EG7: Limited impact from softer margin guidance
Research Update
2024-11-13
06:57
Redeye updates on EG7 post Q3-results which were better than expected, driven by strong profitability in Daybreak. While the company lowered its guidance for 2024, we have made limited changes to our estimates as we had already assumed that the target would be challenging to achieve. Nevertheless, the company looks set to end the year strongly with continued result improvement in Q4 2024.
Hjalmar Ahlberg
Tomas Otterbeck
EG7 reported better than expected Q3-results, mainly driven by Daybreak which saw strong performance and improved profitability after soft performance in Q2. Big Blue Bubble saw solid results as well, with My Singing Monsters now stabilizing at an elevated level while Fireshine delivered a strong quarter driven by the successful release of Core Keeper 1.0.
While Q3-results were stronger than expected, the company lowered its full year EBITDA-margin guidance somewhat from lower-end of 22-25% to around 20%. This was mainly due to release of MechWarrior 5: Clans coming a few weeks later than expected. However, the reception of the game has been strong, suggesting no change in the expected sales from the game over its full lifetime.
We make limited change to our estimates on the back of the Q3-results as our EBITDA-margin expectation was already below guidance ahead of the results. Our 2024-26E EBITDA estimates are trimmed by 2-3% while our base case is lowered to SEK39 (previously SEK41). The share currently trades at c2x 2025E EBITDA while our base case implies 8x 2025E EBITDA. The main trigger for a higher valuation could likely be updates on the Cold Iron project which we expect to be an important contributor to 2025E EBITDA.
| SEKm | 2022 | 2023 | 2024e | 2025e | 2026e |
| Net Sales | 1,865.9 | 2,045.0 | 1,735.1 | 2,033.0 | 2,491.1 |
| Sales Growth | 11.7% | 9.6% | -15.2% | 17.2% | 22.5% |
| EBITDA | 482.7 | 542.0 | 329.4 | 457.5 | 648.4 |
| EBIT | 395.4 | 427.5 | 218.6 | 313.2 | 461.6 |
| EBIT Margin | 19.3% | 19.7% | 11.4% | 14.3% | 17.2% |
| Net Income | -281.2 | 156.0 | -1.7 | 129.9 | 241.2 |
| EV/Sales | 1.2 | 0.5 | 0.5 | 0.4 | 0.3 |
| EV/EBITDA | 4.8 | 2.1 | 2.8 | 1.8 | 1.1 |
| EV/EBIT | 5.8 | 2.6 | 4.2 | 2.7 | 1.5 |
EG7 reported net revenue of SEK466m and adjusted EBITDA of SEK102m for Q3 2024. This was slightly above our expectations of SEK441m and SEK90m, respectively. The beat was mainly driven by Daybreak which saw better topline and stronger margin than expected. This was partly due to higher-than-expected capitalization for the development of Palia while the company also highlights stable performance from other games in the portfolio. Big Blue Bubble was also slightly ahead of our expectations, and the company reiterates that My Singing Monsters has stabilized at an elevated level and a normal seasonal pattern. As expected, Piranha saw soft performance ahead of the launch of MechWarrior 5: Clans, but still managed to report slightly higher EBITDA than expected. Fireshine saw strong sequential revenue growth driven by among others Core Keeper 1.0, albeit somewhat lower margin than expected. Toadman improved its performance as it adjusted its operations to the softer WFH market while Petrol achieved break-even EBITDA with a continued tough gaming market. The table below summarizes Q3-results outcome compared to our expectations.
Disclosures and disclaimers