Mobile gaming developer and publisher G5 Entertainment announced its preliminary Q3 2013 sales number. At slightly below SEK 22m, sales declined by some 9% compared with Q3 2012. We knew that the comparison base was a tough one, since Q3 2012 was boosted by an extra-ordinary performance of Virtual City Playground, but the decline comes nevertheless as a negative surprise given the successes that Secret Society has had during Q3 2013. The game has had top grossing positions both on iPad, Google Play and recently also on iPhone, but still it was apparently not enough to offset the subdued development for G5’s unlockables portfolio. It has become very obvious now that the company cannot only rely on its blockbuster game Secret Society if it wants to keep growing. We hope to see more of the promised free-to-play games sooner rather than later. The recently launched title “Brave Tribe” has so far not managed to monetize well. It also needs to be noted that the USD has been very weak during Q3 2013 and we believe that around 5 percentage points of the y-o-y decline could have been related to the weak dollar.
All that said, the G5 Entertainment share has been hammered in recent weeks and months and is down by more than 30% compared with its high. The current share price levels of around SEK 39 do not give the company any credit whatsoever and do, in our opinion, not factor in the relisting to Nasdaq OMX which is just around the corner. Despite the weak Q3 numbers, an 2013 EPS of around SEK 3 is still within reach, implying a PE-ratio of around 13 on this year’s earnings. This seems hardly fair for a fast growing company such as G5. Yes, we saw a decline in Q3 but that was due to the tough comparison base. For the full year 2013, G5 is still on track to grow by around 2o%.
We see many positive triggers for the G5 Entertainment share in the coming weeks with the most important one being the relisting. The IPO of King is another event that should turn investors focus on the mobile gaming sector which should further highlight that G5 is undervalued compared with sector peers. Last but not least, new titles are in the pipeline and hopefully some of them will turn into “Secret Society like” earners for the company. That option as such should be worth something as well.