G5 Entertainment: New games supports improved growth
Research Update
2023-11-10
07:33
Redeye updates on G5 following the company’s Q3-results which came in lower than expected. The year-end outlook was somewhat softer than expected as well, however, we still expected growth to improve in 2024-25E on the back of new game releases, albeit from a lower base.
Hjalmar Ahlberg
Tomas Otterbeck
G5’s Q3-results came in below expectations with revenue around 3% lower than forecasted while EBIT was significantly lower owing to a write-down. However, adjusted for the write-down EBIT was close to our forecasts owing to a solid gross margin and stable opex. Looking into Q4, G5 expects stable performance with some upside from positive seasonality.
G5 continues to expect to launch in Q4 2023 which should support improved growth looking into 2024. The company also reiterates its target of 1-2 global game launches annually, supported by a development portfolio with 8 games in soft launch phase, suggesting potential for better longer-term growth as well.
With G5’s Q3-results coming in lower than estimated and the Q4 outlook being somewhat softer than forecasted we have lowered our 2023E revenue and EBITDA with 2-3%. We also have slightly lowered our growth assumptions for 2024-25E. With a lower revenue base for 2023 our 2024-25E revenue and EBITDA are down 5-7%. While our long-term assumptions are unchanged our base case is lowered to SEK385 (SEK415) on the back of increased assumptions for the risk-free interest rate.
| SEKm | 2021 | 2022 | 2023e | 2024e | 2025e |
| Revenues | 1,315.7 | 1,400.1 | 1,335.1 | 1,358.6 | 1,421.7 |
| Revenue Growth | -3.0% | 6.4% | -4.6% | 1.8% | 4.6% |
| EBITDA | 349.4 | 318.3 | 305.4 | 324.4 | 355.9 |
| EBIT | 216.1 | 167.0 | 135.8 | 154.3 | 177.4 |
| EBIT Margin | 16.4% | 11.9% | 10.2% | 11.4% | 12.5% |
| Net Income | 198.2 | 66.9 | 150.8 | 138.8 | 155.2 |
| EV/EBITDA | 9.2 | 4.9 | 2.8 | 2.3 | 1.8 |
| EV/EBIT | 14.9 | 9.4 | 6.4 | 4.9 | 3.6 |
| P/E | 16.9 | 11.2 | 8.0 | 8.7 | 7.8 |
| Dividend Yield | 1.8% | 3.8% | 6.0% | 6.7% | 7.3% |
G5 reported revenue of SEK327m which was 3% lower than our forecast of SEK338m. Revenue from G5 store continued to grow with a 20% sequential increase from Q2 2023 and it now represents 12% of revenue (up from 10% in Q2 2023 and 5% in Q3 222). The mix of own games and third party games remained stable at around 71% and together this supported a strong gross margin which came in at 68.1% while we forecasted 68.0%.
Disclosures and disclaimers