We expect sales of SEK 333m in Q4’21, for a y-o-y growth of -0.5% (+0.5% organic and -1% from FX). Breaking down the sales, we expect that Hidden City has continued to lose ground in Q4, but with new generation games making up the lost ground. The flagship title Sherlock as well as the Jewels of series seems to have continued performing well, but not enough to produce growth at the group level in the quarter. We expect to see the full effects of the lower platform fees in Q4, strengthening the gross margin to 64.8% (1.3pp increase q-o-q). In addition, we expect UA spending to sales of 21%, in line with guidance. As a result, we forecast Q4’21 EBIT of SEK 67m (+29% y-o-y), for an EBIT margin of 20% (+4.6pp y-o-y).
Estimate revisions
As Hidden City performed below our expectation in Q4, we have cut Q4’21e sales by 6% and FY’21e sales by 2%. In addition, due to a change of analyst, we have reviewed our ‘22-‘23 forecasts. As a result, we cut ‘22e-‘23e sales by 7% and 11% respectively. We now forecast a ‘21e-’23e organic sales CAGR of 8%.
New fair value range: SEK 330-600 per share
Due to the estimate revisions and a revaluation of our DCF inputs and target multiples, our fair value range is now SEK 330-600 (390-710). The range implies ‘22e EV/EBIT of 8x-16x. The company is transforming from licensed to in-house developed games, which in addition to being margin accretive should also reduce risk. It is now at an inflection point where the fast-growing new generation games make up the majority of revenue, something we find encouraging. At 7.6x ‘22e EV/EBIT, the G5 share is trading 20% below mobile gaming peers with similar growth outlooks.
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