Web Shop Rollout And Regional Mix Shift Will Transform Long Term Earnings Power

Catalysts

About Stillfront Group

Stillfront Group is a global games company focused on free to play titles operated through a portfolio of franchises across Europe, North America, MENA and APAC.

What are the underlying business or industry changes driving this perspective?

• Rollout of the Web shop and a higher direct to consumer revenue share, from 33% to 44% in Q3 2025, is improving gross margin, which can support stronger adjusted EBITDA and earnings over time.
• Growing strength in MENA and APAC, where key franchises such as Jawaker and the Board Ludo titles are seeing healthy double digit growth with low user acquisition dependency, provides a structural mix shift toward higher margin regions that can lift group margins and cash flow.
• Europe is returning to growth, supported by successful live operations in existing franchises and an upcoming slate of new games like Big Farm: Homestead, Warhammer 40,000 on Supremacy and Unfolded: Webtoon Stories, which can support net revenue and scale fixed costs more efficiently.
• Completion of the cost optimization program ahead of schedule, combined with major fixed cost cuts in North America and ongoing discipline in user acquisition, is creating a leaner operating base that can support higher EBITDAC margin and stronger free cash flow from the same or even lower revenue levels.
• Consistent deleveraging, with net debt falling from SEK 5.9b to SEK 5.1b and leverage at 2.06x EBITDA or 1.87x excluding earn outs, together with lower interest expenses, frees up more operating cash flow that can support earnings and optionality for future capital returns or reinvestment.

Assumptions

How have these above catalysts been quantified?

• This narrative explores a more optimistic perspective on Stillfront Group compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Stillfront Group's revenue will decrease by 2.7% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from -39.3% today to 15.3% in 3 years time.
• The bullish analysts expect earnings to reach SEK 828.6 million (and earnings per share of SEK 1.7) by about June 2029, up from -SEK 2.3 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as SEK626.6 million.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 7.4x on those 2029 earnings, up from -0.9x today. This future PE is lower than the current PE for the SE Entertainment industry at 24.0x.
• The bullish analysts expect the number of shares outstanding to decline by 5.58% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.42%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Group net revenue declined by 14% year on year to SEK 1,373 million, with a 7.8% organic decline and a 6% FX headwind, while North America remains the only business area in negative growth and is still expected to decline in the near term. This could limit any meaningful recovery in group revenue and earnings if this trend persists.
• North America revenues fell by 32.9% to SEK 246 million and both key and other franchises in that region are down, with management still needing proof over the next 3 to 6 months that certain titles can deliver. If the turnaround stalls or further game closures are needed, this could weigh on net revenue and keep EBITDAC margins under pressure.
• The group is leaning heavily on a handful of key franchises and upcoming launches in Europe and MENA and APAC, including Big Farm: Homestead, Warhammer 40,000 on Supremacy and Unfolded, while also cutting product development spend to 8.5% of net revenue. If these titles fail to sustain engagement over time, the concentration risk could hit revenue growth and future earnings.
• Adjusted EBITDA margin has benefited from sharply lower user acquisition costs and cost cuts, particularly in North America. If the company needs to increase user acquisition again to support growth or decides to go more on the offensive with spending, margins and free cash flow of SEK 974 million on an LTM basis could come under pressure.
• Net debt is SEK 5.1b with a leverage ratio of 2.06x EBITDA, slightly above the 2x target, and there are sizeable maturities clustered in 2027 to 2029. If free cash flow weakens or refinancing terms are less favorable, interest expenses and repayment needs could constrain capital allocation, affecting future earnings and financial flexibility.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bullish price target for Stillfront Group is SEK11.0, which represents up to two standard deviations above the consensus price target of SEK7.46. This valuation is based on what can be assumed as the expectations of Stillfront Group's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of SEK11.0, and the most bearish reporting a price target of just SEK4.1.
• In order for you to agree with the more bullish analyst cohort, you'd need to believe that by 2029, revenues will be SEK5.4 billion, earnings will come to SEK828.6 million, and it would be trading on a PE ratio of 7.4x, assuming you use a discount rate of 10.4%.
• Given the current share price of SEK4.18, the analyst price target of SEK11.0 is 62.0% 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.