G5 Entertainment: Weaker margins as it tries to stabilise sales - ABG
* EBIT SEK 2m vs FactSet consensus 12m * Sales declined 9% in USD terms, and DPS cut to SEK 2 (8) * We think estimates could come down 15-20%; CC at 8:00 CET
ANNONS
Q4 results
Sales were SEK 221m (-11% vs ABGSCe 249m and -9% vs cons 244m), -21% y-o-y whereof -9% in USD terms. On a sequential basis, sales in USD declined 2% q-o-q. EBIT adjusted for FX effects was 2m (-88% vs ABGSCe 15m and -84% vs cons 12m). Net profit -2m (-114% vs ABGSCe 15m and -120% vs cons 11m). FCF -27m (20m last year). The weaker profitability was partly explained by higher user acquisition costs, as communicated before, related to stabilisation attempts for Sherlock and Hidden City as well as testing for Twilight Land. However, after Q4, Twilight Land has been put in harvest mode, meaning the company will not try to scale it any more. But the company has another title that has been progressing well which management is optimistic about. The game is now in the final stages of scalability testing.
Outlook and preliminary estimate changes
Management expect marketing to remain at the higher end of its target (17-22% of sales) as it tries to stabilise the core portfolio and likely starts scaling the new game which it stated will enter early soft launch in Q1. Because the company is in an investment phase currently, while sales are falling both organically and through FX, we think consensus could cut 2026-2027 EBIT by 15-20%.
Final thoughts
The report was on the weak side. The dividend was also cut to SEK 2 per share (8) due to the ongoing investment phase and lower earnings (the company maintains a payout ratio of ~50%). On the other hand, G5 Store continues to grow and could soon start having a meaningful impact on the group as the company starts onboarding external game developers to the platform. 23% of sales were generated through G5 Store in Q4 (16%). The share has held up relatively well recently (-9% YTD) compared to Mobile peers (MTG -23%, SF -30%) and is trading at 4x EV/EBIT and 7x adj. P/E on our unrevised 2026e, but we expect a negative reaction on the report.
