Our top-pick G5 Entertainment is due to report its Q3 2012 results on Thursday, November 15th. As usual, the actual numbers are already known, due to the company’s strategy to publish preliminary numbers a few days after the end of each quarter. Deviations from these preliminary numbers are usually small so we expect a similar pattern this time around.
On October 2nd, G5 Entertainment announced preliminary Q3 2012 revenues of SEK 23.9m and EBIT of SEK 6.6m, which implies an EBIT margin of 27.5% during the quarter. This is basically in-line with the margin achieved during Q3 2011, amid estimated revenue growth of 98%. The company also kept its FY 2012 target of revenues of SEK 87m and EBIT of SEK 30m (and indirectly also the EPS guidance of SEK 3.20 for FY 2012). G5 also reiterated its longer term target of revenues of SEK 300m and EBIT of SEK 100m, with growth rates around 90% going forward. This positive picture was also reiterated at the Stockholm presentations two weeks ago by CEO Vlad Suglobov.
So far so good. While we continue to be intrigued by the G5 case and consider it to be fundamentally undervalued at current levels, we do believe that a word of caution is in place ahead of Thursday. The share price is up more than 35% over the last month and we fear that there might some investors out there who bought on wrong expectations, i.e. expecting any major positive news in connection with the Q3 report. We do not expect this to happen.
On the contrary, those of you who follow our regular ranking checks might have noticed that the recent trend in the overall rankings of G5 has been declining somewhat, i.e. Q4 has started on a softish note (see our most recent ranking check: http://nordicinvestor.net/2012/11/11/g5-entertainment-ranking-check-13/). Again, we are by no means counting out that G5 will achieve its FY 2012 targets, boosted by strong device growth during the quarter (iPad Mini, iPhone 5 etc.). Also, December is the most important month of Q4 so it is far too early to make such an assumption. However, we want to highlight that we do not expect any major positive comment this Thursday, given the recent trends.
That said, any weakness on the reporting day could be used to increase the position further.