- We see similarities to the successful period in 2019
- Majority of ’22e revenues already live or signed
- Can now put more focus on long-term strategy
High potential from new game signings
September was successful for Flexion in terms of new game signings, with three new top-tier titles signed. In addition, the company also signed top-tier title Evony in August. These four titles offer combined monthly revenue of USD 39m, according to data from Sensor Tower. The latest game signing (generating monthly revenues of USD 17m) included distribution rights for Amazon, Samsung and Xiaomi, which dampens the overall potential slightly as Huawei is excluded. We see clear similarities to the successful period in the beginning of 2019 when the company signed three top-tier titles in a short period of time. For comparison, those three games generated USD 20m in monthly revenues when they were signed. It usually takes 1-2 years before newly signed games start to have a material impact on revenues, which is why we believe Flexion will benefit from the recent game signings in ’22e and ’23e.
Large revision to estimates from the latest deal
The deal that was communicated on 20 September, which included six existing titles and a new one, has a substantial impact on our estimates as Flexion bought the right to distribute the games for USD 9m with an agreed level of return that is unknown to us. We think it is in the region of USD 11m-12m and the investment will be recognised as an intangible that will be amortised during the two-year contract period. In addition, returns from the project will be recognised from a higher revenue share for the aforementioned games, which is why we believe the gross margin will improve greatly in ’22e-’23e. In total, we raise our sales estimates by 3-8% for ’22e-’23e and our EBIT estimates by 49-63% for the same period.
DCF valuation range SEK 17-29 (17-28)
We also raise our DCF valuation range somewhat to SEK 17-29 (17-28), as the estimate upgrade is offset by higher long-term opex assumptions. We think the revenue visibility has improved greatly after recent game signings and Flexion can now put more focus on its long-term strategy.
Financial Snapshot (ABGSC Estimates)
| GBPm | 2020 | 2021e | 2022e |
|---|---|---|---|
| Sales | 21 | 33 | 47 |
| Sales growth (%) | 146,8 | 59,3 | 42,5 |
| EBITDA | 0 | 0 | 6 |
| EBITDA margin (%) | -0,1 | 1,1 | 12,3 |
| EBIT adj | -1 | 0 | 2 |
| EBIT adj margin (%) | -6,2 | 0,2 | 4,7 |
| Pretax profit | -1 | 0 | 2 |
| EPS rep | -0,03 | 0 | 0,04 |
| EPS growth (%) | 38,2 | 95,6 | 3456,7 |
| EPS adj | -0,03 | 0 | 0,04 |
| DPS | 0 | 0 | 0 |
| EV/EBITDA (x) | -2660,9 | 158,5 | 10 |
| EV/EBIT adj (x) | -62,5 | 827,4 | 26,1 |
| P/E (x) | -74,9 | -1149,1 | 34,2 |
| P/E adj (x) | -74,9 | -1149,1 | 34,2 |
| EV/sales (x) | 3,9 | 1,7 | 1,2 |
| FCF yield (%) | 1,7 | 0,6 | 7,8 |
| Dividend yield (%) | 0 | 0 | 0 |
| Net IB debt/EBITDA | 409,7 | -38,5 | -2,4 |
| Lease adj. FCF yield (%) | 1,7 | 0,6 | 7,7 |
| Lease adj. ND/EBITDA | 414,7 | -44,5 | -2,4 |
Original post: Introduce