Stillfront: Focus on organic growth and cash flow
Research Update
2023-02-17
07:11
Redeye updates on Stillfront following the company's Q4-report which saw stronger EBITDA than expected while revenue was softer than expected. The company also issues new financial targets with focus on organic growth and cash flow generation.
Hjalmar Ahlberg
Danesh Zare
Stillfront reported revenue of SEK1,781m in Q4 which was 4% below our forecast of SEK1,855m. The company met a tougher marketing environment than expected which led to lower UA spend than normal. This resulted in lower growth but also strong profitability where EBITDA came in 8% above our expectations. Coming to the outlook for 2023, the company expects to return to positive organic growth in H2 2023.
In connection with the Q4-report, Stillfront also held a CMD and launched new financial targets where the focus is on organic growth and cash flow generation. In summary, the company targets organic growth above market supported by selective and accretive M&A while it aims to achieve an EBITDAC-margin (EBITDA less capitalised development costs) of 26-29% (in 2022 the EBITDAC-margin was c23%).
While we view Stilfront's new financial targets positively, we have also lowered our assumptions on the back of a lower-than-expected growth outlook resulting in 2023-24E EBITDA coming down 4-7%. We have also updated our rating on Stillfront resulting in an increased discount rate which together with the lower estimates yields a new base case of SEK33 (SEK45).
| SEKm | 2021 | 2022 | 2023e | 2024e | 2025e |
| Total Revenue | 5,456.0 | 7,057.0 | 7,232.0 | 7,652.8 | 8,100.3 |
| Revenue Growth | 36.7% | 29.3% | 2.5% | 5.8% | 5.8% |
| EBITDA | 2,125.0 | 2,595.0 | 2,708.5 | 2,906.5 | 3,084.7 |
| EBIT | 1,804.0 | 2,004.0 | 1,949.0 | 2,102.3 | 2,235.6 |
| Net Income | 597.0 | 546.0 | 570.7 | 760.7 | 860.7 |
| EV/EBITDA | 10.4 | 4.8 | 4.8 | 4.0 | 3.2 |
| EV/EBIT | 12.2 | 6.2 | 6.7 | 5.5 | 4.5 |
| Organic growth | -7.8% | -1.6% | 0.4% | 5.8% | 5.8% |
| Adj EBITDAC | 1,504 | 1,599 | 1,768 | 1,950 | 2,113 |
| Adj EBITDAC margin | 27.6% | 22.7% | 24.5% | 25.5% | 26.1% |
Stillfront reported revenue of SEK1,781m for Q4 2022 which was somewhat lower than our forecast of SEK1,855m. Looking at the performance per game segment, Simulation, Action & RPG was close to our expectations while Strategy and Casual & Mash-up were below our forecasts. However, this should also be seen with regard to UA costs which were lower than forecasted where the company comments that the marketing landscape in Q4 was more difficult than expected.
On EBITDA, the company reported SEK672m (EBITDA-margin of 38%) compared to our forecast of SEK622m (EBITDA-margin 34%). The background for the stronger than expected EBITDA was mainly due to the lower than expected UA costs (coming in at SEK439m vs our forecast of SEK532m) while gross margin was in line with our forecast. Reported EBIT came in lower than our estimate due to a one-off amortization relating to developed games with a shortened economic lifetime.
Disclosures and disclaimers