stillfront - amazon s3 · 3/2/2020 · migrating to goodgame performance marketing is intense....

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Update

Equity Research 2 March 2020

KEY STATS

Ticker SFRG.ST Market Nasdaq

Share Price (SEK) 421.5 Market Cap (MSEK) 13109 Net Debt 20E (MSEK) 1234 Free Float 73 %

Avg. daily volume (‘000) 120

BEAR BASE BULL 310.0

545.0

680.0

KEY FINANCIALS (SEKm)

2018 2019 2020E 2021E 2022E 2023E Net sales 1325 1966 3320 3984 4462 4908 EBITDA 473 741 1389 1682 1939 2157 Adj. EBIT 397 645 1163 1389 1608 1786 EBIT 348 517 838 1076 1296 1473 EPS (adj.)

2018 2019 2020E 2021E 2022E 2023E EPS (adj.) 6.6 10.7 18.5 23.8 29.3 34.0 EV/Sales 3.4 6.6 4.4 3.7 3.2 2.9 EV/EBITDA 9.5 17.4 10.5 8.7 6.9 5.6 EV/EBIT 13.0 25.0 17.5 13.7 11.1 9.5 P/E 26.4 34.9 22.8 17.7 14.4 12.4

ANALYSTS

Kristoffer Lindström [email protected] Tomas Otterbeck [email protected]

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OMXS 30 Stillfront

Market Turmoil Hedge

Redeye again raise estimates and valuation on Stillfront following strong, yet in-line Q4’19

performance, and reiterate our positive stance on the stock. In particular, we believe the

market has yet to fully grasp the potential of the Storm8 and KIXEYE acquisitions which,

characteristically, we think may drive positive earnings surprises for in the year ahead. We

see a limited effect of a virus outbreak on Stillfront’s business. In China, demand for

gaming apps has surged. We see Stillfront as a hedge against the recent market turmoil.

Spot on projections & Storm8 joins the Group

Both the top-line and Adjusted EBIT came in almost precisely as our forecast. All in all

Stillfront broke new records during the quarter. On the 21st of January, Stillfront Group

announced that they are acquiring Storm8, and thus enters the casual segment of the

mobile games market. We view the deal as yet another value-adding acquisition.

Underappreciated earnings-power

We find that the market underappreciates the current earnings of Stillfront, as it's hard to

grasp the "roll-up" of both KIXEYE and Storm8. We assess that the current annual

underlying EBIT of the Group stands at about SEK 1 260m or 96% higher than the LTM

(Last-Twelve-Month) level of SEK 645m. Current market valuation implies an EV/Underlying

Adj. EBIT of 10x, far below a fair multiple for a company of Stillfront's caliber and quality.

Gaming as a hedge to market turmoil

No one has missed the last few weeks of market turmoil as an effect of fear from the

Coronavirus outbreak. The Stillfornt share has, just like almost all stocks, taken a hard hit.

Data from China suggest that the demand for entertainment increases as people stay at

home; we believe the pattern would be the same for the rest of the world. We find that a

pandemic should have minimal effect on Stillfront’s long-term business fundamentals, and

therefore we view the share price drop as unmotivated.

Valuation

Stillfront is trading at about 10x the underlying Adj. EBIT, which we estimate at about

SEK1.26bn, which we find is too low for a company like Stillfront. Our new Base-case

amounts to 545 (520) SEK per share, which translates to about 14-15x multiple on

underlying Adj. EBIT. The market usually initially underappreciated the acquisitions that

Stillfront conducts, and we find that it is also the case for KIXEYE and Storm8.

Stillfront Sector: Gaming

REDEYE RATING

SFRG.ST VERSUS OMXS30

FAIR VALUE RANGE

Financials

People

Business

REDEYE Equity Research Stillfront 2 March 2020

2

Gaming as a hedge to market turmoil No one has missed the last few weeks of market turmoil as an effect of fear from the

Coronavirus outbreak. The Stillfornt share has, just like almost all stocks, taken a hard hit. We

do by no means have any expertise in determining the risks with the Coronavirus, but we do

find that a pandemic should have minimal effect on Stillfront’s long-term business

fundamentals, and therefore we view the share price drop as unmotivated.

Data from China suggest that the demand for entertainment increases as people stay at

home; we believe the pattern would be the same for the rest of the world.

Value chain function Effect Comment

Supply (content creation)

Content is created in Stillfront’s games and sold through IAP. We see a minimal effect on content creating and game development side due to a virus outbreak.

Demand

If people stay more at home, they need something to do with their time, and mobile games will then see a surge in demand. The app downloads have surged in China as an effect of the corona outbreak there. We would even dare to say that the demand for mobile games would go up if there is a massive virus outbreak.

Distribution

Stillfront’s games are distributed through the large app and social platforms and their own websites. The distribution is not affected in any way by a virus outbreak.

Total effect

As Stillfront is a digital company, we see a minimal effect on both the supply (content creation) and distribution side due to a virus outbreak. On the demand side we would expect to see a slight increase if people choose to stay at home more. All in all, we view the share price drop as detached from the fundamentals of the business and see an increasingly attractive valuation.

Surge in entertainment apps in China

China is the country that have been hit hardest by the virus. One clear trend seen in China is

that the downloads for popular gaming apps have surged as people stay at home due to virus

concern. More than 22 million downloads were registered in Apple’s App Store in China

during the week of February 2, according to App Annie, and average weekly downloads during

the first two weeks of February were up 40% over the same time last year.

Capital flows and fear is driving the market at the moment

The main driver behind the decline is capital outflows from institutional fonds, and Stillfront

have many institutional owners plus a reduced risk appetitive in general from investors. In

other words, the drop in the share price is unmotivated and creates opportunity for the long-

term investor. In the short-term the demand for games might go up if the virus continues to

spread and people stay more at home.

dsfdsf REDEYE Equity Research Stillfront 2 March 2020

3

Right on estimates

Stillfront Group’s Q4 was yet another quarter with a record level of revenue and earnings.

Both the top-line and Adjusted EBIT came in almost precisely as our forecast. Looking a bit

underneath, we had expected a little higher deposit within Core Products. Nida Harb a small

sequential decline, which was due to seasonality effects. We also thought that the impact

from KIXEYE synergies would be slightly more significant, as we understand it, the work with

migrating to Goodgame performance marketing is intense. There will be more substantial

effects during H1’20. The Big brands showed robust growth on an annual and sequential

basis, thanks to a strong return on marketing campaigns.

The Adjusted EBIT came in at SEK 177m, precisely as our forecast. The continued healthy

margins, despite a ramp-up in UAC, indeed shows the operational leverage and efficiency of

the company.

On the Group as a whole, the deposits rose to SEK 537m a yearly increase of 49%, with UAC

grew by 41%. The uptake in deposits was both driven by a rise in MPUs, which showed an

annual increase of 28%, and ARPMPU grew by 16%. As such, we see the growth as robust,

both supported by more users and improved monetization.

High cash-conversion continues

Stillfront continues to show a steady cash-flow. During Q4, the cash-flow from operations

amounted to SEK 148m, an almost 200% increase from last year. The cash-conversion, from

Adj. EBIT amounted to nearly 84%. Despite significant growth investments, the operating

cash-flow during the year amounted to SEK 484m and a 120% increase from 2018.

Stillfront: Estimate vs outcome

MSEK Q4'18 Q4'19A Q4'19E Dif.

Net sales 366 551 567 -3%

of w hich Empire brand* 154 154 154 0%

Big farm brand 70 94 91 3%

Core Products 141 303 321 -5%

UAC -76 -107 -99 8%

Other OPEX -93 -195 -193 1%

Personnel costs -65 -111 -108 3%

D&A -32 -69 -51 35%

EBIT 123 135 177 -24%

Adj. EBIT 177 0%

Revenue growth rate 51% 55%

EBIT-margin 34% 25% 31%

Adj. Margin 32%

Source: Redeye Research, Stillfront Group

*Deposit and revenue split assumed the same

Deposits (mSEK) UAC (mSEK) MPU (ks) ARPMPU (SEK)

537 107 236k 756

49% 41% 28% 16%

KPIs Stillfront Group


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Mega acquisition of Storm8 On the 21st of January, Stillfront Group announced that they are

acquiring Storm8, and thus enters the casual segment of the mobile

games market. We view the deal as yet another value-adding

acquisition. First and foremost, we strongly suggest a reader/investor

to visit Stillfronts IR page where they have an excellent presentation of

Storm8 and the rationale behind the deal. There we can also see some

KPIs and user statistics for Strom8’s game portfolio. Link.

Storm8 was founded in 2009 and has produced USD +1bn in life-time gross revenue with

over one billion in downloads of their games. During the last twelve months (LTM), Storm8

generated net sales of SEK 1 101m, growing annually by 28%, with an EBIT of 588m (53%

margin). The two biggest titles are Home Design Makeover! And Property Brothers Home

Design. Storm8 also has a significant part of its revenue generated from “long tail games”.

Cheap multiples

Stillfront is paying an upfront consideration of SEK 2 834, with a potential earn-out capped at

SEK 945m. The LTM EBIT multiple thus amounts to 4.7x for the upfront consideration and

6.3x if the full earn-out is paid. The multiples are cheap both compared to market multiples

and Stillfront’s current multiple valuations.

https://tv.streamfabriken.com/2020-01-22-stillfront-press-conference


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The main driver of growth during 2019 was the successful launch of the game Property

Bothers Home Design during the summer. The long-tail games are likely extremely profitable

for the company and a significant factor behind the very high margins they can produce. The

long-tail games will most likely continue to decline both on a relative basis of the income mix

and in absolute figures. We expect the margin to drop in H2 somewhat as the focus on user

acquisition will increase, but that the earnings will be somewhat stable in absolute numbers.

We are positive about the deal and see it as directly value-adding. Storm8 seems to fit

Stillfront’s profile well. The company now also enters the casual (with a twist) segment and

becomes a leading player. We find that that the risk in the gaming portfolio is reduced

significantly by adding a lot of new income streams and a diversification from mostly

strategy games.

Financial development of Storm8

Source: Redeye Research

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2018-Q1 2018-Q2 2018-Q3 2018-Q4 2019-Q1 2019-Q2 2019-Q3

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PBHD+HDM rev. Long-tail rev. EBITDA

Projections for Storm8


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The market underappreciates the underlying earnings

We find that the market underappreciates the current earnings of Stillfront, as it's hard to

grasp the "roll-up" of both KIXEYE and Storm8. In our 2020E figures, Storm8 is consolidated

from March, so we estimate that about SEK 96m needs to be added for our EBITDA

projections for Storm8 during 2020 of SEK 512m. We assess that the current annual

underlying EBIT of the Group stands at about SEK 1 235m or 92% higher than the reported

LTM (Last-Twelve-Month) level of SEK 645m

New key drivers in our financial model

We have previously modeled Stillfront based on assumptions of MAU, MPU, and ARPMPU.

However, since the significant acquisitions of KIXEYE and Storm8, it’s increasingly hard for us

to continue driving our model on those KPIs as small changes in assumptions lead to

massive swings in outputs. We, therefore, now chose to change how our financial model

works. We will now make assumptions about the Marketing Return on Investment (mROI)

and apply that assumption on the Last Six Months (L6M) amount of UAC. We use the last

two quarters instead of twelve months or only the previous quarter as Stillfront often states

that they try to recoup their marketing investment in 180 days. Our mROI is based on the total

net sales in a given quarter divided by the L6M UAC.

Calculation example:

Here is a calculation example for Core and Q1’20 with our new financial model. During Q4’19,

the UAC amounted to SEK 55.5m. We project that the UAC during the next quarter will be SEK

58.5m. Thus, by the end of the next quarter, the L6M UAC will have amounted to SEK 114m

(55.5+58.5). We then expect to see a mROI of 2.7x, which translates to a net sales level of

SEK 308m (2.7 * 114).

Current earnings-power of Stillfront Group


Up 92%


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Core produced deposits of SEK 296m during the quarter. The consolidation of KIXEYE was a

significant driver of growth during the quarter. However, it’s interesting to note that the

deposits rose by 118%, while UAC only increased by 47%. The increase in MPU mainly drove

the uptake in deposits while the monetization remained flat.

Our sales projections for Core excludes Storm8, as we believe the reporting structure will

change after the acquisition. We expected that the relatively high marketing spends in Q4 will

yield effect during the coming quarters. We model a UAC almost on par with the previous

quarter during Q1’20. The mROI on an L6M basis remained stable at 3.1x during Q4, we


296 56 103k 923

118% 47% 174% 6%


KPIs Core

30 37 45 57 65 89 102141

180221

295 303 308337 321

374

Net sales (mSEK)

7 8 11 9 23 1339 39 41

74

8 530

-16

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Q/Q net change (mSEK)

2.9 2.6 2.7 2.52.0 2.0

3.1 3.12.7 3.0 3.1 3.3

mROI L6M

8.5 14 20 1838

53 5541

56 58 54 5164

UAC (mSEK)


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expect to see slightly lower marketing returns during Q1 due to seasonality and that it

increases during the year..

Nida Harb III, the most significant product within Core, showed a little deposit drop during Q4.

We have not noticed any substantial change in gross ranking for key MENA countries. As

such, we expect that Nida will follow a similar seasonality pattern as we saw during 2019,

with Q2 being the strongest thanks to Ramadan. Notably, small to medium-sized products

continue to show growth. In total, there are now 29 products within Core.

Core Products: Deposit development


1335 45 42 56

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Q4'17 Q1'18 Q2'18 Q3'18 Q4'18 Q1'19 Q2'19 Q3'19 Q4'19

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Nida Harb III Shakes and Fidget Battle Pirates Other


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Empire showed a stable development during Q4 with slightly higher ARPMPU and a little drop

in MPUs. Empire continues to be a cash-flow generating machine with only SEK 13m in UAC

on SEK 154 in deposits. Age of Knights are currently in global soft launch, but it’s too early to

tell if the game will hit the right KPIs to be scaleable. We model a rather flattish development

in the coming quarters. The mROI (L6M) was high at 5.7x, this is thanks to the recurring

userbase and not that many new players. The positive trend in mROI is an effect of the

improved live ops, something we deem as a sustainable improvement.


151 13 61k 737

-3% -3% -9% 7%


KPIs Empire

188161 155 170 179 165

142 154 159 173134

154 144 155 151 159

Net sales (mSEK)

-27-6

15 9-15 -23

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2.6 2.73.6

5.3 5.05.8

5.05.7

5.0 5.2 5.2 5.7

mROI L6M

34 3525

14 15 17 13 14 13 16 14 15 13

UAC (mSEK)


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Big had yet another strong quarter with deposits reaching SEK 90m, with an annual growth of

29%. Continued improvements in ARPMPU drove the increase. Big Farm: Mobile Harvest (BF:

MH) seems to be the main driver as the game had a Y/Y growth of +46%. The UAC increased

by 29% to SEK 39m, which also lead to a slightly lower mROI compared to Q3. We expect that

the increase in UAC, likely focused on BF: MH will yield a higher growth rate in the coming

quarters.


90 39 47k 609

29% 29% -3% 30%


KPIs Big

66 72 69 70 79 86 88 9479 86 88 94 100 104

92109

Net sales (mSEK)

6-3 0

10 71

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0.71.0 1.1

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1.3 1.31.5 1.4

1.2 1.2 1.31.5

mROI L6M

74

3650

31 2337 32 28 39 45 40 31 41

UAC (mSEK)


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Group estimates The table below summarizes our estimates for the Stillfront Group. For Q1, we expect a net

sales of SEK 645m with and adjusted EBIT of SEK 204m. We expect to see an increased UAC

as Q1 most often is a good quarter for profitable user acquisitions, which leads to growth

during Q2 and beyond. One should note that Storm8 will only have been consolidated for one

month during the period. For a more in-depth discussion, we advise looking at the different

product segments sections in this report.

Detailed estimate, quarter

mSEK Q1'19 Q2'19 Q3'19 Q4'19 2019 Q1'20E Q2'20E Q3'20E Q4'20E 2020E

Net sales 418 480 517 551 1966 645 852 858 964 3320

Other income 39 95 60 67 261 65 80 80 80 305

OPEX -303 -404 -372 -414 -1493 -467 -540 -574 -655 -2237

EBITDA 154 171 205 204 734 243 392 364 389 1389

D&A -28 -29 -33 -31 -121 -39 -60 -60 -67 -226

EBIT 113 128 136 134 511 156 244 215 222 838

Adj. EBIT 126 167 175 177 645 204 332 304 322 1163

Growth Q/Q 15% 8% 7% 17% 32% 1% 12%

Growth Y/Y 54% 78% 66% 75% 69%

EBITDA margin 37% 36% 40% 37% 37% 38% 46% 42% 40% 42%

EBIT margin 27% 27% 26% 24% 26% 24% 29% 25% 23% 25%

Adj. EBIT margin 30% 35% 34% 32% 29% 32% 39% 35% 33% 32%



12

Valuation We estimate that the underlying annual

adjusted EBIT currently stands at about

SEK 1.26bn, thus the EV/Adj. EBIT multiple

amounts to about 10x, which we regard as

to low for a company of Stillfronts caliber.

When the Storm8 acquisition was

announced, we made some preliminary

forecast adjustments and raised our Base-

case to 520 SEK per share. Now, after a

more in-depth analysis of the deal, we

increase our estimates further, which also

affect our valuation positively. Our new

Base-case amounts to 545 SEK per share,

which translates to a 14-15x multiple on underlying Adj. EBIT, a level we deem as fair. Historically the market has

always initially underappreciated the acquisitions that Stillfront has conducted, and we find that is also the case for

KIXEYE and Storm8. We expect to see a gradual valuation increase as the two major purchases are consolidated

into the figures and “rolled-up” into the Group.

Peer valuation

Stillfront looks cheap compared to the peer Group. As we previously discussed, we think the market

underappreciates the future earnings up-take thanks to the KIXEYE, Stoorm8, and organic development.

Peer valuation

SALES CAGR

Company EV (MSEK) 2020E 2021E 2020E 2021E 2022E 19-22E 2020E 2021E 2022E

Nordic Gaming

Embracer Group* 30 262 5.3x 4.3x 25.9x 18.9x 18.9x 26% 35% 37% 38%

Paradox Interactive 15 839 9.4x 8.5x 25.3x 22.7x 19.0x 19% 57% 60% 59%

Remedy 1 556 4.5x 3.7x 21.4x 18.1x 18.1x 9% 23% 22% 34%

Funcom 1 251 4.8x 4.2x 35.7x 26.1x 26.1x 23% 44% 61% 67%

EG7* 910 1.6x 1.3x 12.0x 7.7x 7.7x 65% 14% 17% 16%

Atari 738 2.3x 2.1x 18.0x 14.4x 14.4x 25% 13% 14% 15%

G5 Entertainment 697 0.5x 0.5x 8.7x 6.4x 6.4x 11% 15% 17% 18%

Starbreeze 583 4.2x 4.1x n.m. n.m. n.m. -18% -12% -28% -30%

Median 1 081 4.3x 3.9x 21x 18x 18x 21% 19% 19% 26%

Mobile/casual

Zynga 58 089 3.4x 3.0x 17.5x 14.7x 13.5x 19% 19% 21% 21%

GLU 9 611 2.2x 1.9x 25.5x 17.6x 10.7x 16% 8% 11% 15%

Com2us 4 639 1.1x 0.9x 3.7x 3.1x 3.5x 7% 28% 29% 28%

Rovio 2 053 0.7x 0.7x 6.5x 6.1x 5.0x 5% 11% 11% 12%

G5 Entertainment 697 0.5x 0.5x 8.7x 6.4x 5.0x 11% 6% 7% 8%

Median 4 639 1.1x 0.9x 9x 6x 5x 11% 11% 11% 15%

International Gaming

Tencent 4 742 909 9.1x 7.4x 28.5x 25.2x 20.5x 24% 32% 29% 30%

Activision 434 358 6.6x 6.1x 19.9x 16.3x 15.8x 8% 33% 37% 36%

Nintendo 372 183 3.3x 3.1x 13.3x 11.0x 12.0x 7% 25% 28% 26%

EA 258 845 5.2x 5.0x 16.6x 15.8x 14.8x 8% 31% 31% 31%

Take-Two 109 850 4.0x 4.2x 21.4x 21.6x 14.9x 11% 19% 19% 23%

Ubisoft 97 905 6.2x 3.7x 74.7x 16.8x 16.7x 13% 8% 22% 21%

Bandai Namco 97 767 1.5x 1.4x 12.4x 11.3x 10.5x 7% 12% 12% 13%

CD projekt 74 721 66.8x 9.4x 270.2x 13.5x 18.4x 85% 25% 70% 73%

Median 184 348 5.7x 4.6x 21x 16x 15x 9% 25% 28% 28%

Peer Group median 4 639 4.3x 3.9x 21x 16x 15x 11% 19% 19% 26%

Stillfront* 14 627 4.4x 3.7x 11x 9x 8x 31% 42% 40% 40%

at Base-case 18 482 5.6x 4.6x 13x 11x 10x

Source: Bloomberg & Redeye Research

*Oper. EBIT/ EBITA / Adj. EBIT

EV/Sales EV/EBIT EBIT margin

Stillfront: Base-case

Assumptions 2019-28 DCF-value

CAGR Sales 14% WACC 9.3%

EBIT margin (avg) 32% Net presenst value FCF 6 271

ROIC (avg) 17% Net present value of Terminal 12 210

Terminal EV 18 482

Terminal growth FCF 2.0% Net debt -1 234

Terminal EBIT margin 35% Value assos. Companies 0

Exit EV/EBIT multiple 12x Value minorities & liab from acq. -307

DCF-value 16 941

Estimated Fair value 545

Todays share price 420

Potential/Risk 30%



13

Summary Redeye Rating The rating consists of three valuation keys, each constituting an overall assessment of several factors that are rated

on a scale of 0 to 1 points. The maximum score for a valuation key is 5 points.

Rating changes in the report

People: 5

Stillfront’s management team continues to impress and has shown an ability to enhance the value of the business by acquiring

game studios at a steady phase. All the acquisitions have stayed true to Stillfront’s core focus on risk-adjusted return. The

company is picky in their evaluation process which minimizes risk for their shareholders. We view the ownership of Stillfront as

strong thanks to the substantial shareholdings of key management and the board. The company also has some of the most

renowned institutional owners on their shareholder list.

Business: 4

Stillfront’s products have high gross margins and a relatively stable customer base with good leverage in the business model. The

underlying growth in the gaming industry is a key driver for continued future growth for the company. We think Stillfront has good

potential for both organic growth and growth fueled by acquisitions the next coming years. After the purchase of Goodgame

Studios in late 2017 the company entered a new level and is now one of the world leaders in browser-based gaming.

Financials: 4

Stillfront’s relative small investments have gained high returns of investments. The company has positive cash flows and high net

margins on their products. Both stability and profitability are increasing steadily. Some of the acquisitions are funded by debt, the

company keeps them self at a healthy leverage ratio currently the EBITDA/Net debt amounts to <2x. Gaming products are

somewhat differentiated and are not affected by a greater extent of the business climate in the world.


14

PROFITABILITY 2018 2019 2020E 2021E 2022E ROE 27% 22% 19% 17% 17% ROCE 40% 22% 19% 17% 19% ROIC -311% 36% 31% 20% 21% EBITDA margin 36% 38% 32% 34% 36% EBIT margin 26% 26% 25% 27% 29% Net margin 12% 17% 17% 19% 20%

Please comment on the changes in Rating factors……

INCOME STATEMENT 2018 2019 2020E 2021E 2022E Net sales 1,325 1,966 3,320 3,984 4,462 Total operating costs -852 -1,225 -2,256 -2,614 -2,836 EBITDA 473 741 1,389 1,682 1,939 Depreciation 0 0 0 0 0 Amortization -125 -224 -226 -294 -330 Impairment charges 0 0 0 0 0 EBIT 348 517 838 1,076 1,296 Share in profits 0 0 0 0 0 Net financial items -83 -63 -73 -88 -79 Exchange rate dif. 0 0 0 0 0 Pre-tax profit 265 454 765 988 1,217 Tax -107 -113 -191 -247 -304 Net earnings 156 340 574 741 913

BALANCE SHEET 2018 2019 2020E 2021E 2022E Assets Current assets Cash in banks 246 342 578 398 446 Receivables 153 261 664 797 892 Inventories 0 0 0 0 0 Other current assets 0 0 0 0 0 Current assets 399 603 1,241 1,195 1,339 Fixed assets Tangible assets 14 76 128 154 172 Associated comp. 0 0 0 0 0 Investments 0 0 0 0 0 Goodwill 1,673 2,593 6,668 6,668 6,668 Cap. exp. for dev. 0 0 0 0 0 O intangible rights 506 700 839 944 1,060 O non-current assets 0 0 0 0 0 Total fixed assets 2,193 3,369 7,636 7,766 7,900 Deferred tax assets 5 71 71 71 71 Total (assets) 2,597 4,043 8,948 9,032 9,310 Liabilities Current liabilities Short-term debt 0 0 0 0 0 Accounts payable 382 515 598 717 803 O current liabilities 0 0 0 0 0 Current liabilities 382 515 598 717 803 Long-term debt 588 1,085 1,812 1,695 1,436 O long-term liabilities 429 224 2,200 1,540 1,078 Convertibles 0 0 0 0 0 Total Liabilities 1,399 1,824 4,609 3,952 3,317 Deferred tax liab 102 251 251 251 251 Provisions 0 0 0 0 0 Shareholders' equity 1,081 1,959 4,070 4,811 5,723 Minority interest (BS) 15 18 18 18 18 Minority & equity 1,096 1,977 4,088 4,829 5,741 Total liab & SE 2,597 4,052 8,948 9,032 9,310

FREE CASH FLOW 2018 2019 2020E 2021E 2022E Net sales 1,325 1,966 3,320 3,984 4,462 Total operating costs -852 -1,225 -2,256 -2,614 -2,836 Depreciations total -125 -224 -226 -294 -330 EBIT 348 517 838 1,076 1,296 Taxes on EBIT 0 0 0 0 0 NOPLAT 348 517 838 1,076 1,296 Depreciation 125 224 226 294 330 Gross cash flow 473 741 1,064 1,370 1,626 Change in WC -1 25 -320 -13 -10 Gross CAPEX -2,158 -1,400 -4,493 -424 -465 Free cash flow -1,686 -634 -3,749 933 1,152 CAPITAL STRUCTURE 2018 2019 2020E 2021E 2022E Equity ratio 42% 49% 46% 53% 62% Debt/equity ratio 54% 55% 45% 35% 25% Net debt 342 743 1,234 1,297 990 Capital employed 1,438 2,720 5,322 6,126 6,731 Capital turnover rate 0.5 0.5 0.4 0.4 0.5 GROWTH 2018 2019 2020E 2021E 2022E Sales growth 698% 48% 69% 20% 12% EPS growth (adj) 2,419% 62% 72% 29% 23%

DATA PER SHARE 2018 2019 2020E 2021E 2022E EPS 6.62 10.73 18.45 23.82 29.34 EPS adj 6.62 10.73 18.45 23.82 29.34 Dividend 0.00 0.00 0.00 0.00 0.00 Net debt 14.51 23.46 39.68 41.70 31.83 Total shares 23.56 31.67 31.10 31.10 31.10 VALUATION 2018 2019 2020E 2021E 2022E EV 4,515.5 12,927.4 14,673.7 14,736.4 14,429.7 P/E 26.4 34.9 22.8 17.7 14.4 P/E diluted 26.4 34.9 22.8 17.7 14.4 P/Sales 3.1 6.0 3.9 3.3 2.9 EV/Sales 3.4 6.6 4.4 3.7 3.2 EV/EBITDA 9.5 17.4 13.8 10.8 8.9 EV/EBIT 13.0 25.0 17.5 13.7 11.1 P/BV 3.8 6.1 3.2 2.7 2.3

SHARE INFORMATION Reuters code SFRG.ST List Share price 421.5 Total shares, million 31.1 Market Cap, MSEK 13108.7 MANAGEMENT & BOARD CEO Jörgen Larsson CFO Andreas Uddman IR Sofia Wretman Chairman Jan Samuelson FINANCIAL INFORMATION ANALYSTS Redeye AB Kristoffer Lindström Mäster Samuelsgatan 42, 10tr [email protected] 111 57 Stockholm Tomas Otterbeck [email protected]

SHARE PERFORMANCE GROWTH/YEAR 18/20E 1 month -8.9 % Net sales 58.3 % 3 month 21.2 % Operating profit adj 55.2 % 12 month 144.8 % EPS, just 67.0 % Since start of the year 15.2 % Equity 93.1 %

SHAREHOLDER STRUCTURE % CAPITAL VOTES Laureus Capital GmbH 14.5 % 14.5 % Swedbank Robur Fonder 9.9 % 9.9 % Handelsbanken Fonder 8.8 % 9.6 % Första AP-fonden 8.6 % 8.6 % SEB Fonder 8.2 % 8.3 % Länsförsäkringar Fonder 4.8 % 4.8 % Avanza Pension 2.9 % 2.9 % Ålandsbanken I Ägares Ställe 2.1 % 2.1 % Carnegie Fonder 2.1 % 2.1 % Livförsäkringsbolaget Skandia 1.7 % 1.7 %

DCF VALUATION CASH FLOW, MSEK WACC (%) 9.3 % Assumptions 2020-2026 (%) Average sales growth 10.8 % Fair value e. per share, SEK 5457 EBIT margin 30.9 % Share price, SEK 421.5


15

Redeye Rating and Background Definitions Company Quality

Company Quality is based on a set of quality checks across three categories; PEOPLE, BUSINESS, FINANCE. These

are the building blocks that enable a company to deliver sustained operational outperformance and attractive long-

term earnings growth.

Each category is grouped into multiple sub-categories assessed by five checks. These are based on widely

accepted and tested investment criteria and used by demonstrably successful investors and investment firms. Each

sub-category may also include a complementary check that provides additional information to assist with

investment decision-making.

If a check is successful, it is assigned a score of one point; the total successful checks are added to give a score for

each sub-category. The overall score for a category is the average of all sub-category scores, based on a scale that

ranges from 0 to 5 rounded up to the nearest whole number. The overall score for each category is then used to

generate the size of the bar in the Company Quality graphic.

People

At the end of the day, people drive profits. Not numbers. Understanding the motivations of people behind a business

is a significant part of understanding the long-term drive of the company. It all comes down to doing business with

people you trust, or at least avoiding dealing with people of questionable character.

The People rating is based on quantitative scores in seven categories:

• Passion, Execution, Capital Allocation, Communication, Compensation, Ownership, and Board.

Business

If you don’t understand the competitive environment and don’t have a clear sense of how the business will engage

customers, create value and consistently deliver that value at a profit, you won’t succeed as an investor. Knowing

the business model inside out will provide you some level of certainty and reduce the risk when you buy a stock.

The Business rating is based on quantitative scores grouped into five sub-categories:

• Business Scalability, Market Structure, Value Proposition, Economic Moat, and Operational Risks.

Financials

Investing is part art, part science. Financial ratios make up most of the science. Ratios are used to evaluate the

financial soundness of a business. Also, these ratios are key factors that will impact a company’s financial

performance and valuation. However, you only need a few to determine whether a company is financially strong or

weak.

The Financial rating is based on quantitative scores that are grouped into five separate categories:

• Earnings Power, Profit Margin, Growth Rate, Financial Health, and Earnings Quality.


16

Redeye Equity Research team

Management Björn Fahlén

[email protected]

Håkan Östling

[email protected]

Technology Team Jonas Amnesten

[email protected]

Henrik Alveskog

[email protected]

Havan Hanna

[email protected]

Kristoffer Lindström

[email protected]

Erika Madebrink

[email protected]

Fredrik Nilsson

[email protected]

Tomas Otterbeck

[email protected]

Eddie Palmgren

[email protected]

Magnus Skog

[email protected]

Oskar Vilhelmsson

[email protected]

Viktor Westman

[email protected]

Linus Sigurdsson (Trainee)

[email protected]

Editorial Eddie Palmgren

[email protected]

Mark Siöstedt

[email protected]

John Hintze

[email protected]

Johan Kårestedt (Trainee)

[email protected]

Life Science Team Gergana Almquist

[email protected]

Oscar Bergman

[email protected]

Anders Hedlund

[email protected]

Arvid Necander

[email protected]

Erik Nordström

[email protected]

Klas Palin

[email protected]

Jakob Svensson

[email protected]

Ludvig Svensson

[email protected]


17

Disclaimer Important information Redeye AB ("Redeye" or "the Company") is a specialist financial advisory boutique that focuses on small and mid-cap growth companies in the Nordic region. We focus on the technology and life science sectors. We provide services within Corporate Broking, Corporate Finance, equity research and investor relations. Our strengths are our award-winning research department, experienced advisers, a unique investor network, and the powerful distribution channel redeye.se. Redeye was founded in 1999 and since 2007 has been subject to the supervision of the Swedish Financial Supervisory Authority. Redeye is licensed to; receive and transmit orders in financial instruments, provide investment advice to clients regarding financial instruments, prepare and disseminate financial analyses/recommendations for trading in financial instruments, execute orders in financial instruments on behalf of clients, place financial instruments without position taking, provide corporate advice and services within mergers and acquisition, provide services in conjunction with the provision of guarantees regarding financial instruments and to operate as a Certified Advisory business (ancillary authorization). Limitation of liability This document was prepared for information purposes for general distribution and is not intended to be advisory. The information contained in this analysis is based on sources deemed reliable by Redeye. However, Redeye cannot guarantee the accuracy of the information. The forward-looking information in the analysis is based on subjective assessments about the future, which constitutes a factor of uncertainty. Redeye cannot guarantee that forecasts and forward-looking statements will materialize. Investors shall conduct all investment decisions independently. This analysis is intended to be one of a number of tools that can be used in making an investment decision. All investors are therefore encouraged to supplement this information with additional relevant data and to consult a financial advisor prior to an investment decision. Accordingly, Redeye accepts no liability for any loss or damage resulting from the use of this analysis. Potential conflict of interest Redeye’s research department is regulated by operational and administrative rules established to avoid conflicts of interest and to ensure the objectivity and independence of its analysts. The following applies:

• For companies that are the subject of Redeye’s research analysis, the applicable rules include those established by the Swedish Financial Supervisory Authority pertaining to investment recommendations and the handling of conflicts of interest. Furthermore, Redeye employees are not allowed to trade in financial instruments of the company in question, from the date Redeye publishes its analysis plus one trading day after this date.

• An analyst may not engage in corporate finance transactions without the express approval of management and may not receive any remuneration directly linked to such transactions.

• Redeye may carry out an analysis upon commission or in exchange for payment from the company that is the subject of the analysis, or from an underwriting institution in conjunction with a merger and acquisition (M&A) deal, new share issue or a public listing. Readers of these reports should assume that Redeye may have received or will receive remuneration from the company/companies cited in the report for the performance of financial advisory services. Such remuneration is of a predetermined amount and is not dependent on the content of the analysis.

Redeye’s research coverage Redeye’s research analyses consist of case-based analyses, which imply that the frequency of the analytical reports may vary over time. Unless otherwise expressly stated in the report, the analysis is updated when considered necessary by the research department, for example in the event of significant changes in market conditions or events related to the issuer/the financial instrument. Recommendation structure Redeye does not issue any investment recommendations for fundamental analysis. However, Redeye has developed a proprietary analysis and rating model, Redeye Rating, in which each company is analyzed and evaluated. This analysis aims to provide an independent assessment of the company in question, its opportunities, risks, etc. The purpose is to provide an objective and professional set of data for owners and investors to use in their decision-making. Redeye Rating (2020-03-02)

Duplication and distribution This document may not be duplicated, reproduced or copied for purposes other than personal use. The document may not be distributed to physical or legal entities that are citizens of or domiciled in any country in which such distribution is prohibited according to applicable laws or other regulations. Copyright Redeye AB.

Rating People Business Financials

5p 11 12 4 3p - 4p 93 71 30 0p - 2p 10 31 80 Company N 114 114 114

CONFLICT OF INTERESTS

Kristoffer. Lindström. owns shares in the company :Stillfront Yes Tomas. Otterbeck. owns shares in the company :Stillfront Yes Redeye performs/have performed services for the Company and receives/have

received compensation from the Company in connection with this.

stillfront - amazon s3 · 3/2/2020 · migrating to goodgame performance marketing is intense....

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