G5 Entertainment reported this morning FY 2012 numbers that were a notch better than the preliminary numbers it had guided for in early January. Revenues came in at SEK 81m, EBIT at SEK 25.8m and EPS at SEK 2.77. This compares to the preliminary figures of SEK 80m, 25m and 2.70 respectively. More importantly, the final numbers imply a 74% growth in revenues and 56% growth in EPS.
As we have written about in our regular ranking checks, 2013 has stated very well for G5. Management says today that with the start of the holiday period in December, the group’s daily sales grew 60% from pre-holiday average, when comparing two weeks before and after the start of holidays. The increased level of daily sales continued into January and February 2013. Management believes that Q1 2013 is going to be record for the group, and expects year-on-year growth in Q1 2013 to be in-line with historic 2010-2012 levels. Historic 2010-2012 levels have on average been significantly above 80% but to be prudent we conservatively use a y-o-y growth rate of 80% which would leave us with Q1 2013 revenues of around SEK 31m.
Cash flow was a negative SEK 6.2m in Q4 as G5 continued to invest heavily into new games. Given the growth potential this seems to be the only rational thing to do and is, in our opinion, positive and very necessary. Capitalized development costs as percentage of sales were at 54% which is the highest level so far and another sign of the high rate of product launch.
In the report, management states that G5 now has contractual relationships with over 80 game development studios from around the world. These studios are supplying casual and free-2-play games that G5 is going to publish, in addition to games developed internally by G5. Management also states that “as the market of smartphones and tables goes from strength to strength, the management aims to eventually achieve revenue of SEK 300m with operating result of SEK 100m, while keeping the growth at historic 2010-2012 levels.” Simply doing the math and assuming growth of 85% in 2013 and 2014, G5’s revenues would end up at SEK 277m already in 2014.
Elsewhere, G5 states that it plans multiple regular updates during 2013 for its free-2-play games. Interestingly, as part of the updates, the management plans to roll out social features. The group is also working on a number of new free-to-play games to be released during 2013 and 2014. We hope that this also includes Google Play versions.
In the meantime, G5 Entertainment’s share remains the by far cheapest in the mobile gaming space, despite the fact that it is one of only two pure plays on mobile gaming and by far outgrowing every other listed gaming company. Applying peer group valuation multiples to G5’s earnings potential, share price levels of around SEK 80 seem reasonable. We continue to believe that this will materialize once the share will be listed on Nasdaq OMX during 2013.