New Game Releases And Cost Optimizations Will Lead To Positive Outcomes In 2025

Key Takeaways

• Business optimizations and cost reductions are expected to enhance profitability margins and earnings, with significant savings anticipated from winding down Toadman operations.
  
• EG7 aims to drive growth through key game releases, leveraging long life cycle IPs for predictable revenue, and maintaining strong liquidity without debt.
  
• Revenue decline, underperforming game releases, and market downturns pose risks to future earnings, requiring financing that may impact shareholder value and net margins.

Catalysts

Engages in development, marketing, publishing, and distribution of PC, console, and mobile games in Sweden, rest of Europe, North America, South America, Asia, Africa, and Oceania.

• EG7 expects a return to growth in 2025, driven by key game releases like Palia and Cold Iron’s new game, which are anticipated to enhance sales and potentially impact revenue positively.
  
• The company has implemented business optimizations and cost reductions totaling approximately SEK 191 million in 2024 and early 2025, which are expected to improve profitability margins and earnings.
  
• EG7 is focusing on maintaining profitability by leveraging their long life cycle IPs and live service games, such as those under Daybreak and Big Blue Bubble, which provide a more predictable revenue base that should enhance cash flows.
  
• The strategic decision to wind down Toadman operations is anticipated to yield annual savings of approximately SEK 100 million in 2025, potentially improving net margins.
  
• By optimizing its financial structure and exploring additional financing while maintaining strong liquidity and no debt, EG7 aims to capitalize on market opportunities, potentially fueling growth and affecting both earnings and revenue streams.

Enad Global 7 Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Enad Global 7's revenue will grow by 7.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from -12.3% today to 10.2% in 3 years time.
• Analysts expect earnings to reach SEK 244.5 million (and earnings per share of SEK 2.76) by about February 2028, up from SEK -236.4 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 16.3x on those 2028 earnings, up from -4.9x today. This future PE is lower than the current PE for the SE Entertainment industry at 26.7x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.11%, as per the Simply Wall St company report.

Enad Global 7 Future Earnings Per Share Growth

Risks

• The company experienced a year-over-year revenue decline of 16.2%, missing their revenue target by 4.8%, which could impact future revenue growth and investor confidence.
  
• Performance from key titles like MechWarrior 5 Clans fell below expectations due to delayed release, which may affect future revenue and profit margins from new game releases.
  
• The prolonged market downturn has negatively impacted segments like the Petrol and Toadman service businesses, leading to reduced revenues and cost restructuring, which could affect net margins.
  
• A lack of specific guidance for 2025 due to variability in potential outcomes from new product launches introduces uncertainty in future earnings projections.
  
• The need for additional financing to capitalize on growth opportunities in the gaming market could lead to dilution or increased liabilities, impacting net margins and shareholder value.

Valuation

• The analysts have a consensus price target of SEK38.0 for Enad Global 7 based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be SEK2.4 billion, earnings will come to SEK244.5 million, and it would be trading on a PE ratio of 16.3x, assuming you use a discount rate of 6.1%.
  
• Given the current share price of SEK13.17, the analyst price target of SEK38.0 is 65.3% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.