in Mobile Gaming

G5 Entertainment : Some thoughts ahead of Q1 report

Time for G5 Entertainment to open its books tomorrow, May 16th. As usual, the actual result might play only second role since the company is giving mid-quarter updates on its quarterly and full-year guidance. On April 4th, stated that it expects its Q1 2011 sales to be SEK 9.5m, which was 3% above its previous guidance of SEK 9.2m. At the same time, EBIT is expected to reach SEK 3.9m (11% above previous guidance levels). EPS is forecast to be SEK 0.44. Given the timing of the recent update (i.e. 4 days AFTER the first quarter had ended), we can pretty much consider these numbers as “save”. Given the weakening of the USD during the quarter, there might be some negative FX effects but I do not expect any major deviation.

So the real item to look for is the outlook statement and comments about new game releases including the launch of the first Android-apps. According to the most recent guidance, G5 management is looking for FY 2011 revenues of SEK 45m, an EBIT of SEK 16m and an EPS of SEK 1.90.

While it would certainly be appreciated, I am not sure that managment will decide to increase its FY-guidance already tomorrow. There have been some minor delays with game releases and as mentioned above USD/SEK has moved in an unfavourable way in recent months. On the other hand, Apple reports strong sales numbers for both Iphone and Ipad which is steadily increasing the potential market size. Fundamentally, I am convinced that there is upside to the EPS 1.90 forecast. Only by annualising the Q1 numbers it becomes obvious that the full-year guidance is anything but aggressive: SEK 0.44 x 4 = 1.76 i.e. only 7% below the FY guidance of 1.90. Remember that G5 has a long list of new games to be released throughout the year (80 in total for 2011), which will further increase sales/earning sequentially going forward. Also, the seasonally strongest quarter should normally be Q4 (Christmas), so extrapolating Q1 is conservative to begin with. 

It will be exciting to see what management decides to do with its communication tomorrow. The story seems rock-solid and the share dirt-cheap. I am constantly screening for interesting investments but I still fail to find a risk/reward case that is similarly attractive as G5 Entertainment.

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