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#G5 Entertainment: Share looks cheap

newlogoOn September 17, 2013, Glu Mobile a leading global developer and publisher of free-to-play games for smartphone and tablet devices, announced the closing of an underwritten public offering of 7,245,000 shares of its common stock at $2.10 per share for gross proceeds of $15.2 million.

Glu received net proceeds of approximately $14.0 million from the sale of common stock, after deducting the underwriters` discounts and other estimated offering expenses. The net proceeds from the offering will be used for working capital and other general corporate purposes, which may include growing Glu`s publishing business, further investment in the GluOn games-as-a-service technology platform and the acquisition of, or investment in, companies, technologies, products or assets that complement Glu`s business.

Glu Mobile’s share is currently trading at USD 2.35, implying a PE-ratio of 47x expected 2014 EPS. That is if one uses the highest estimate in the market right now. On average, analysts following Glu Mobile expect them to report a loss of USD 0.23 per share in 2013 and a loss of USD 0.08 per share in 2014.  Glu has been struggling for a while to turn its business profitable despite numerous attempts to improve monetization etc. This is in sharp contrast to G5 Entertainment, which has been profitable all the time. Nevertheless, G5 Entertainment’s share trades at a meager PE-ratio of around 12x 2013 earnings. We believe this is mainly due to its listing on Swedish niche list “Aktietorget”, which makes its impossible for most investment funds to invest in the company. Furthermore, it is extremely difficult for any non-Swedish entity to buy shares in Aktietorget-listed companies. Thankfully, all this is about to change in the near future as G5 will implement its previously announced move to Nasdaq OMX.

For a quick overview of what multiples are paid for (mobile) gaming exposure, have a look at our peer group valuation table:

G5peergroupvaluation

 

 

 

 

 

All gaming companies want to become more “mobile”. Industry giants such as EA and Gameloft are putting more and more resources into their mobile business. Naturally, their growth rates cannot keep up with pure mobile plays like G5 Entertainment. Nevertheless, their shares are trading at higher PE-multiples right now, which is wrong. We believe the G5 Entertainment share will not remain unnoticed, once it is freely “investable” for everybody. A valuation in-line with the industry average should therefore be only the first step in an upcoming revaluation of the G5 share. Applying average industry PE-multiples to G5 would imply a fair share price of around SEK 76 – 82.

Nordic Investor

 

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