Chart1: Selected gaming companies – valuation table:
Observation: The average 2012 PE-ratio for the selected peer group is 18x. The G5 share is currently trading at around 12x. That is despite the fact that it is clearly growing faster than its listed competitors and with a higher profitability.
Chart 2: G5 Entertainment share price versus implied share price using a 12-months forward PE-ratio in-line with sector average of 18x:
Observation: For 2013, we have assumed revenue growth of 90% and an EBIT-margin of 34% with a neutral financial net and an unchanged tax rate. this leads us to an expected 2013 EPS of around SEK 6. Note that even if the market would continue to value the G5 share at the current level of 12x forward looking earnings, we would expect share prices levels north of SEK 70 towards end 2012/early 2013 (red line). If the market was to finally wake up, however, the green line is the one to look at as it shows the G5 share price implied by a 12 months forward looking PE-ratio of 18x (in-line with sector average). As you can see, share price levels of close to SEK 110 seem realistic in that case.
Chart 3: G5 Entertainment- 12 months foward PE-ratio based on management guidance:
Observation: As indicated by the red trendline, there seems to be evidence that the market is slowly but steadily revaluing the G5 share. For a company with the growth and profitability track record of G5, the current PE-ratios of around 12x seem laughable at best.