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Rovio valuation indicates huge potential in G5 Entertainment

Last weekends’ edition of the Swedish magazine “DI Weekend” featured an article about Rovio, the guys behind Angry Bird. I haven’t had the time to share a quick reflection with you, until now.
According to a recent report by Bloomberg, Rovio is in the process of a fundraising round that would value the company at USD 1.2bn. According to a Finnish newspaper, Rovio’s Q1 2011 revenue was around USD 20m. Annualizing this number gives us a revenue figure of USD 80m for 2011. In order to be nice to them, we assume they will achieve some sequential growth during the year and achieve revenues of USD 100m. Assuming that there is no debt in the company this gives a EV/ Sales multiple of 12x.

Applying this EV/Sales multiple on G5 Entertainment’s current sales guidance for 2011 of SEK 47m we get an enterprise value of around SEK 560m. Adjusted for the net cash position of around SEK 7m (as of end Q2) we get a justified market cap of SEK 567m, i.e. SEK 71 per share (240% upside to current levels)!

I am not saying that we’ll see G5 trading at these levels tomorrow but it clearly highlights the upside potential in this case. G5 is more profitable than Rovio, grows faster and has a broader portfolio versus the one-hit-wonder from Finland.

What is your opinion? Let us know