Next Games - Final leg of turnaround commencing

Name: Evli
Price range: $

Next Games is through the initiated rights offering commencing the final leg of its turnaround project. Future growth initiatives remain of key importance given the declining revenue trend from live games. We expect growth to accelerate during 2020-2021 following new game launches and profitability to improve but remain at weaker levels.

Rights offering to finance growth opportunities

Next Games has faced challenges following the launch of Our World, in which the company invested heavily during launch, having failed to meet expectations and seeing declines in the user base due to technical difficulties. As a result the company initiated a turnaround project in late 2018. Q2/2019 saw the company reach targeted cost savings levels and as such also improved profitability. Following changes to its operating model Next Games now has nine projects or prototypes under development in addition to Blade Runner Nexus in soft launch and the Stranger Things -game in pre-production. The company is now seeking to move to the final leg of its turnaround project by securing financing for growth initiatives through an EUR 8m rights offering.

Growth dependent on new launches in the coming years

Having seen a declining trend in gross bookings in its two live games, growth in the coming years is dependent on successful new games launches, with Next Games target to launch at least one new game per year. We expect sales growth to accelerate in 2020 with the expected launch of Blade Runner Nexus in late 2019 and the Stranger Things -game in 2020. The new game launches are expected to impact on profitability, and we expect the EBIT-margin to remain negative until 2021.

HOLD with a target price of EUR 1.0 (1.5)

We adjust our target price to EUR 1.0 (1.5) following the expected dilution from the rights offering, with our minor estimates revisions not having a significant impact. Valuation still quite justifiably emphasizes near-term uncertainties and we consider current valuation levels reasonable.

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