G5 Entertainment: Pulling the breaks on Sherlock – ABG

EBIT SEK 1m vs ABGSCe 15m and cons 16m

Estimates on ‘22e-‘24e likely to come down 5-10%

UAC will be back to normal range from August

Q2 details – investments in Sherlock below expectations
Sales SEK 344m (0.9% vs ABGSCe 340m and 0.4% vs cons 342m), EBIT 1m (-93.3% vs ABGSCe 15m and -93.5% vs cons 16m), Net profit -3m (-120.0% vs ABGSCe 13m). Organic growth of -13% vs ABGSCe -9%. Sherlock is now 19.5% of revenue. The growth initiative for the game was successful according to management, but below its optimistic expectations. Because of this, management guided that UAC/sales will be back at the normal range of 17-22% from August. The conclusion from this is negative, but also somewhat expected as we have seen Sherlock not performing as we had hoped initially on data providing platforms. Moreover, licensed games declined 14% y-o-y vs ABGSCe 23%. This mix led to higher cogs and a gross margin of 66% vs ABGSCe 67%. Opex also higher than expected, but UAC in line at 35% of sales. Management also said that it sees user patterns returning to pre-pandemic levels, meaning lower activity during the summer and more of a ramp up during winter.

Consensus estimates
The slower development of Sherlock was somewhat expected, but with UAC/sales now coming down, we think consensus will adjust the expectation for Sherlock going forward and lower ‘22e-‘24e estimates by 5-10% because of this, but also due to slightly higher cogs and opex this quarter.

Conference call at 8:00 CET
There will be a conference call on teams at 8:00 CET where you will be able to ask question to management. Link the to the call: https://g5e.zoom.us/j/82742507734

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