New Game Launches And MENA Expansion Will Likely Shape Long-Term Earnings Profile

Catalysts

About Stillfront Group

Stillfront Group is a global gaming company that operates a diversified portfolio of free to play games across multiple platforms and regions.

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

• Although the pipeline of new titles in Europe, including Big Farm: Homestead and Warhammer 40,000 Supremacy, could support a gradual return to growth, execution risk around launching and scaling these games means that revenue uplift may be slower and less pronounced than implied by current expectations. This could limit upside to group revenue and earnings.
• Despite strong performance and high margins in MENA and APAC, the relatively low user acquisition spend in these regions suggests that future growth will require higher marketing intensity in increasingly competitive mobile markets. This could pressure net margins even if top line continues to rise.
• While the shift toward higher direct to consumer revenue through Web shops has improved gross margins, ongoing platform and regulatory changes around payments and data privacy may constrain how far this model can scale. This may cap further gross margin expansion and its positive effect on EBITDAC.
• Although the North America turnaround has rapidly increased profitability from a weak base, the deliberate underinvestment in UA for key franchises risks entrenching a structurally smaller revenue footprint in the largest global games market. This could limit long term revenue growth and operating leverage.
• While disciplined product development spending targeted to Europe and MENA APAC supports focused innovation, the lower overall CapEx and continued game closures may result in a thinner pipeline over time. This may curb potential for sustained organic revenue growth and earnings momentum beyond the near term.

Assumptions

This narrative explores a more pessimistic perspective on Stillfront Group compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts. How have these above catalysts been quantified?

• The bearish analysts are assuming Stillfront Group's revenue will decrease by 4.5% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from -112.9% today to 7.5% in 3 years time.
• The bearish analysts expect earnings to reach SEK 417.3 million (and earnings per share of SEK 0.77) by about December 2028, up from SEK -7.3 billion today. However, there is some disagreement amongst the analysts with the more bullish ones expecting earnings as high as SEK1.6 billion.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 12.0x on those 2028 earnings, up from -0.4x today. This future PE is lower than the current PE for the SE Entertainment industry at 14.6x.
• The bearish analysts expect the number of shares outstanding to grow by 3.13% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.12%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• The successful launch and scaling of new European titles like Big Farm: Homestead, Warhammer 40,000 Supremacy and Unfolded: Webtoon Stories, supported by Q5 marketing, could push Europe into a higher structural growth path than today, lifting group revenue and earnings above a flat share price scenario.
• If the high margin MENA and APAC franchises such as Jawaker and the Board Ludo series keep compounding double digit growth and management selectively increases user acquisition in 2026, the mix shift toward these regions could drive sustained expansion in group EBITDAC margin and earnings, putting upward pressure on the share price.
• Ongoing cost optimization, lower product development spend as a share of revenue and continued Web shop rollout that raises direct to consumer revenue share above the current 44% could structurally enhance gross margins and free cash flow, improving valuation multiples and supporting a higher share price.
• The North America turnaround from barely profitable to a 15% EBITDAC margin, combined with potential future reinvestment once the base is stabilized, could eventually restore growth in the group’s largest addressable market, reversing the current 32.9% revenue decline and boosting long term revenue and earnings.

Valuation

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

• The assumed bearish price target for Stillfront Group is SEK6.6, which represents up to two standard deviations below the consensus price target of SEK7.87. 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 more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of SEK9.0, and the most bearish reporting a price target of just SEK6.6.
  
• In order for you to agree with the more bearish analyst cohort, you'd need to believe that by 2028, revenues will be SEK5.6 billion, earnings will come to SEK417.3 million, and it would be trading on a PE ratio of 12.0x, assuming you use a discount rate of 10.1%.
  
• Given the current share price of SEK6.29, the analyst price target of SEK6.6 is 4.6% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• 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.