G5 closed 2021 on the weaker side, with a miss on both sales and EBIT, and a cautious outlook for growth in 2022. Sales was SEK 325m (-2.6% vs. ABGSCe and -2.5% vs. Infront consensus), with organic growth of -6%. The sales miss was mainly driven by the weak performance of Hidden City. Management said that this underperformance vs. its usual pattern will likely continue in coming quarters, which we find somewhat negative. New-generation games, meanwhile, continued to grow rapidly at +26% in Q4, but this remains a meaningful slowdown from +36% in Q3. New generation games contributed 52% of Q4 sales, up from 40% a year ago. EBIT of SEK 57m was 16% below ABGSCe and 7% below consensus. The miss was largely explained by investments in the G5 store, sales/marketing and R&D. The EBIT margin rose 1.9pp y-o-y to 17.4%, driven by a sales mix more tilted towards own games and lower store fees (Q4’21 was the first quarter where we saw the full effects of lower fees in the Microsoft store). The gross margin increased 6.4pp y-o-y to 65.3%. Due to the higher investments as well as higher D&A in the quarter, we did not see the full effect of this on EBIT, but we expect more of the higher gross profit to convert to EBIT in coming quarters.
We cut ’22e-‘23e EBIT by 4%-3%
We cut ‘22e-‘23e sales by 2%-4% and EBIT by 4%-3% on this report. Given the current state of Hidden City, we think the outlook for organic growth in H1’21 looks weaker than before. We note, however, that Hidden City can be unpredictable, and we cannot rule out a significant rebound from here, warranting upside to our estimates.
7.5x ‘22e EBIT and a 9% FCF yield
The share is now trading at 7.5x ‘22e EBIT and a 9% FCF yield on our new estimates, and we expect a 14% EPS CAGR ’21-‘24e. We also take a positive view on...
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