Maximum Entertaiment’s Q3-results were weaker than expected owing to a lower than expected topline and a soft gross margin. The company carried out write-downs of EUR13.2m which also impacted negatively, although underlying opex was largely as expected. Cash flow from operations was positive, supported by changes in working capital.

In connection with the Q3-results, Maximum Entertainment also announced that it has breached its loan covenants. This adds further uncertainty around company’s financial position, where it is also in arbitration with the sellers of Maximum Games regarding an earnout payment. On the back of the constrained balance sheet, the company has increased its focus on cash flow generation, targeting cost savings and investments with faster paybacks.

While we believe Maximum Entertainments focus on cash generation makes sense, we have also lowered our estimates as topline growth will likely be somewhat lower than we earlier anticipated. We see potential for the company to continue improving balance between cash flow and investments, and potential divestments could reduce risk for the need of an equity issue. Coming to our valuation range, we leave it under review given the uncertainty around Maximum Entertainment’s balance sheet owing to the covenant breach and the dispute around earnout payments to the sellers of Maximum Games.