The report was prepared by Dom Maklerski BDM at the request of the WSE as part of the Exchange's Analytical Coverage Support Programme
SELL
(PREVIOUS: HOLD)
TARGET PRICE 7,5 PLN
7 OCTOBER 2022, 12:50 CEST
SimFabric's results for Q2'22 turned out to be worse than our expectations and estimates previously presented by the company (beginning of September). The costs of external services increased significantly above our expectations, which is related to the projects implemented by the company, which also translates into a reduction in our forecasts for the next periods. Moreover, in recent days the company's main shareholder (PlayWay) has started the process of withdrawing from involvement in SimFabric (it plans to sell all shares = 2.81 million shares). Despite PLW's lack of involvement in supporting the SIM business, we think that this is a big blow to the company, because having such a shareholder is undoubtedly a great asset (including credibility) for this type of entities. In addition, we point out the risk of potential additional emissions in connection with the construction of the Space Engine Lab. Additionally, disappointing is the continued lack of information / communication with the market and players regarding the most important implemented projects. With the above in mind, we are downgrading our recommendation from HOLD to SELL, setting our target price at PLN 7.5 / share, which is 22% below the current market price.
PlayWay wants to sell up to 2,810,000 SimFabric shares, representing 44.96% of the company's share capital (the market value of the stake is PLN 29.8m). Despite the fact that PlayWay was not an active shareholder and did not support the company in business, having such a shareholder is undoubtedly a great advantage for this type of entities. PLW reports that it made its decision by examining the synergy of activities of the group companies listed on the main market of the Warsaw Stock Exchange, as well as the convergence of their development strategies. The transaction is expected to close on October 14, 2022. At the current price of PLN 9.7, our forecasts for 2022. imply the company's ratios at the following level: P / E adj. = 21,1x, EV / EBITDA = 10,7x. The average daily turnover of SimFabric shares over the last month was only 614 shares per session (approx. PLN 6.6 thousand).
The company's results for Q2'22 turned out to be below our earlier estimates presented at the beginning of September and below our expectations, therefore we perceived them negatively. In the discussed period, SIM generated PLN 2.4 million in revenues (-1.0% y/y). In Q2'22, operating expenses amounted to 1.9 million (+ 7.7% y/y). As usual, the highest cost was related to the production of games, and the costs of external services amounted to PLN 1.3 million (+ 11.8% y/y) and were much higher than our expectations, therefore we perceived them negatively. This item also contributes to lowering our forecasts for the following periods. In the last quarter, the company generated PLN 1.1 million EBITDA (+ 11.8% y/y), and at the level of net profit, n.a. it managed to generate PLN 0.3 million (+ 55.6% y/y).
In our recent recommendations, we believed that due to the production progress (the company posted PLN 14.9m / EUR 3.3m in revenues from three games created under publishing agreements vs EUR 3.6m contracted), we are close to declassifying the three most important company projects and their debuts. In June 22, the company took part in the Steam Next Festival, where demo of one of its most important games, ie "ElectriX" (peak = 52) was presented. We hope that this title will make its debut this year, but following the demo we are lowering our expectations for this project. The company is slowly starting to come out of the shadows with its smaller products (among others, demos of games such as: "My Demon Wife" - peak = 18; "Mushrooms: Forest Walker" - peak = 11), however, we have still not obtained any new information / materials neither from the developer nor the publisher (Koch Media, Nacon) on other more important games in terms of sale potential.
This year, SimFabric will start the construction of a CBR (Space Engine Lab) with a total value of PLN 25.1 million (the value of eligible costs is PLN 19.6 million, of which the amount of co-financing is approximately PLN 11.8 million). The rest of this cost (PLN 13.3 million) will be covered by the company from its own resources (at the end of Q2'22 it had PLN 7.1 million) or it will be supported by an additional share issue. Bearing in mind, inter alia, the fact that the financial cushion is very important in gamedev, we think that there is a high risk of the second option (share issue) coming true.
Analyst: Krzystof Tocz Dom Maklerski BDM S.A.
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