• New channels are starting to contribute
  • Six new games signed in three months
  • Positive revisions, both short and long term

Q1 20/21e: Preliminary sales of GBP 4.8m, up >150% y-o-y
Flexion Mobile released preliminary sales figures on 15 July for its Q1 ‘20/’21 that indicated sales of GBP 4.8m (1.9m) for y-o-y growth of 154%. This is GBP 0.6m above ABGSCe. The positive momentum is driven by COVID-19, which has led to an increase in mobile gaming. However, we do not think this will only be a short-term boost, as Flexion’s new distribution channels, Huawei and Xiaomi, are starting to contribute to an increase in revenue per game in the portfolio. In addition, the pandemic has increased the awareness of alternative distribution methods for game developers outside iOS and Google Play, which seems to have benefited Flexion, as the pace of new game signings has increased. In the last three months, Flexion has signed no less than 6 new games, which is 50% of its yearly target. The majority of these have also been classified as top-tier, as defined by the company, which have a greater revenue potential than mid-tier games.

Yearly target of 12 new games, 50% signed in 3 months
We argue that the short-term boost in revenues will have a lasting effect long term, as it has led to an increased pace of new games signings, for example. For ‘20/’21e, we raise our sales estimates by 13% given the positive deviation in Q1 and given that new game signings have exceeded our expectations. Long term, we raise our sales estimate by 4-3%. On our current estimates, Flexion will reach breakeven in Q4 ‘20/’21, which is two quarters earlier than we previously anticipated.

Increasing our DCF valuation range to SEK 11-19 (9-16)
The current momentum is also reflected in our DCF valuation range, which we have raised to SEK 11-19 (9-16) per share on higher sales and an earlier breakeven. The share has been strong of late and is trading at SEK 14.8 per share, outperforming OMXSTHPI by over 50% in the last three months.

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GBPm 2019 2020e 2021e
Sales 9 18 28
Sales growth (%) 47,5 89,1 55,4
EBITDA -2 -1 1
EBITDA margin (%) -18,2 -3,2 2,4
EBIT adj -3 -1 0
EBIT adj margin (%) -30,6 -5,7 0,4
Pretax profit -3 -1 0
EPS rep -0,06 -0,02 0
EPS growth (%) -54,8 61,7 105,3
EPS adj -0,06 -0,02 0
DPS 0 0 0
EV/EBITDA (x) -15,2 -96,8 84,9
EV/EBIT adj (x) -9,1 -54,6 554,2
P/E (x) -10,2 -53,1 994,6
P/E adj (x) -10,2 -53,1 994,6
EV/sales (x) 2,8 3,1 2
FCF yield (%) -6,6 -1,7 0,5
Dividend yield (%) 0 0 0
Net IB debt/EBITDA 1,5 2,9 -2


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Original post: Introduce