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#G5 Entertainment: Comparison with Gameloft reveals potential

The Q2 reporting season is over for the main listed players in the mobile gaming space and we thought it was time to have a look on how our top-pick G5 Entertainment fares compared with one of the segment bellwethers, the French company Gameloft.

In its recently announced report Gameloft stated that it achieved consolidated sales of EUR 55.2 million during the second quarter of 2013, up by 10% from the previous year. On a constant-exchange-rate basis, the second-quarter growth was 12%. EMEA represented 33% of second-quarter sales; North America, 25%; LATAM, 22%; and APAC, 20%.  Over the first half of 2013, Gameloft achieved consolidated sales of €109.4 million, up 15% year on year. On a constant-exchange-rate basis, growth for the first half was 17%. EMEA represented 32% of first half sales; North America, 25%; LATAM, 23%; and APAC, 20%.

 

Sales (€ million)

2013

2012

Variation

1st Quarter

54.2

44.8

+21%

2nd Quarter

55.2

50.4

+10%

1st Half

109.4

95.2

+15%

Gameloft states that sales continue to be driven by the worldwide success of Gameloft games on smartphones and tablets. Gameloft’s first-half sales on smartphones and tablets grew by 45% year on year. They represented 61% of total Group sales compared with 48% in the first half of 2012.  Gameloft’s rapid growth is also driven by the success of virtual goods and advertising which currently account for 80% of the company’s smartphone revenues. The free-to-play model enables Gameloft to reach much larger audiences as well. In the last 30 days, no less than 125 million people have played a Gameloft game on their smartphone or tablet.

Gameloft is optimistic in its outlook comments saying that  the recent and upcoming launches of several potential blockbusters should allow company sales to continue to grow in the coming quarters. Gameloft’s latest release, Despicable Me: Minion Rush, is a major success worldwide. With more than 65 million downloads since its launch last June, Despicable Me: Minion Rush is currently ranked in the Top 10 Grossing of 41 countries on iOS, including the US and the UK.  Gameloft targets between EUR 235 million and EUR 240 million in sales for the full year of 2013 (implying a y-o-y growth of 14%), as well as an increase of profitability and net cash.

The Gameloft share has had a nice run over the last 3 months and is up some 14% over that period, currently trading at around EUR 6,3. Year-to-date the share is up by almost 20%. Gameloft’s current share price implies a PE-ratio of 22x expected 2013 earnings (using consensus estimates from the analysts covering Gameloft).

Gameloft share price

As we have reported before, G5 Entertainment reported consolidated revenue for Q2 2013 is of SEK 21,8m, up 17% compared to the same period last year. Over the first half of 2013, consolidated revenue reached SEK 49,4m, up 37% compared to the same period last year.
Since G5 released its Q2 2013 report, the company has even increased its success of its blockbuster F2P title Secret Society. Last week, the game was ranked as high as #15 top grossing game in the USA on iPad. On Google Play, the game is making real money with top grossing rankings among the top 30 in e.g. France. Furthermore, G5 launched today its next F2P title, Brave Tribe. This is the first of many more to come, as CEO Vlad Suglobov has stated in the past.

Surprisingly, G5 Entertainment’s share price has had a different journey compared with Gameloft in 2013. Over the last 3 months the G5 share is down some 13%, currently trading at SEK 42,8. Year-to-date the share is down closer to 15%. The current share price implies  a PE-ratio of around 12x expected 2013 earnings (Nordic Investor estimates).

As you can see from the table above, G5 is beating Gameloft operationally. Nevertheless, its share has dramatically underperformed Gameloft and is trading at a substantial discount. Applying the same PE-ratio that Gameloft is trading at to G5, implies a fair share price of around SEK 75 for G5 Entertainment, i.e. an upside of more than 75% versus today’s levels.

Such a mispricing is naturally not sustainable in the long-run. Be sure that international investors will jump on the G5 train as soon as the relisting to Nasdaq OMX is done. It’s good to be ahead of the crowd…

Nordic Investor

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2 Comments

  1. jon jordan August 29, 2013 Reply
    • Nordic InvestorAuthor August 29, 2013 Reply

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