Zeus: Video Games Sector Quarterly review - January 2024

Subsector price performance: In the fourth quarter to 29 December 2023 all but the AAA publishers and platform subsector saw share price declines. The UK PC and Console focused subsector was again the worst performing subsector (-26.2%) over the quarter and LTM (-70.1%).

Zeus: Video Games Sector Quarterly review - October 2023

Subsector price performance: In the quarter to 30 September 2023, all four subsectors saw mean average share price declines. UK PC and Console focused subsector was again the worst performing (-20.6%).

tinyBuild (TBLD LN) - H1: Declining profits and cash

H1 revenue fell 19%, gross margin narrowed by 18 percentage points and Adj EBITDA fell to -$1.2m from $9.9m a year ago. The company impaired $27.2m of development costs and intangible assets.

PROGRESSIVE: tinyBuild: Resilience and operational reset

tinyBuild’s results for the six months ended 30 June demonstrated resilient performance during a challenging period, with a key takeaway being management’s focus on delivering successful games while maintaining financial stability. Revenue in H1 23 fell 19% to $23.3m (H1 22: $28.8m) and adjusted EBITDA turned negative at -$1.2m (H1 22: $9.9m). However, games sales remained stable, and the company is demonstrating tighter control of spending to steady the business in the short term. A strong game

PROGRESSIVE: tinyBuild: Initiating coverage: Building for the future

In an attractive video games market, tinyBuild is investing to accelerate growth, including new technologies and larger-budget Games-as-a-Service (GaaS) titles, and has a strong pipeline of games under development. The company’s strategy retains an emphasis on expanding its own intellectual property (own-IP) portfolio and monetising its catalogue of AA and indie games using a franchise and multimedia model. Following recently reported challenges, the outlook for platform deals has stabilised. Di

Video Games Sector - Quarterly review – July 2023

In this edition of the video games quarterly we analyse the supply and demand factors in the quoted UK video games sector to provide an outlook on H2 2023. On average, due to the holiday season, the second half accounts for c. 60% of revenue and, with operational gearing, an even greater proportion of profits, making it a crucial period.

tinyBuild (TBLD LN) - Reset

The company appears to be including the “kitchen sink” in this trading update –revenue and earnings downgrades, flat profit outlook, asset write-downs, reorganisations, strategic review of acquisitions and executive board changes.

Video Games Sector Quarterly review - March 2023

This quarter’s key observations Top subsector price performance: Continental European PC and Console is the top performer, both over the last quarter and the last year, up 9.2% and 10.6%, respectively. This was driven by a strong last quarter performance from CI Games and Paradox Interactive, up 38% and 24%, respectively.

tinyBuild (TBLD LN) - Show me the money

2022 revenue was below our estimate. Whilst Adjusted EBITDA was broadly in line at $24m, FCFF was -$18m. Capitalised development costs were higher than we expected, reinforcing our view that amortisation expenses will ramp and flatten EBITDA in 2023 and 2024. However, the company extended its amortisation period, resulting in a deferral of expenses. The net effect of lower revenue, higher capitalisation of development costs and deferred amortisation costs is insignificant changes to our Adjusted

tinyBuild (TBLD LN) - Amortisation headwinds

We lower our Adjusted EBITDA estimates after the unexpected rise in capitalised development cost in H2 2022 and after modelling amortisation expense scenarios. We lower Adjusted EBITDA significantly below consensus and believe rising amortisation expenses will lead to nearly flat Adjusted EBITDA ($25m-$26m) from 2022 to 2024. Despite our negative earnings outlook, tinyBuild's share price indicates significant earnings disappointments may already be priced in. Shares trade at only 4x 2023 EV/ EBI

UK video games sector - Trough valuations?

The video games sector is unloved. Shares in the UK video games sector have fallen sharply and have significantly underperformed other small-cap sectors. Some stocks now appear to offer deep value, with mid-single digit ex-cash PEs that are well below pre-pandemic levels. In particular, Devolver, tinyBuild, and Frontier Developments multiples have fallen well below the sector average. We see upside to Frontier Developments’ earnings estimates and Devolver’s depressed multiples.

Audioboom Group - Q1 24 revenue growth of +11%, FY24E forecasts reiterated

Audioboom’s FY23 results and Q1 trading update show Q1 24 revenue growth of +11% yoy, $6.7m of March 2024 revenue marking the platform’s highest revenue month since May 2022, and a confident outlook that leads us to reiterate our FY24E forecasts. Following the focus on new initiatives through FY23, the platform is now in its strongest ever operational position, with a record 1.1bn monthly ad impressions created in March 2024, record global audience reach of 38.6m unique global listeners in Janua

Alphawave Semi: FY23 trading update, amended forward guidance

Alphawave Semi has reduced guidance for FY23 and prospectively citing lower revenues from China, changes in expected revenue recognition from long-term contracts, and continuing investment in R&D. The share price has reacted negatively, giving up most of the gains since the trading statement at the end of January. Current consensus, which is a good match for pre-existing guidance, should be reduced, most likely following release of the FY23 results and full 1Q24 trading update due on 23 April. H

Crimson Tide - FY23 reports +15% revenue; investment phase complete

Crimson Tide has reported FY23 results to December in line with expectations, with additional operating leverage benefitting updated FY24 and maiden FY25 and FY26 forecasts. FY23 delivered +15% revenue growth to £6.2m at 86% GM, of which over 90% is recurring, and maintained £5.8m ARR even after unexpected customer churn in the year as we previously noted. Crucially, the Group achieved milestone adj EBITDA profitability of £0.4m at 7% EBITDA margin, and edges closer to adj PBT profitability expe

Morning Note – 16 April 2024

Devolver Digital (DEVO LN) - Rebuild year

Devolver Digital encouragingly delivered 2023 results slightly ahead of expectations and provided a steady medium-term outlook that leads us to reiterate our 2024 Adjusted EBITDA estimates. Longer term, the company is now planning to further develop its two major planned titles, Human Fall Flat 2 and System Era's next major new release. We now expect those major titles to be released in 2026 rather than 2025, meaning we lower our 2025 Adjusted EBITDA forecast to $10.6m from $17.6m but introduce

Morning Note – 15 April 2024

Checkit - New product launch and contract wins

Checkit has won contracts with two customers worth at least £417k over the three-year lives of the contracts, confirming its ability to upsell to its existing customer base and supporting our forecasts. Having trialled the new technology with multiple customers, Checkit has launched its Asset Intelligence module, which uses advanced analytics and machine learning to enhance customer sustainability, reduce costs and increase revenue.

Soft growth patch

Auction Technology Group - H1/24 Trading update

ATG’s H1/24 trading statement indicates revenue for the six-month period to 31 March 2024 was $86m, a 6% increase on H1/23 (1% organic growth), helped by the addition of the EstateSales.Net (ESN) marketplace last year, which performed well in the period. Total marketplace revenue increased 2% (organic), driven by growth in value-added services (VAS) and event fees, offsetting a decline in commission revenue (mainly through lower asset prices).

Morning Note – 17 April 2024

Touchstar - Full year results: Recurring revenue strategy delivers further profit growth

Touchstar is a supplier of mobile data computing solutions and managed services to a variety of industrial sectors. This morning's full year results reflect the outcome of a multi-year strategy coming to fruition for the group, with recurring revenue growth of 8.7% delivering overall revenue growth of 7.1% and in turn a 60% increase in PBT to £0.7m. Over the past few years, Touchstar has focused on enhancing the returns from their product offering through a shift towards recurring software licen

It’s not what you sell, it’s the way that you sell it

This report is intended to help UK small- and mid-cap investors gain a better understanding of software companies’ routes to market, and to highlight how one of the most important facets of the way in which they grow and deliver value is routinely ignored.  We examine sales processes for six UK-listed companies and one that has recently been taken over, and consider why they have followed their respective paths.

Engage XR Holdings - Expanding from FY23, FY24E forecasts reiterated

ENGAGE XR’s FY23 results show revenue and net cash in line with the February trading update, EBITDA ahead at -€4.0m vs -€4.5m due to the split of cash outflow between opex and working capital, and a confident outlook that leads us to reiterate our FY24E forecasts. FY23 revenue for the core ENGAGE platform was unchanged vs FY22 at €3.3m, as H2 23 revenue was impacted by the record seven-figure contract announced in February shifting to 2024, and several enterprise customers scaling back renewals

LIBERUM: Cirata plc: Cirata from the flames

Initial Equity Trading Comments - 19 February 2024