,400.1 | 1,319.9 | 1,139.4 | 1,146.5 | 1,215.0 |
| Revenue Growth | 6.4% | -5.7% | -13.7% | 0.6% | 6.0% |
| EBITDA | 318.3 | 278.9 | 246.7 | 249.6 | 278.0 |
| EBIT | 167.0 | 111.4 | 111.0 | 119.3 | 137.0 |
| EBIT Margin | 11.9% | 8.4% | 9.7% | 10.4% | 11.3% |
| Net Income | 66.9 | 127.6 | 110.1 | 104.3 | 119.8 |
| EV/Sales | 1.1 | 0.8 | 0.5 | 0.4 | 0.3 |
| EV/EBITDA | 4.9 | 3.6 | 2.2 | 1.9 | 1.4 |
| EV/EBIT | 9.4 | 9.1 | 4.9 | 3.9 | 2.9 |
G5 reported revenue of SEK270m and EBIT of SEK23m for Q3 2024, which was slightly lower than our estimate of SEK288m and SEK25m, respectively. The company saw a strong gross margin of 68.8% (we expected 68.0%), supported by continued solid growth of revenue from G5 store which increased by 27% YoY (representing 17% of total revenue in the quarter). UA costs were largely in line with expectations, although slightly higher than expected in relation to sales. While other opex was somewhat lower than expected, the lower-than-expected topline resulted in EBIT coming in slightly below our expectations. The table below summarizes Q3-results outcome compared to our expectations.
Disclosures and disclaimers