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G5 Entertainment: Reiterates 2012 targets

G5 Entertainment reported its result for FY 2011 this morning and as usual, the surprise element of the report itself was limited. However, there were slight deviations compared with the mid-quarter update given by the company in early 2012:

Consolidated revenue for FY 2011 is SEK 46m, up 101% compared to SEK 23m for FY 2010. This was 2% below the previously communicated forecast of SEK 47m. Operating result for the period is SEK 17m, up 93% compared to SEK 8.8m for 2010. This result was 3% above the previously communicated forecast of SEK 16.5m. Earnings per share for the period are SKE 1.72, 9% below the previously communicated forecast of SEK 1.90.

According to the company, the discrepancy of 2011 EPS compared to the forecast is due to the group’s international structure with different tax rates in different jurisdictions, coupled with multiple game projects, studio contracts, and royalty arrangements. Such structure makes it difficult to predict the distribution of profit between jurisdictions and provide accurate EPS guidance. Going forward, the management will be more conservative in its EPS guidance. However, EPS guidance for 2012 remains unchanged at SEK 3.2.

During 2011, the group had positive cash flow of SEK 12.5m . Cash reserves on December 31st 2011 amounted to 17.5m. We think it is great to see that G5 continues to invest heavily in game development – exactly what is needed to maximize the potential of the smartphone and tablet markets. Following the share issue to Traction in Q3 2011, the company has put the money to work, as promised. Management reiterates its ambition to maintain the balance between having sufficient cash reserves, profitability, and actively investing for future growth.

Outlook:

  • For the period January-March 2012, the management forecasts revenue of SEK 16m with an EBIT if SEK 5m, which imply a year-over-year growth of 68% and 28% respectively.
  • The management confirms the previously announced goal for the period January-December 2012 of SEK 87m revenue and EBIT of SEK 30m with an EPS of SEK 3.2.
  • The management will update the forecast for the period of January-December 2012 in Q1 report due on 15th May 2012.

Conclusion:

The G5 story is intact and the share is dirt cheap. Following the steep share price increase in early 2012, we are not surprised to see a sell-off today as people are taking profits and others had probably false hopes of a target increase for 2012. At a 12-months forward PE-ratio of around 13x, the G5 share is a bargain.

Nordic Investor

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